Big Picture Continues To Align With Bullish Case For Stocks
Chris Ciovacco | Jan 16, 2014 12:26AM ET
Leadership Provides Insight Into Market’s Tolerance for Risk
Supply and demand is a simple and powerful concept. When investors are confident about future economic outcomes, they gravitate toward growth-oriented and higher beta ETFs. When investors are concerned about the economy and earnings, demand for conservative assets, such as consumer staples and bonds, begins to increase. There is a reason monitoring the big picture was included in the December 27 ; it continues to align with a bullish or “risk-on” environment for investors. The three steps confirmed a bearish reversal in consumer staples relative to the S&P 500 Index.
Investment Implications – Staying Long Until Evidence Shifts
After Monday’s equity selloff, we reduced our exposure to stocks in an incremental manner noting:
Incremental risk reduction admits “we could be wrong here”, meaning if buyers step in at the trendline below, we still have exposure to stocks, just not as much as we had last Friday.
The trendline and chart we referred to after the close Monday is below.
As you can see below, buyers did step in near the blue trendline and stocks rallied.
The small incremental change to our allocation allowed us to enter Tuesday’s session with a still significant exposure to stocks, permitting us to participate in the big gains Tuesday and Wednesday. The market’s risk profile continues to call for equity exposure. Consequently, we continue to maintain positions in U.S. stocks (VTI), financials (XLF), technology (QQQ), small caps (IJR), Europe (FEZ), and global stocks (VT).
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