Rutherford Portfolio Review (Tranche 3): 3 December 2021

It was a nervous week in US equity markets with the SPX Index closing down ~ 1.2% from last week’s close.  However, there were four days with ~100 point ranges and Implied Volatility (lower panel) has increased significantly:

The above chart shows prices for SPY (since SPX data isn’t coming into my platform at the moment) but these are just one tenth the size of the SPX. The other significant observation is that, on Wednesday, the pullback from the highs hit resistance (in seven trading days) at the 50% retracement level of the prior bullish trend.

Where does this fit in with the behavior of other asset classes over the past week?:

As we can see from the above screenshot, VTI (US Equities) came in at the bottom of the list with only DBC (Commodities) performing worse. Bonds were the best performing assets in this period.

The weakness in US equities triggered my TSLO on VTI on Friday as shares were sold out of all tranches leaving the following positions:

Maybe a little surprisingly, TSLOs on DBC were not triggered – although they are pretty close to current prices (at $18.75).

Performance of the Rutherford Portfolio is looking like this:

with a significant drop over the past 2 weeks. The portfolio is presently holding 30% Cash – that would probably be a good thing if we see further weakness but likely to hurt if we get a bounce. I still hate to use TSLOs 🙂 .

We’ll check current rankings and recommendations from the BHS model:

where we only see Hold recommendations for DBC and GLD with Sell recommendations for all other assets.

Moving on to the rotation graphs:

the recent weakness in US equities is seen in the strong downward movement of VTI despite it’s relative strength over the longer term (denoted by it’s position along the horizontal axis). TLT is confirming the short term strength noted in the table above with strong upward movement in this graph. VNQ is also looking relatively strong in the short term and also strengthening slightly in the longer term time frame. DBC is not shown in the above plot because the relative movement of this ETF swamps everything else both in the short and long term – but not in a good way.

Checking recommendations from a rotation model:

shows Buy recommendations for VTI, VNQ, TLT, GLD and AOR (benchmark). Although I normally set the maximum number of assets to 4 I have increased this to 5 for the above screenshot since VTI was sold out of the portfolio on Friday. This brings TLT in as a Buy recommendation due to its short term strength as reflected in the green HA signals.

Based on the above information my adjustment for this week will look something like this:

i.e. I will sell the shares of DBC held in Tranche 3 and Buy 32 shares of TLT. I will continue to hold the shares in VNQ and AOR (that partially satisfies the VTI Buy recommendation from the rotation model recommendations).

It will be interesting to see where the markets go from here into the end of the year. Will Santa Claus show up – or will the Grinch steal Christmas.

David