LIONX MARKET UPDATE – Monday, October 22, 2018
I believe market models and strategies work for a “season” until they don’t, and no one tells you they quit working. I try to remain open-minded and flexible (without too much bias) and use my 28-years of experience and Wisdom (from God) to help me find what seems to be working at-the-time. I try to follow the “leaders” in and out of the market in an effort to capture a majority of the uptrend and avoid most of the decline. The stock market “leaders” are stocks that lead us in the direction the indexes are going. I believe big institutions hire the best analysts to do fundamental research in order to give stock recommendations to portfolio managers who manage the money entrusted to them. The big institutions buy the stocks that make the trends that I try to follow. The most recent bull market leaders were the FAANG stocks (Facebook, Apple, Amazon, Netflix & Google) and now they are all well off their highs and trending below their 50 day lines. This is not a good sign and indicates “high-risk” to me, so I take it seriously. LIONX exited all stock positions on 10-4-18 well ahead of the 4.5% decline in the S&P 500 Index. All my investable assets are in LIONX, so I have an incentive to focus on growth when the “season” changes. I believe there is a time to be long and a time to be short and a time to “go fishing”. The market is not rewarding me for taking risk, so I will “go fishing” until the fish start biting again. I never cut grass in the rain and instead patiently wait for the sun to shine again before going outside. Patience can be a form of action!
Investor’s Business Daily (IBD) calls this a “Market in Correction” and they advise selling your weak stocks and not making any new buys. IBD is waiting for a “Follow Through Day” (FTD) to indicate the correction has ended and a possible new uptrend has begun. An FTD is a day where one of the major indexes rises 1.25% on higher volume. In this environment, I am trying to preserve capital to have some ammo to fire when I feel the time is right. I am not seeing a lot of stocks near buy points. There are not a lot of stocks breaking out of sound base patterns either. My advice never argue with the market and do not try to catch a falling knife.
China continues to reduce its holdings of U.S. Treasuries, while reports indicate that Russia has liquidated all of its Treasury holdings. If the demand for our Treasuries declines, then the prices of our bonds will likely decline causing our yields to rise as they recently have been. The current yield on our 30-year US Treasury bond is 3.38% and on 9/28/18 it was 3.19% which is a 6% rise this month alone! I believe the market is forward looking trying to discount what is known and currently the market is telling me that risk has increased, and it is likely a time for caution and patience.
The Russell 2000 Index is at critical support! If the Russell breaks support, it could drag the market lower with it and we could be in for another leg down in the S&P 500 Index. The Russell is down about 11% since 8/31/18 and things could get really ugly if support is broken. Junk Bonds are also trending down indicating that risk is coming off.
CASH is a Position! The Issachar Fund (LIONX) still holds 73% in two Floating Rate Funds and 27% in CASH as of Friday, October 19, 2018. Floating Rates are short-term secured loans with variable interest rates tied to US T-Bill rates. LIONX is up 3.21% YTD!
Bottom Line: I believe patience is required at this time. Let the market pull you in and then push you out. Don’t force it if it does not fit. Keep a close eye on the Russell 2000 and Junk Bonds for an indication of risk increasing or decreasing. Wait for the market to form a bottom on higher volume and keep your Watch List current. I am expecting the market bottom soon and head higher into December, but I am defensively invested. Please exercise your right to vote on November 6th as this may be the most important vote in our lifetimes.
(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.)