Dennis, Victor, et al ... my lack of participation on SI last week was due to a nice vacation down in the sunny Caribbean. Only a few days ago, sad to say, I was sitting in Sloppy Joe's Bar in Key West, munching on a basket of fresh fried shrimp, drinking a Margarita the size of Lake Michigan and listening to great live music. Just about as close to heaven as one can get, only to fly back and be forced to review a collection of some of the sorriest fund and index charts I have seen in a long while.
The market has established a well defined double top, and is possibly heading down to a genuine retest of its October 27th low. A failure to rebound at that point might just signify that the bear is coming out of the woods, which in the current investment environment is not too far of a stretch.
With the risk to reward relationship extremely unfavorable at this time, the issuance of an unqualified new buy signal at this time is a very chancy maneuver. Right now, the Utilities Growth fund is the only sector where I would consider making either a small new investment, or a nominal addition to a previously established one. Its last Buy signal was on 11/17, it is up 3.9% since then and ended last week at a new all time high.
Obviously, if one's Select Fund portfolio is completely in cash, it will take some extremely convincing evidence to justify leaving the sidelines in the current investing environment. Even in the case of those funds that are still rated as Holds, when one considers the high level of downside risk and uncertainty in the market at this time, the gains that they are providing are only marginally better than remaining safely in a money market.
For example, where Financial Services is concerned, I already issued a buy signal back on November 20th. This has produced about a 2.7% return to date, down from its maximum gain of 5.2% since the signal was first issued. Based on its technical charts, it can only be rated as a Hold at this time, since there are no indicators that is is in the process of generating sufficient upside momentum to rate an additional investment.
Where Select Fund investors are concerned, therefore, the primary challenge continues to be the location of those sectors that can, with a reliable degree of consistency, provide us with a satisfactory level of profits, and do any better than cash in a deteriorating atmosphere. Our choices in this regard, obviously, have been extremely limited recently, and there may be few additional options available until the earnings season actually begins in January.
At that time, on a sector by sector basis, we will find out which companies have survived the impact of the Asian virus better than others, and can invest with far more confidence if and when solid buy signals are generated. Most funds are significantly below their all time highs, so patiently waiting until buying opportunities arise is a far better approach than guessing or responding to quick spurts of activity. Case in point, Energy Services, whose sharp V chart a few weeks ago proved to be a false buy signal if one was looking for a sustained uptrend. I outlined the risk in responding to this type of chart at the time, and you can see the results so far. Sometimes, you just have to let a fund do what it will, even though there may be gains on the table, if the charts make an investment unreliable.
It is important, even in an aggressive sector fund investing strategy, to resist trying to constantly chase marginal returns, when the situation dictates extreme caution and a total, or significant, retreat to the sidelines. Running after funds for a few days, without genuine technical buy points and undefined sell limits, is rarely a satisfactory approach.
Keep all or most of your powder dry until the time is ripe to get back into these funds with both feet.
Have a good week.
Bernie |
