The Issachar Fund (LIONX) holds 35% in a Floating Rate Fund and 65% in CASH as of Friday, October 5, 2018. I sold all CAN SLIM stocks as they crossed my “line in the sand” sell stops. Floating Rate funds are holding up very well in this rising rate environment as I expected. However, there are very few CAN SLIM stocks that I would consider attractive, so I am patiently watching from the sidelines. When the market is not rewarding me for taking risks, I reduce exposure or go to the safety of CASH.
The U.S. unemployment rate sank to a 49-year low of 3.7% and the economy added 123,000 new jobs in September setting the stage for a strong holiday season. What is good for “Main Street” is not necessarily good for “Wall Street” as yields spiked across all maturities. 10 Year Treasury Yields rose to a 7-Year high of 3.2% on Thursday and stocks declined rapidly. When yields rise, less money is likely to enter the stock market as investors seek the higher yields offered in the bond market. It is a delicate balancing act and it may not be over as money gets re-shuffled from one asset class to another. The Bid-to-Cover ratio (measurement of demand) in the latest Treasury auction stood at 2.4 verses 2.8 (higher is better) a month ago. This may indicate that the tariff spat we are having with the Chinese may be spilling over into our bond auctions. The Chinese may be less eager to buy our Treasury Bonds which may cause us to pay higher interest rates to get more people to bid for our bonds at future auctions. If China does hit a serious “pause button” on buying our bonds in retaliation for tariffs on their goods shipped to the US, then the stock market may have a hard time advancing in this environment.
Investor’s Business Daily (IBD) has three conditions for the market (Confirmed Uptrend, Uptrend Under Pressure and Market in Correction) and right now they are calling it “Uptrend Under Pressure”. IBD says “be very careful about making any new buys and be ready to take defensive action, since the uptrend may be running out of steam. If you do decide to buy, be extra demanding and focus only on stocks showing exceptional fundamental and technical strength”. I agree with IBD because the stocks we owned were showing signs of weakness days before the market suffered its steep decline last week.
Foreign buyers of US Treasuries hedge their exposure to currency risk. That has a cost. Until last week, the return would cover the cost. But now the cost of hedging has soared due to the rising dollar, and that makes the investment in Treasuries unprofitable to foreign investors. This dries up significant demand for US Treasuries from abroad and consequently, our Treasury Bonds dropped as yields spiked. Higher rates may be on the horizon, so buyer beware.
The NASDAQ (NAZ) is the better performing Index this year versus the S&P and the Russell 2000. This is the 4th time since June that the NAZ has dropped below 50dma. However, this time it has sliced through the 50-dma on above average volume for two days in a row and this indicates to me that “Big Money” may be exiting the “Big Leaders” in a “Big Way”!
Envy is one of the strongest human emotions so pay attention to your own money and not what someone else is doing with their money. Put yourself in a bubble and focus on your bottom line because no one cares more about your money than you do. If you are in a slump not hitting well lately, try bunting to get on base to score and eventually win in the end. Develop a plan and stick to it because one might say: “if you fail to plan, you plan to fail”. Don’t ever argue with the market because YOU could be wrong. Never bury yourself in a hole you can’t get out of. Stay open-minded and flexible because no one knows what tomorrow holds. Rule #1 should be protecting capital, so you can live to invest another day.
Bottom Line: Yields are spiking, Junk Bonds are rolling over and stocks are declining so now might be a good time to consider reducing risk. I created LIONX, so you could piggy-back off the investment decisions I make for my own account. Therefore, I will manage your money like my own!
(Portfolio holdings are subject to change at any time and should not be considered investment advice. There is no guarantee that any investment will achieve its objectives, generate positive returns or avoid losses.)