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Disjointed Market – Where are flows Going?

Equities and 30-yr bonds are far from the only two asset classes as investors have several other choices when allocating capital, but I want to touch on these two sectors as their movements should not be ignored when making your investment decisions. It took six years but stocks are back above levels seen in 07’ as one can see a pronounced ”V” formation the S&P chart below. Obviously stocks are in favor as retail investors are piling in and the media has bought in as displayed by the covers of recent financial periodicals with further bullish proclamations. Tread lightly as we’ve all seen this movie before. The talk persists of a bubble and conclusion to the mutli-decade bull run in Treasuries. I’m not sure I’ve bought into the bubble aspect but when investors a lot smarter I and with several more zeroes behind their name say “Treasuries are the worst” place for investors to put money they have my attention. To tie up money for decades and get the current yield makes little to no sense to me.

Maybe I’m bias being I trade commodities for a living but I do not like stocks at record highs nor do I like buying Treasuries with near record low yields. As I stated above those two asset classes should be a part of a diversified portfolio but not the only two pieces. My suggestion is incorporating commodities as a component of your portfolio as a non-correlated asset and a means to diversify.

 30-Yr Bonds:

5-14-13 US.jpg

Since bottoming in June 07’ 30-yr bonds have appreciated…not in a straight line but we have a definitive bullish trend. Low to high prices have gained 46%. On the weekly chart above futures are on the verge of breaching their 100 day MA (light blue line). This level has served as support since May 11’. The stochastic in the last three weeks appears to be rolling over from overbought levels. A move back to the trend line (white line) represents a correction of 13.2%, putting futures back to 125’00. If money flows out of Treasuries will it go into stocks at record highs…this remains to be seen but I think the smart money is more astute than that and will be looking for value. Where will they find this value?

S&P 500:

5-14-13 SP.jpg

Hindsight being 20-20 stock investors that timed the market buying after the 07-08 drop or even having stayed the course are currently being rewarded. The S&P is trading at fresh record highs having appreciated nearly 150% off the “666” lows made in March 09’. Let’s examine the movement…Futures peaked in October 07’ just shy of 1600 only to decline 58%. It took just over 30 months for equities to get back to levels reached in 07’ and in the last 3 months record high territory. As one can see we’ve danced the trend line in years past (white line).  I am incapable of picking a top but I am very leery…when getting a haircut last week two barbers were talking about their stock holdings and how they are doing so well in recent months and offering trading tips. To put in perspective they are likely trading very few share but buyer beware. I believe a 10% correction will eventually happen…in full disclosure I have been voicing this for several weeks. At a minimum my advice for clients holding a sizable stock portfolio is to take some money off the table. A move back to the trend line represents a correction of 11.5%.

Conclusion:

The message I’m trying to convey is to examine your current holdings and make sure you are diversified. Stocks have had a great run but will it continue? This is not your father’s Treasury market and if/when yields go up do you want 20-40% of your portfolio in the debt complex? When rates go up prices go down. What if you looked at a 10-20% allocation in commodities…how would your portfolio have done in the last 5-8 years? What will the next 5-8 years look like?

 

As always, I’m here to discuss specifics and give guidance. Give me a call…

To discuss in more detail this chart or any other you can reach me at: mbradbard@rcmam.com or 954-929-9997

Risk Disclaimer: The opinions contained herein are for general information only and are not intended to provide specific investment advice or recommendations and are not tailored to any specific’s investor’s needs or investment goals.  You should fully understand the risks associated with trading futures, options and retail off-exchange foreign currency transactions (“Forex”) before making any trades. Trading futures, options, and Forex involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change without notice.  Past performance is not necessarily indicative of future results.   

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