current view of the markets - cfa institute fred report... · (charts as of 01/20/15) by fred ......

TheFREDReport

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Current View of the Markets(charts as of 01/20/15)

By Fred Meissner, CMTwww.theFREDreport.com

© 2015 The FRED Report • www.theFREDreport.com • 404-875-FRED

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Overall Macro Views for 2015

• ThisshouldbeayearofvolaQlityandshort‐termtrendsforallmarkets.Traders,notinvestors,couldprosper.

• StocksareatriskforthebiggestcorrecQonsince2011.Thisshouldoccurinthefirsthalfof2015.Shouldthisoccurthesecondhalfcouldbestrong:targetrangeonSPYis223–229.229ispredicatedonQ1orQ2beingnegaQve.StocksareespeciallyatriskforhighervolaQlity.

• Bondspricesshouldhithighsinthefirstpartof2015.Traderssellbondsat134,ourobjecQvefortheyearonTLT.AlternaQvestotreasuriesshouldfarebe\erthanTLTin2015.WatchDSUM,PCY,andBKLN.

• GoldshouldhaveastrongfirsthalfandGLDcouldtest139.

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Overall Macro Views for 2015

• Oilshouldbo\omnolaterthanMarch2015.Wewouldexpecttheselowstoberetestednomorethan10weeksakerthelowestmonthlyclose.

• DBCshouldbo\ominthefirsthalfof2015.WatchDBAandthesokcommodiQes–theymaydobe\erthanconsensusexpectaQons.

• Currencymarkets:Astrongerdollarispossibleinthefirstpartof2015butitisextendedandshouldhaveaweakersecondhalf.TheYenshouldoutperformtheEuro.WearelongtheSwissFrancinourmodelsmovinginto2015.

• EmergingmarketscouldoutperformdevelopedEurope,especiallyifLaQnAmericastartstoimprove.WatchEWZ,ARGT,andILFtodetectimprovementinLaQnAmerica.SwitzerlandremainsourfavoriteEuropeanmarket.

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Chart: SPY – S&P 500 SPDR

© 2015 The FRED Report • www.theFREDreport.com • 404-875-FRED5

Chart: MDY – S&P Mid-Cap 400 SPDR


Chart: IJR – S&P 600 Small-Cap Index


Chart: NYA – NYSE Composite Index


Chart: SPY – SPDR S&P 500


Chart: PDP – PowerShares Technical Leaders


Chart: SPLV – PowerShares SP 500 Low Vol


The FRED Report PortfoliosThebiggesthurdlewehavehadinourcapacityas“PoroolioStrategist”atvariousfirms,isthatmostfirmporoolioswerenottacQcalenoughduetofirmpolicy,sotheseporoolioswillbeabitmoretacScalthanmostofferingsasweareunrestricted.Akeypointisthatmostoftheseporooliosandmodelswillbe“ObjecSvesBased”.BythiswemeanthateachporooliowillhaveanobjecQve,andmeeQngthatobjecQveismoreimportanttousthanstraightmarketoutperformance.

LargeCapandSmallCapSectorsObjecSve:Maintainafullyinvestedstanceinstocks,buttousesectorweighQngsto:(1)capturemoreupside,and(2)miQgatedownsideriskthantheSPYIndexETF(forLargeCap)andIJRIndexETF(SmallCap).

TimingModels(DomesQc,DevelopedInternaQonal,andEmergingInternaQonal):TheFREDTimingModelsaredesignedtousesomeoftheQmingtechniquesweusetoforecastmarketsintheFREDReport,withvaryingdegreesofrisk,duetotheconstrucQonandmoreacQvemanagementoftheETFsinthestrategies.

BucketList:The“BucketList”poroolioisdesignedtotaketheoverallsecQonsofTheFREDReportweeklyreportandlistsomeideasadvisorscanusebycategory.Wewillhave5categories:Stocks,FixedIncome,CommodiQes,InternaQonal,andChartofInterestorAreasofInterest.Wewillhaveamaximumof25unitsinthisporoolio,allocaQng5unitstoeachcategory.


10/13/15Update:• TIMINGMODELCHANGESANDCOMMENTARYWewillmovetheboththeDomesScHighBetaandHighRelaSveStrengthmodelsbacktoDefensivefromNeutralbybuyingoneSPLVineachmodelandsellingoneSPHBandPDPrespecQvely.Thereisenoughrisktosuggestthisiscorrect,andwecanrevisitlater.WewanttoseeindicatorsimproveTherearenochangesintheInternaQonalTimingModels.

