Weekly Update

March 18, 2016 Update

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Are stocks in a bull or bear market?

Stocks have ripped off a four-week +11% rally after staring into the abyss during a very turbulent January and February. The bear market calls grew as the year got off to the worst start in history. By some measures, clues to a coming bear had been foretold months before. After all, the market for most stocks peaked almost a year ago now, back in April 2015. Since then, it’s been a rough ride with 2 drops of -10% and subsequent sharp snapback rallies.

Chart 1: Long-term signal said to Sell middle of last year

 Long-term signal said to Sell middle of last year

You can see above that neither of these rallies has made a dent in the slowly arching “rollover” of the market.

Since hitting 2100 on the S&P 500, stocks have struggled to make any progress. Prior breaches of the long-term trend have brought larger declines. With central banks digging deeper and deeper into their bag of tricks, will markets be able to fend off yet another challenge to the rally that just celebrated its 7-year anniversary?

Chart 2: Stocks spending much time below trend

Stocks spending much time below trend

In the meantime, here is a shorter-term view of the market’s slow roll.

Chart 3: Stock market appears to be slowly rolling over to a bearish period

Stock market appears to be slowly rolling over to a bearish period

We see that stocks are very near a point where this rally should fail and another downtrend begin.

However, if dividend stocks are our guide, all is well and more uptrend is at hand.

Chart 4: Dividend stocks push to new highs


Who knows which one of these charts is “right”? For us, it’s good to have a mechanical strategy that can go long or short where we don’t have to make the decision either way!

Am I on track to fund my retirement?

Below is another table from JP Morgan’s excellent Guide to Retirement. This one shows how much money we need to have accumulated at various ages and salary levels. Of course, everyone’s financial situation is different and the numbers shown on the table are only a rough starting point to a bigger thought-process on wealth accumulation. Nevertheless, we thought it was a handy table.

Chart 5: How much wealth should I have at this point?

How much wealth should I have at this point?

Market Update

Stocks eased into the week with little movement on Monday, with the Dow and Nasdaq Composite closing slightly up while the S&P500 closed down for the first time in four trading days. Notable was the 4% decline in oil prices likely resulting from Iran’s unwillingness to concede to Russia’s proposed production cuts. Tuesday markets opened lower and rose modestly throughout the day but still closed slightly lower with daily trading volume the second lowest for the year as investors largely held out for the Wednesday Federal Reserve rate policy announcement.
Wednesday did not disappoint as the Fed held rates steady and changed their forecast for two rate hikes this year as opposed to the previously planned four. Investors had a sigh of relief and stocks rallied Wednesday afternoon and the remainder of the week, with both bonds and stocks rising, especially risk assets including emerging market stocks and commodities-related sectors. The loser in the Fed announcement was the dollar, as the Deutsche Bank U.S. Dollar Index (UUP) fell nearly 1.5% from the day high to the close on Wednesday — a massive move.

Warm wishes and until next week.