This past week was a strong four business days for U.S. Equities despite the rise in Covid-19 cases and deaths. Unemployment dropped approximately two percentage points. However, another million workers applied for unemployment and this trend is likely to continue for a number of weeks as restaurants, bars, and gyms are once more shuttering windows. This yo-yo effect between the virus and economy is bound to upset the stock market over the next few months.
Five of the seven major indexes are bullish. Pay most attention to the NYSE and NASDAQ. There is one interesting disconnect and it is the link between the broad NASDAQ and the NASDAQ 100. Since the NASDAQ 100 is a sub-set of the broad NASDAQ, it is not unusual to see these two indexes moving in tandem. This past week the 100 jumped much higher on a percentage basis and this is due to large-cap tech stocks doing much better than the smaller companies one finds in the broad NASDAQ. We expect the large companies to do better in difficult times, but this is telling us that the tech equities market is not all that deep.
All sectors with exception of Staples moved up this week. Yes, Financials showed no change. We are a little better off than we were two weeks ago and much better than last week. None of the sectors are over-bought.
As Dual Momentum (DM) portfolios come up for review, pay attention to the recommendation regardless whether or not you use this investing model. The DM model provides an indicator whether or not U.S. or International Equities are in or out of favor. Further, when one of the lower volatile ETFs (LQD or TLT for example) are recommended, we know it is time to be cautious.
I’ve been lowering the number of assets or ETFs in a number of portfolios and will likely continue this trend as some of the very simple investment quivers are generating the best performance without increasing portfolio risk.
If you have not done so, now is a good time to set stop loss orders or TSLOs. I’ve been going through all portfolios setting TSLOs.