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BWC Market Update - February 9, 2018

Economic Comment

This past Friday, the monthly jobs report came in a little above consensus at 200k jobs added, which was quickly overshadowed, when the real fireworks began. The market sold off 665.75 points in the Dow Jones Industrial Average (DJIA), -2.12% on the S&P 500 and -1.96% on the NASDAQ. This sell off momentum continued on Monday with the DJIA down at one point by 1,500 points during the session. After a year like 2017 with record low volatility, it only took four weeks into 2018 to reach record high volatility. Our indicators have gone through some important changes so let’s review them.

Bullish Percent’s, (Data source: Dorsey Wright, see definitions at the end of this report.)

10 Week- Bullish Percent (Short-term): To say the 10-week has been on a wild ride is an understatement. In January of 2018, the 10-week was very overbought, peaking at 74%. Then Monday the 10-week was very oversold, hitting 26%. Due to the straight up moves in the equity markets the first week of January, this short-term indicator has risen to overbought at 68%. Do not be surprised by any sharp rallies.

Optionable-Stock Bullish Percent (Intermediate term): Now on DEFENSE. Monday’s action saw this indicator flip to defense and most of the week continue to decline to 52% from the high of 66% reached in January.

NYSE Bullish Percent (NYSEBP) (Longer-term): Now on DEFENSE. Down to 56% from the high in January of 70%. (Source: Dorsey Wright)

Point and Figure Charts (Source: Dorsey Wright)

S&P 500: We don’t typically relish being right, but we have pointed out in our last several notes the “parabolic” rise in the S&P 500 and how these are usually resolved with steep sell offs. The S&P 500 is whipping back and forth and trying to establish a base. It could be some time before this base is reached. 2,600 is now first support. The low of 2,600 may need to be challenged before some type of base is established. (Source: Dorsey Wright Website)

S&P 500

SP500 2.9.18

Horizontal Axis: Time (numbers represent months, for example, 1=January 2=February and so on, when you reach October, months are represented as letters, A= October, B= November & C= December).
Vertical Axis: Price

NASDAQ

Same parabolic “moon shot”, same sharp selloff, although 6800-7000 could be the start of forming a base.(Source: Dorsey Wright Website)

NASDAQ

NASDAQ 2.9.18

Horizontal Axis: Time (numbers represent months, for example, 1=January 2=February and so on, when you reach October, months are represented as letters, A= October, B= November & C= December).
Vertical Axis: Price

US 10- Year Treasury note: After the first week of 2018, it looked like the 10-year treasury was going to be in a trading range. It then took off on the upside after breaking 2.6% to reach 2.85%. The fear trade, (selling stocks, buying bonds) has seen rates come down slightly. We still think that this is a good buying opportunity in 2018 for bond buyers at these levels. (Source: Dorsey Wright Website)

10-year Treasury

10yearTreasury 2.9.18

Horizontal Axis: Time (numbers represent months, for example, 1=January 2=February and so on, when you reach October, months are represented as letters, A= October, B= November & C= December).
Vertical Axis: Price

Crude Oil, continuous Crude Oil has been on a nonstop rally for most of 2017 and that momentum has continued so far in 2018. It looks like crude oil may be taking a breather, but we still believe that higher crude oil prices are in the cards for 2018. (Source: Dorsey Wright Website)

CrudeOil 2.9.18

Conclusion

The question on every investors mind is “Now what?” After a parabolic advance and then a blow off, we have experienced an incredibly volatile week. In 2017, there were no 3% or 5% pullbacks. Every 1% pullback was the only buying opportunity. However, we have learned long ago the old investor’s adage, “changes in volatility, signal changes in market direction”. This week marked a huge change in volatility with indicators like the VIX index reaching levels not seen in years. There has been a lot of news about weird VIX products that blew up this week. All that aside, our indicators did solidly change to DEFENSE this week. The markets could continue wild, whip saw rallies and declines and there may be some opportunities, but we are being very cautious and reviewing our client’s asset allocation and strategies. At some point our indicators will sound the “all clear”, but at this time it is really too soon to tell.

Click on the link, below to view the YouTube Video where I talk about “parabolic” markets.
https://youtu.be/mH_ztK2w_T4

Have a great weekend!

