Stock Market Outlook entering the Week of July 28th = Uptrend
- ADX Directional Indicators: Uptrend
- Price & Volume Action: Uptrend
- Objective Elliott Wave Analysis: Uptrend
No change in the signals; bullish price action for the ADX, price/volume, and OEW. If you’re paying attention to the earnings game, it was an exciting week; big moves among the popular names (Google for instance).
The daily and weekly chart shows the S&P 500 ($SPX) back at all time highs.
Even with that price level, and an economy that continues to grind along, the U.S. Fed is considering pre-emptive rate cuts to decrease the likelihood of a future recession. With that as a backdrop, Ray Dalio published an article on LinkedIn (you can read the article here), discussing market cycles and their effects on returns from different types of investments and asset classes.
Over my roughly 50 years of being a global macro investor, I have observed there to be relatively long of periods (about 10 years) in which the markets and market relationships operate in a certain way (which I call “paradigms”) that most people adapt to and eventually extrapolate so they become overdone, which leads to shifts to new paradigms in which the markets operate more opposite than similar to how they operated during the prior paradigm.
Identifying and tactically navigating these paradigm shifts well and/or structuring one’s portfolio so that one is largely immune to them is critical to one’s success as an investor.
Political leanings aside, he’s managed money successfully for a long time, and it’s a good follow-up to last week’s yield curve discussion. Both topics deal with change on a longer term time horizon.
But why now? Per Ray:
In paradigm shifts, most people get caught overextended doing something overly popular and get really hurt. On the other hand, if you’re astute enough to understand these shifts, you can navigate them well or at least protect yourself against them.
I think now is a good time 1) to look at past paradigms and paradigm shifts and 2) to focus on the paradigm that we are in and how it might shift because we are late in the current one and likely approaching a shift.
Need something visual? Check out that run! (chart courtesy of JP Morgan Asset Management)
“Buying and holding” equities has crushed it for over a decade. So it’s highly likely many investors are overweight equities and underweight other asset classes. And who could blame them?
But under the surface, low rates have contributed to an explosion in corporate debt…mainly the kind one level above ‘junk’ (or non-investment grade). Even worse, some companies are unable to generate enough profit to pay their debts…even with record low interest rates. Government debt levels around the world are astronomical. Some have even suggested that those debt levels are no longer relevant because the government (at least in the U.S.) can just print more money to cover them…indefinitely. A new paradigm indeed.
Ray’s article is worth a look, and at the end, he gives his opinion on what asset classes should perform well. The time to prepare for an emergency is before the wheels fall off, so to speak. So now is a great time to ask yourself am I diversified? How do I decide how much money to allocate to other asset classes? How will I decide when it’s time to reallocate? Who can help me make those decisions?
If you find this research helpful, please forward to a friend. If you don’t find it helpful, tell an enemy. I share articles and other news of interest via Twitter; you can follow me @investsafely. The weekly market outlook is also posted on Facebook and Linkedin.
Charts provided courtesy of stockcharts.com.
If you’re interested in learning more about the relationship between price and volume, or how to find and trade the best stocks for your growth strategy, check out this book on Amazon via the following affiliate link: How to Make Money in Stocks: A Winning System in Good Times and Bad. It’s one of my favorites.
For the detailed Elliott Wave Analysis, go to the ELLIOTT WAVE lives on by Tony Caldaro.
Once a year, I review the market outlook signals as if they were a mechanical trading system, while pointing out issues and making adjustments. The goal is to give you to give you an example of how to analyze and continuously improve your own systems.
- 2015 Performance – Stock Market Outlook
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- 2018 Performance – Stock Market Outlook