Rutherford Portfolio Review (Tranche 4): 21 October 2022

Autumn Leaves

It was a good week for US equity markets with a 4.5% bounce higher from last week’s close:

However, I still don’t think that it’s clear where we go from here. We are clearly in a longer term down channel (A to D) that started at the beginning of the year and is defined by 2 Standard Deviation (blue) boundary lines. Within this is the 1 Standard deviation (white) channel where we have spent most of the time. At the moment we are sitting at the top of this 1 SD channel and the question is whether this will act as resistance (also ~50% of CD extension range) or whether we will see a breakout into the wider 2 SD channel as we saw in August (C). Even then we are strictly still in a downtrend until we break through the upper 2 SD boundary. So far the ~3600 level, at the 61.8% Fib extension zone and prior pivot low (B) has provided strong support – but do we need another test of this support? Next week may give us a clue – although prices have moved sideways in the 3500-3800 range for the past ~month.

US Equities topped the list of the major asset classes in terms of performance over the past week:

Other global equity ETFs also performed well with Bonds and Commodities generating negative returns.

The Rutherford portfolio is presently sitting 100% in Cash so has sat out on recent volatility (both up and down):

and is staying above it’s benchmark performance level.

If we check on current rankings and recommendations from the BHS model:

we do see a Buy recommendation for VTI (US Equities).  However, since I have officially changed over to the rotation model for choosing holdings for this portfolio we’ll check the rotation graphs:

where we don’t see a lot of strength – especially when SHY is showing as the strongest performer (on a relative basis) and is in a downtrend itself.

Rankings and recommendations from the rotation model look like this:

i.e with no Buy recommendations even though VEA has a score of 9.  The lack of a Buy recommendation results from the fact that the algorithm that I am using requires that that the 13-period EMA should be higher than the 49-period EMA and, at the moment, it is not.

The VTI chart looks very similar, so, I will be staying out of equities for at least another week and will continue to sit on the Cash.  Aggressive investors might consider the idea that Lowell uses of placing limit orders at some percentage below the current price.  Although I would classify myself as a counter-trend “trader” – and hence would be comfortable using Lowell’s entry method – as a Momentum “investor” this seems a little against the whole idea of momentum investing, so I generally do not use this entry method – I would be more inclined to sell when a prior high was taken out (i.e. supporting the positive “momentum” concept).

David