• BUCKETLISTCHANGESANDCOMMENTARYIntheStockBucket,wehavenochanges,butstaytuned–ifthemarketgetsworsewewillmakesomechanges.IntheAreasofInterestbucket,weremoveEWIandaddIDLV.WealsoremoveUUPandaddFXF.TheSwissFrancisnearlong‐termsupportandusuallydoeswellduringEuroturmoil.IntheBondBucket,Nochanges.IntheInternaSonalBucketwesellEWGandbuyEWL,reversingadecisionatthebeginningoftheyear.IntheCommodiSesBucket,weremoveoneDBCandaddoneUSOtoplaytheseasonaloiltrade.

The FRED Report PortfoliosLargeCapSectorPorbolio:

LargeCapSectorsObjecSve:Maintainafullyinvestedstanceinstocks,buttousesectorweighQngsto:(1)capturemoreupside,and(2)miQgatedownsideriskthantheSPYIndexETF.

LargeCapSectorsweighSngmethodology:weusetwounitsasanequalweight,threeasanoverweight,andoneasanunderweight.


SmallCapSectorPorbolio:

SmallCapSectorsObjecSve:Maintainafullyinvestedstanceinstocks,buttousesectorweighQngsto:(1)capturemoreupside,and(2)miQgatedownsiderisk,thantheIJRIndexETF.

SmallCapSectorsweighSngmethodology:Wewillusetwounitsasanequalweight,threeasanoverweight,andoneasanunderweight.

The FRED Report PortfoliosTimingModelPorbolios

TimingandWeighSngMethodology:WeofferdomesQcandinternaQonalQmingmodelsforadvisorstochoosewithvariousdegreesofriskproducedbytheETFinstrumentsused(AggressiveandLessAggressive).Weusea4,3,2,1,0unitmethodologyforweighQngandconsidertheporooliotobeneutralwithtwo“highbeta”unitsandtwo“lowvolaQlity”unitspairedtogether.Abullish/aggressivestancewouldbethreehighbetaunitsispairedwithonelowvolaQlityunitandafullbullishstancewouldbefourunitsinahighbetainstrument.AdefensivestancewouldbeonehighbetaunitandthreelowvolaQlityunit.AfullbearishstancewouldbefourlowvolaQlityunits.


Fixed Income Section

FixedIncomeisthemostchallengingareaofthemarkets,andourbiggestconcernintheyearsahead.TLThasralliedtotargetsof134atthebeginningofJanuaryasforecast,fromourOctober2013buysignal,butthismayendin2015.If(when?)ratesstarttorise,otherfixedincomeareasmaystarttooutperform.WeshowTLTandsomecandidatesthatcouldoutperformbondsifratesstarttorise.


Chart: TLT – iShares Barclays 20+ Year T - Bond


Chart: CWB – SPDR Convertible Income Bond ETF


Chart: BWX – SPDR International Treasury Bond


Chart: PCY – PowerShares Emerging Markets Sovereign Debt


Chart: DSUM – PowerShares Chinese Yuan Bond Portfolio


Chart: BKLN – PowerShares Senior Loan Portfolio


The Commodity Theme and Inflation

AttheFREDReport,webelievedthatinflaQonwillwin,andcommodiQesshouldbeagreatlong‐terminvestment.Therecentdeclineinoilmayprovethiswrong.DeflaQonisaconcern.Webegin2015withbuysignalsingoldbutthismaybecurrencyrelated.Weexpectatradablebo\ominoilinthefirsthalfbutanylowshouldberetested.Oil’slong‐termoscillatorsareasoversoldas1986and2008.


The Commodity Theme and Inflation - DBC


The Commodity Theme and Inflation - GLD


PowerShares DB Oil Fund (DBO)


PowerShares DB Base Metals Fund (DBB)


International Review

• ThereconQnuestobeconcernsaboutEuropeanproblems,andthesemayworsen.

• SwitzerlandremainsthestrongestEuropeanmarketlongterm,butrecentcurrencymovescouldchangethis.

• EmergingMarketshavemorepotenQalthanconsensusexpectaQonsandweremainbullish.

