Weak Seasonal Period Approaches
Weekly Notes With Tiho — Issue 15
Location: Kotor Bay, Montenegro
Autumn is here.
Weekly notes will be a little lighter in the month of September, as I am slightly more preoccupied with a real estate side project and extensive travel.
However, you should expect Weekly Notes write ups from time to time, especially if market volatility rises.
Side Note: Those who are subscribed to me for personal one-on-one consultations and monthly commentary can continue to expect the same volume of information and details for executing investment themes. If you have interest in establishing a similar relationship, please do not hesitate to contact me.
The Week That Was
Foreign stocks continue to lead the charge on the upside. Emerging markets — especially Chinese equities — were the best performing major asset class, yet again.
Japanese stocks disappointed.
Priced in US Dollars, Japanese stocks have not performed well since March 2009 lows.
Truth be told, priced in USD, Japanese equities have not performed well since February 1989.
There within lies the opportunity.
Recent break out above a major resistance zone is a positive development.
In a perfect technical world (which usually doesn't occur), it would be nice to see a slight correction and a pullback towards a previous resistance.
A successful test would give an investor confidence that prices are ready to rise further.
I continue to watch this one.
Japan was one of only four country indices that declined last week.
Nigeria, Pakistan, and Qatar were the other three, although all declines were rather mild.
It was Poland, China, and Turkey that posted big gains, all up more than 5% for the week.
Furthermore, fifteen country indices posted gains above 2%. The much-loved market darling of the investment world — Nasdaq 100 (QQQ ETF) — was up around half a percent.
Despite a shallow correction thus far, risks still remain for the US equity market.
Looking At Weak Seasonality
As an investor, you are entering the most volatile part of the trading year.
The month of September and October have seen more corrections, more drawdowns and more crashes than any other.
More importantly, this is no ordinary year.
This is a year that ends with 7, and those aren’t too bullish historically speaking.
The great sum of charts seen above, which appeared on my Tweeter account thanks to The Leuthold Group, explains the bearish seasonal phenomena that have infected the US stock market DNA over its lifetime.
Let me be clear here.
There are no guarantees when it comes to investing.
No indicator, no correlation, no seasonal pattern, no model, no backtest and no trading system can always work perfectly.
Nor will it always deliver on what it has done historically.
Having said that, as an investor, you are dealing with probabilities.
August to November in years ending with 7 clearly tends to be a great example of how equity markets have offered below average returns.
Expect Volatility To Rise
When we take into consideration the complacency of investors (low volatility), narrowing of stock market breadth and bullish sentiment I have already discussed in previous posts, it most likely increases the probability of a negative outcome further.
I have turned more cautious and defensive on behalf of my clients. As such, risk aversion mode is the primary objective, where protection of solid year to date gains is a priority.
Nevertheless, that does not mean we are running for the hills and not looking at new opportunities.
From foreign stocks to credit markets, and from precious metals sector to foreign exchange — there are interesting trends developing.
If you would like to know how I am positioning my client’s portfolios for the second half of 2017 and which asset classes I’m overweighting — get in contact by clicking below and filling out the brief survey.