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Market Stance Change: From Bearish to Neutral

Due to data improvements we have seen over the past few weeks, our short-term outlook has changed from bearish to neutral on March 24th.

What does this mean? 

A neutral bias suggests that there may be a high likelihood that we are in a broad sideways trading range with the numbers we saw on February 11th (1812 on the S&P 500) defining the low end of the range and S&P 500 at 2150 defining the high end.  In this environment you typically see rolling sector rotation as strong sectors are sold and lagging sectors are bought rather than everything going up together.  This is what creates the sideways pattern in the general averages while investors struggle to consolidate opinions on the direction of the overall markets.

In response to the improvement in our factor models to neutral, we will take advantage of the relative performance spread of small caps versus large caps by adding varying levels of equity exposure, defined by the risk profile of each account, into our models.

What Changed?

  • The S&P 500 has maintained above its risk on level for more than a week
  • Our Sentiment Composite indicator has moved from extremely bearish to neutral
  • An indicator based on defensive sector relative strength is moving closer to turning bullish
  • Emerging markets, high-yield and oil have recovered sharply and are holding the gains
  • The U.S. dollar has been declining
  • The LEI ticked up after 3 months of decline
  • The latest to join the bullish contingent is the percentage of stocks above their 200-day moving averages

Final Thoughts:

Probabilities suggest that the recent price gains could carry enough momentum to send the market even higher over the near term. However, we will continue to monitor any further rallies closely for signs of renewed weakness in terms of increasingly selective strength and slowing demand. Our indicators that look at broad based participation of stocks should be of special importance, as a non-confirmation of market highs by these indicators would likely signal the final termination of the rebound rally. If these non-confirmations fail to occur we could see the averages work higher into a much broader trading range, especially small caps, which have significant room on the upside to play “catch up”.  We will therefore look to adjusts allocations based on this thesis until proven otherwise.

Bottom Line: 

We are now neutral (with a bearish bias), but there is still significant downside risk in the market. Long-term planning/investment clients should expect to us to use a large percentage of cash and expect more frequent trading to mitigate investment risk until the indicators line up to create a more favorable longer term reward-to-risk environment. 


This commentary on this website reflects the personal opinions, viewpoints and analyses of the Gainplan LLC employees providing such comments, and should not be regarded as a description of advisory services provided by Gainplan LLC or performance returns of any Gainplan LLC Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Gainplan LLC manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

Categories: The Market

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