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Friday, January 25, 2019

No Destruction

By Justin J. Kumar

There was a relatively flat week for stocks after an earlier drop intraweek that did see some recovery. While we are still on a Global Sell, we are seeing some advances that could turn the tide into a Global Buy, which would give us a rotational signal to change the holdings in our portfolios. Our Universe Trend Indicator has jumped off the bottom, but we are only about halfway towards seeing the changes that we would like to know that enough of the stocks tracked are switching trend from negative to positive. If we drill down into the Emerging Markets, then we are seeing a stronger reversal. While US markets were in more of a protracted selloff, the Emerging Markets saw some stronger moves and additional positive movements in January. There could be some lasting developments that would make the Emerging Markets potentially outperform the Developed Markets, but we would need further confirmation to know more surely.


The Tactical Indicators have continued to build strength and progress this week. The 10-week Indicator has held its continued increases over the past few weeks. From the Low Risk points, we have now risen to almost the 66% level. The short-term upside momentum would appear to be on track as more stocks are rising above their 50-day moving averages. We will have to see if there is some continuation buying to take us to the High Risk levels over the next several weeks or if a resistance may reverse the upswing. The Overbought/Oversold indicator has reached the Overbought level, now more than 7% above the Trend Average, and it could continue to the Highly Overbought level with positive market action. The MSCI All-Country World Index has moved above the 485 level, so it is rapidly approaching that 500-level that we have noted previously. Over the short-term, we have seen a flatter yield curve for bonds. We have seen a record outflow from stocks, so there could be a strong inflow, as many investors may not want to mistime the market movements. We are not seeing the data support a recession forming.


This week, we discuss some of the economic indicators that we have observed as well as some of the market action that has taken place around the globe. For positions and performance data, please view the Weekly Update video. If you are not yet a member of the Investor Education Institute and would like a risk-free 90-day trial, then please click on the following link and let us know that you found us through our Blog: Complimentary 90 Day Trial.


Important Disclosures

The Investor Education Institute (“IEI”) is not an investment adviser registered with the U.S. Securities and Exchange Commission or any state.  The IEI publishes financial publications of general and regular circulation that offer impersonal advice and disinterested commentary and analysis.

The IEI utilizes a Proactive Asset Allocation Model (“PAAM”) that is designed to provide insight into investing in today’s financial markets. PAAM utilizes quantitative-based buy, sell and reallocation indicators, selecting from US and global securities, in seeking to achieve attractive risk-adjusted returns over a long-term investment horizon. As with any investment strategy, IEI has in the past, and may in the future, modify this investment approach and parameters of PAAM in any manner which it believes is consistent with the strategy’s overall investment objective.  In that light, the following material modifications were made to PAAM: in February 2009 (creation of Universe Trend and Cash Comparison Indicators for trend analysis), June 2009 (creation of Long-Term Momentum Indicator for trend analysis), September 2009 (expanded Asset Class Ranking System and started computerized testing), December 2009 (creation of Global Indicator Set for buy and sell signals), April 2010 (inception of PAAM Computer Model), October 2010 (implementation of Tactical Indicators and Signals for short term risk management), January 2011 (modify Global Sell Signal with additional criteria including pattern determination), June 2011 (close Global Signals with stop loss criteria), September 2011 (inception of Long Only Model), May 2012 (modify Global Buy Signal wait period to enhance signal timing), October 2012 (first use of Stock Model), November 2012 (implement ETF replacement criteria), December 2012 (additional historical data for Cash Comparison Indicators), November 2015 (modify Global Buy Signal with additional criteria), June 2016 (modify Tactical Sell signal criteria), May 2018 (expanded Asset Class Ranking System, Tactical Asset Class Selling, Mini-Buy signal implementation); however, none of these changes modified the objectives or overall investment strategy of PAAM. Rather, as noted previously, IEI made these changes to seek to enhance the manner by which it runs PAAM, and thus each change, individually or in the aggregate, might have impacted the performance of PAAM (either positively or negatively, depending upon the efficacy of the changes(s)) after their implementation.  For more information regarding any of these material modifications, please contact IEI at 1-800-504-8505.

The performance returns and investment strategies presented use PAAM and do not represent the results of actual trading using real assets. PAAM performance returns reflect the assumptions, views and analytical methods developed by members of the IEI. Hypothetical or model performance returns have certain inherent limitations. Unlike actual performance results, model performance results do not represent actual trading and the results may have under- or over-compensated for the impact, if any, of certain market factors, such as market disruptions, lack of liquidity and the effect of interest rates. There can be no assurance that PAAM will perform similarly in the future.  No representation is being made that PAAM will or is likely to achieve returns similar to those shown. There frequently are sharp differences between the hypothetical or model performance results and the results subsequently achieved by PAAM when tracking performance results in real time. PAAM performance results are shown net of any assumed expenses or estimated fees (i.e., an estimated $10 brokerage fee per portfolio transaction), and reflect the reinvestment of dividends and other earnings. PAAM results shown reflect the hypothetical purchase and sale of securities using the average of the high and low price on the day the security was hypothetically transacted. Where a security was not available to represent exposure to a specific asset class, an index was used in its place. Past performance is not a guarantee of future results.

Any index information presented is included for comparative purposes, to show general market trends during the periods indicated, and is not intended to imply that PAAM is similar to the index (or indices) shown either in composition or element of risk.  The MSCI All Country World Total Return Index is a broad index composed of stocks from the US, Developed International and Emerging International markets.  It is shown for comparative purposes because it represents the areas that PAAM considers for inclusion in the model, however, it should be noted that at any given time, the PAAM model will include securities from a narrow subset of these areas.

The information presented should not be considered a recommendation to purchase or sell any particular security. The information shown is not tailored to any individual. There can be no assurance that any securities presented would be selected by PAAM in the future.  The securities listed for each model represent all portfolio holdings in that model as of the date shown.  Specific securities presented do not represent all securities that may be selected by PAAM for other models.  It should not be assumed that any of the securities presented have been or will be profitable.  The examples of specific investments are included merely to illustrate PAAM.

No graph, chart, formula or other device can be used to determine which securities to buy or sell, or when to buy or sell them. IEI makes no representation that any graph, chart, formula or other device shown can assist any person in making their own decisions as to which securities to buy or sell or when to buy or sell them.

You should consider risk and volatility in addition to performance when making any investment decision. The risk and volatility associated with PAAM may be significantly higher or lower than the risk and volatility of other investment strategies and/or products.

As with any investment strategy, there is potential for profit as well as of loss. All investments involve some level of risk, and an account that utilizes PAAM may not be suitable for your particular investment goals. This presentation is intended solely for informational purposes. The information presented  is in no way a solicitation or an offer to buy or sell any securities or investment advisory services. The information presented and any performance returns and sample investment portfolios contained herein do not consider specific investment objectives, financial situations or the particular needs of any individual investor who may view this presentation. You should seek advice from your financial advisor regarding the appropriateness of investing in any securities or in accordance with any investment strategy.

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For additional information, please contact us via phone at 1-800-504-8505, or via email at IEI@instituteforinvestors.com.