• Asianmarketsarestrong,andJapanshouldimprovein2015aslongasFXYisbelow105.Chinaisaconcern.


iShares MSCI Switzerland Index (EWL)


iShares MSCI Germany Index (EWG)


iShares MSCI Italy Index (EWI)


Powershares International Dividend Achievers (PID)


iShares FTSE Xinhau China 25 (FXI)


SPDR S&P China ETF (GXC)


PowerShares Golden Dragon (PGJ)


iShares MSCI Japan Index Fund (EWJ)


iShares MSCI Emerging Markets Index (EEM)


PowerShares DWA Emerging Markets (PIE)


PowerShares S&P Emerging Markets Low Vol (EELV)


Technical Indicators

ReaderswillnotethatweusethesameindicatorsonallofthechartsinthispresentaQon.WeappenddefiniQonsoftheseindicatorsandareavailableviaemail([email protected])toanswerquesQonsaboutthismethodology.


Technicals DefinedMovingAverages:

MovingaveragesareoneofthebuildingblocksofTechnicalAnalysis,andtherearealmostasmanywaystousethisindicatorastherearetechnicians.AttheFREDreportweteachanduseadualmovingaveragecrossoversystemtodeterminetrend.Ourfavoritesarethe5periodand20periodmovingaverages.Weconsiderthetrendtobeupifthe5isabovethe20,anddownifbelowit.

StochasScs:TheStochasQcOscillatorisoneofthecommonlyusedmomentumoscillatorsandisstandardoncharQngprograms.Therearetwolinesonthechartbelow,%Kand%D.%Kisthefasterofthetwolines,andrepresentsamathemaQcalformulathatmeasureswherethecurrentcloseisinrela0ontothetradingrangeofthelast“X”periodsof0me.Weusea14periodlook‐back,soinplainEnglish%Ksayswherethecurrentcloseisinthetradingrangeofthelast14days,expressedasa%.

AttheFREDreportweuseitsomewhatdifferentlythaniscommonlytaught.Thestandardwaytousetheindicatoristoregisterabuysignalwhenitmovesbelow,andthenabove,20(thelowest20%ofclosingpricesinthelast14days).Asellsignaliswhentheindicatormovesabove,andthenbelow80(thehighest80%ofclosesoverthelast14days).

Theotherline,%D,isa3periodmovingaverageof%K.WehavefoundthattheStochasQcissensiQve,soweadvocatetakingsignalsonlyinthedirecQonofthetrend.WhenlookingatthestandardFREDreportchart,thiswouldmeantakingbuysignalswhenthe5isabovethe20,andsellsignalswhenthe5isbelowthe20,butusingadifferenttechniquetoexitposiQons.ThereasonforthisistheStochasQcisquitesensiQve,andcangiveearlyindicaQons,especiallyinnewtrends.Italsocanget“stuck”inthedirecQonoftrends,whichconnotesstrengthandnotweakness.Another,preferredinterpretaQon,istousetheindicatortomeasurerisk.Anexample:buyinanuptrend,notwhenthestochasQcisat90%butratherwaitunQlitfallsbelow50%,Thisway,evenifastock,commodity,orETFdoesnotgiveoneofthe“classic”signals,youcansQllusetheindicatortoassessrisk,andlegintoposiQons.


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–The Weekly Report, six pages discussing Stocks, Bonds, Commodities, International, and a Chart of Interest, published Mondaymorning.–A Midweek Update, which is generally two pages, updating the weekly report, published Wednesday.–The Monthly Review, which is a comprehensive review of all of the markets we cover, plus a research piece. It is generally fortypages.–FRED Alerts, or quick updates, in fast market conditions.

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ThispresentaSonwasmadepossiblebyTheFREDReport.FormoreinformaSon,visitusonlineat

www.thefredreport.com

TheFREDReport(www.theFREDreport.com)wasstartedtoprovideFinancialAdvisorsandinvestorsaccesstounbiasedmarketresearch.ThePresidentofTheFredReport,FredMeissner,CMThasbeenpracQcingTechnicalMarketAnalysissince1983andhasworkedintheresearchdepartmentsofMerrillLynchandRobinson–Humphrey/SmithBarney.InaddiQonhehasservedthepublicasaporooliomanagerandfinancialadvisor.Weknowtheproblemsinvestorsfaceandhavedevotedourcareertohelpingfindthebestpossibleinvestmentsinallenvironments.Interestedreaderscanalsoseehisworkeveryweekatwww.thestreet.com.

current view of the markets - cfa institute fred report... · (charts as of 01/20/15) by fred ......

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