Feeling the BERN?
Posted on Sunday, January 26th, 2020
The Federal Reserve is keeping its foot on the pedal and continues to add liquidity to the system helping to drive asset prices higher. The Fed is caught in a regime that politically dictates a push for higher inflation and Fed policies to that effect create higher asset prices. Not that anyone is complaining. We certainly won’t see any politicians in Washington asking for lower asset prices but Fed policy is contributing to greater inequality. We could see asset prices start to stumble if polls show that voters are beginning to Feel the Bern.
While the S&P 500 has rallied 12.2% since October 3rd of 2019 we are seeing some signs of the market melt up slowing. Markets are still elevated as we enter the last week of January but we are seeing a wider divergence between bonds and stocks. When bonds and stocks diverge we take the side of bonds and that usually means taking down risk is the prudent move. Given all of the news this past week about impeachments and viruses we found that the most important piece of information was the break out performance of US government bonds. Bonds and gold have outperformed stocks this month and, in particular, over the last 5 days. This could be the beginning of a trend.
We have made some moves for our more conservative clients to take down risk in stocks and add to hedges. Stock market measures, such as Relative Strength, are overbought and due for a relief sell off. Apple, in particular, is historically overbought in terms of RSI. Don’t worry about the technical jargon. What we mean is that markets need a breather. We don’t expect markets to drastically sell off but a further down move would be a welcome sign and most likely met with buy interest. We have been eyeing CNN’s Fear and Greed Index which we think simply boils down sentiment in the market. It still sits at elevated levels. While not at extreme greed it is levels still termed Greedy by the index creators at CNN.
I think we aspire less to foresee the future and more to be a great contingency planner… you can respond very fast to what’s happening because you thought through all the possibilities, – Lloyd Blankfein
A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill
To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .
Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.