Beirne Wealth Consulting Services, LLC (“BWC”) is a growing, privately owned, SEC Registered Investment Advisor* with just over $2 billion in assets under advisement and 22 employees in Connecticut, Pennsylvania and Florida. BWC provides independent, fee-based investment management services and customized financial planning solutions. Our institutional business provides consulting expertise to defined benefit and defined contribution plans, endowments, foundations and non-profit organizations. Our private clients include high net-worth individuals and prominent families, many of whom bring complex wealth management challenges and multigenerational planning needs. For more information, please visit www.beirnewealth.com or give us a call today at 888-231-6372

*Registration does not imply a level of skill or training.

© 2018 Beirne Wealth Consulting Services, LLC (BWC). All rights reserved. Reproduction or Use without permission is prohibited.

This market update is not intended to be a client‐specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this update as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon.
Information contained herein has been obtained from a range of third party sources. While the information is believed to be reliable, BWC has not sought to verify it independently. As such, BWC makes no representations or warranties as to the accuracy of the information presented and takes no responsibility or liability (including for indirect, consequential or incidental damages) for any error, omission or inaccuracy in the data supplied by any third party.


Bullish Percent Definitions

NYSE Bullish Percent: This is a major market indicator, which tells us whether to be on the offense or defense. It is calculated by dividing the number of NYSE stocks trading on point and figure buy signals by the total listed on the Exchange. The percent of stocks on buy signals in is then plotted on a grid from 0% to 100%, where each box equals 2%. Levels above 70% are generally considered overbought, and below 30% are considered oversold. The best buy signals come when the NYSE Bullish Percent goes below 30% and then reverses up (must reverse 6%). The best sell signals come when the indicator moves above 70% and then reverses below 70%. The most important concept to keep in mind is field position and what team is on the field. When the NYSE Bullish Percent is in X's, the offensive team is on the field and wealth accumulation strategies are the focus. Conversely, when the NYSE Bullish Percent is in O's, the defensive team is on the field and wealth preservation strategies are the focus.

The Bullish Percent can also be calculated on various indices, for example, the 10-week BP is a short-term indicator and is calculated on 10 weeks’ worth of NYSE price data. The optionable stock bullish percent is calculated off the index of all optionable stocks on the NYSE.

Asset Indexes

An index is unmanaged and not available for direct investment.
Dow Jones Industrial Average is a price-weighted average of 30 U.S. stocks traded on the New York Stock Exchange and NASDAQ.
Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index.
S&P 500 Index is a capitalization-weighted index calculated on a total-return basis with dividends reinvested. The index includes 500 widely held U.S. market industrial, utility, transportation and financial companies.
A 10-year treasury note is a debt obligation issued by the United States government that matures in 10 years. A 10-year Treasury note pays interest at a fixed rate once every six months and pays the face value to the holder at maturity.

The NYSE Composite (^NYA) is a stock market index covering all common stock listed on the New York Stock Exchange, including American depositary receipts, real estate investment trusts, tracking stocks, and foreign listings.

Historical Futures Prices: Crude Oil Futures, Continuous Contract #1. Non-adjusted price based on spot-month continuous contract calculations. Raw data from CME. For more on the roll algorithm used please see this page: https://ww.quandl.com/collections/futures/continuous.

https://www.quandl.com/data/CHRIS/CME_CL1-Crude-Oil-Futures-Continuous-Contract-1-CL1-Front-Month

Relative Strength Calculation Explained: Tactical decisions are made utilizing the research and evaluation techniques of Dorsey, Wright & Associates who has extensive expertise in a technique known as Point & Figure charting. This type of analysis attempts to evaluate the supply and demand forces of particular asset classes and ranks the asset classes from strongest to weakest based upon relative strength (RS). We feel asset classes can be ranked similar to the way one might rank sports teams. If you think about your favorite sport, they rank teams based upon how well they perform against their opponents. The more games, matches or races won, the higher in ranking the team will go. We believe the same thing can be done in the investment markets. In the financial markets, a “game” is played each day and it consists of comparing the daily performance of one asset class to another. Each day we compare asset classes to one another to determine which asset classes are the strongest or weakest compared to one another. The ranking process is comprised of the following 4 steps and represents DWA's Tactical Portfolio Research strategy ("the strategy").

5steps

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