Market Update: 11-12-18

The Issachar Fund (LIONX) is 25% invested as of Friday, November 9, 2018 with 75% in Cash.  Investor’s Business Daily (IBD) called the rally on Wednesday a Follow Through Day (FTD) which marks the beginning of a Confirmed Uptrend according to their CAN SLIM system.  According to an independent 12-year study by American Association of Individual Investors (AAII) from Jan. 1998 – Dec. 2009 of over 50 leading investment strategies, AAII found CAN SLIM to be the top performer.  I believe CAN SLIM is superior system because it is based on time-tested facts (not opinions) and common-sense logic that I understand and use today.

On Thursday, I purchased 9 stocks (25%) exhibiting CAN SLIM fundamental and technical characteristics.  However, I do not like how the NASDAQ did not hold its 200-day moving average support and lost 1.65% on Friday.  This type of decline undermines the strength of the rally, so I stand ready to cut our losses and patiently wait for another lower risk opportunity.  I prefer to see a more rounded-bottom formation instead of the V-shaped bottom.  V-shaped bottoms tend to exhibit a higher probability of failure than slow-rounded bottoms.  I believe it would be healthy for the indexes to digest recent gains with some sideways action before launching to new highs.  Further high-volume selling would raise serious concerns that the bottom may not be in.  Bottoms are formed when demand outstrips supply, so I take my cues from the market in an effort to profit in the up-moves and avoid the major declines.  Volume is everything to me and it is my best measure of supply and demand and institutional sponsorship.  A rising stock price on above average volume indicates accumulation and that is what I seek.  A declining stock price on higher volume is what I try to avoid as it indicates distribution.  Never forget that a 50% loss requires a 100% gain just to break-even.  Managing risk is key to the long-term health of your portfolio.

I believe investing is more of an art than science.  I believe investing is a game of probabilities and there are no certainties when it comes to the market.  I try to put the odds of winning in my favor by using a system of time-tested rules that have been working since the early 1900’s. Interpreting the charts properly and following sound rules has helped LIONX shareholders in 2018.  I believe that sound money management rules will keep you in the game until your stock picking improves.  However, a great stock picker with pour money management skills and no discipline could quickly lead to disaster.  In my opinion, blindly following black-box models is not a good long-term idea because all black-box models will eventually fail.  My advice is to find a system that works for you and use discipline to follow it but never ignore your God-given common-sense.  Are you swinging for the fences or do you just want to get on base and score when the odds are in your favor?

The Fed left the Fed Funds target range unchanged at 2.0% – 2.2% on Thursday and reiterated that it plans to gradually increase rates, no surprise here.  The Treasury yield curve is positively sloping with the 2-year note trading near 2.96%, the 10-year note near 3.23% and the 30-year bond was yielding 3.43%.  A rapid rate rising market is generally not good for stocks or bonds, so it will be important for the Fed to not raise rates faster than the market expects.  I believe this Fed will not do anything that would undermine the Trump agenda.

Defensive stocks are on the move!  50% of the Soap stocks are at new highs and 40% of the Insurance-Broker stocks are at new highs.  Auto parts are at 38% and Long-term medical care is at 29%.  The FANG stocks are being de-fanged as money flows to more big defensive names like Coke, J&J, McDonald’s, and Procter & Gamble just to name a few.  In my opinion, this is not a good sign to see money coming out of Tech and into the perceived safe haven defensive names.  Draw a line in the sand and stick to your discipline.  It is not wise to figure out how to fire your gun in the heat of the battle.

Bottom Line:  The price of oil sank below $60 a barrel, a place it had not seen in eight months.  I am seeing a lot of concerning cross-currents in the market that have me wanting to dance near the exits.  I am in, but I could be out if the market does not act the way I expect.  LIONX is up 3.11% with a Maximum Draw Down of 4.44% so I am doing all I can to hold onto what we have made thus far.          

(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.) 

Health Tip:
Warning Signs of a Heart Attack: 1) Discomfort in center of chest lasting more than 3 minutes. 2) Upper body discomfort (arms, back, neck). 3) Shortness of breath. 4) Cold sweat, nausea or lightheadedness.  Call 911!    

Inspirational Quote:
Luck is what happens when preparation meets opportunity.

Verse of the Day:
Let us then approach God’s throne of grace with confidence, so that we may receive mercy and find grace to help us in our time of need.  Hebrews 4:16

The chart below shows the YTD total return of LIONX (red) verses S&P 500 (green).  I believe that managing risk is the key to long-term success.  Notice how less volatile LIONX is for a similar return!

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Dexter Lyons