Rutherford Portfolio Review (Tranche 4): 8 July 2022

Statue at Dom Cathedral, Regensburg, Germany

A bullish week in US equities raised values ~2% and leaves prices at the top end of the recent downtrend channel:

With the most recent low being higher than the prior low (and low of the year) we will now have to see if prices take out the prior high (~393) and (technically) confirm a switch to an uptrend – or whether the channel holds prices in a continuation of the current downtrend.

In terms of performance relative to other asset classes:

US equities came out at the top of the list of weekly performers with Bonds and Commodities showing negative returns.

The Rutherford Portfolio is currently heavily invested in Commodities (DBC) and Gold (GLD)

although we have reduced holdings in GLD over the past couple of weeks. Tranche 4 (the focus of this weeks review) is holding positions in DBC, GLD and AOR (the benchmark AOR equity/bond fund) and this has resulted in the following performance:

While Commodities and Gold helped us clearly outperform the benchmark over the first six months of the year recent weakness has given up some of these gains although we are still ahead of the benchmark.

Let’s check on rankings and recommendations from the BHS model:

where we see Sell recommendations for all assets in the quiver and not much green in either the shorter term HA signals or the EMA signals.

This is clarified by a look at the rotation graphs:

where the earlier strength of DBC and recent weakness is clearly seen. If we remove DBC from the chart we can get a better picture of the other assets:

This picture reflects the dilemma that we often face – assets that have shown the strongest long-term strength (those furthest to the right along the horizontal axis) are weakening (relatively), both in the long-term (right to left movement) and short-term (top to bottom along the vertical axis). Meanwhile, some of the previously weak assets are showing relative strength (moving left to right and/or down to up). However. absolute momentum may still be negative, so when should we switch? I am still trying to figure out how we might use these graphs to answer that question.

In the meantime, I’m also checking the HA charts. Last week I showed the chart for TLT:

and this week I’ll add VNQ:

and VWO:

TLT and VNQ look positive in terms of short term performance – but, as we know, this may not persist and we can easily become subject to whipsaw trades if we rely too heavily on short-term signals. VWO is not looking quite as attractive despite it’s better looking position in the rotation chart.

Before making any decisions we’ll just check recommendations from a rotation model:

and, again, we see nothing but Sell recommendations.

This all poses a big dilemma – including the option to move to Cash and wait for Buy signals.

However, what I have decided to do is to sell current holdings in DBC and GLD (but hold on to AOR) and to use a portion of the cash proceeds to buy shares (25% allocation) in TLT:

This will leave me with ~$8,000 Cash (that I may put in SHY) for future acquisitions.