I haven’t written in a while because we have been watching the markets and the current situation for signs that we should either move to protect your portfolio(s) or wait out the current market turmoil.
It appears we might finally have our answer.
The selling pressure has been declining, meaning there is less and less selling pressure as time has progressed since the previous market peak in early January, and the buying pressure has been increasing.
I know this seems counterintuitive with the markets dropping like they have over these past couple of months, but we have new metrics that show the underlying currents, and those metrics are telling us selling pressure has been steadily declining. For the details, see the graphs and discussion below if you are comfortable with graphs.
As I have mentioned in previous articles and communications, it’s almost impossible to effectively protect against a -10% move in the S&P500 so we must be very careful about when we apply protection because we must be right twice - once when we get out, and a second time when we get back in.
My strongest advice for now is to stay the course, be patient, and we’ll get to the other side of this together (hopefully we’re already there). For more details on why I am saying this, please read “The Worst Investment Mistake” if you haven’t already.
One of the advantages to being a Clear Capital Management Client is you get the benefits of future “software upgrades” as we continue to improve our metrics and investment management technologies. These new indicators are a most recent example of that.
If you are a current client: Thank you for your continued confidence in us.
If you are not a current client: Talk to us about how we can help you Invest Smarter.
Recently our investment research produced a new indicator that will help us to better understand the equity, interest rate, commodity, and cryptocurrency markets going forward.
I’ll use the graphs below to describe what we’re currently seeing in the equity markets and why we think these new metrics will be helpful in the future.
In the graphs below the gray line is a measure of buying pressure while the orange line is a measure of selling pressure.
As you can see from the first two graphs of the S&P 500 (SPY) and the NASDAQ 100 (QQQ), the buying pressure has been slowly increasing and the selling pressure has been declining over the past two months even though the prices (black line) have been falling.
If we look further back in time to 2018 you can see how this has played out during the market drop at the end of 2018, the Pandemic in March 2020, and more recently over the past 2 months.
These indicators appear to be good indicators going all the way back to 1977 when we look at the S&P 500 index going back that far. If you data nerds would like access to the graph showing the data going back to 1977, please request it here.
We think these new indicators will help us correctly position the portfolios of our clients by giving us early warnings of changing buying or selling pressures as we have demonstrated above.
That being said, they need to be applied in conjunction with our other risk measurement technologies to determine when it makes sense to become defensive and when it makes sense to wait out the inclement market conditions.
If you have made it this far - thank you, you are awesome!
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This information is provided by Clear Capital Management LP (“Clear Capital” or the Firm”), a Registered Investment Advisor Firm with a principal office in the Commonwealth of Pennsylvania, for informational purposes only. No portion of the commentary included herein is to be construed as a solicitation to affect a transaction in securities or the provision of personalized investment or tax advice. The Firm’s market discussion and investment models are based on the Firm’s proprietary research and back-tested market data. This back-tested data has been prepared with the benefit of hindsight, and the market trends and economic conditions on which these statistics are based may not endure in the future. Past performance is no guarantee of future results, as there can be no assurance that any particular strategy or investment will prove profitable in the future. Composite account performance reflects the reinvestment of dividends and other related distributions, as well as the deduction of the Firm’s wealth management fee. Any reference to a market index or benchmark such as the S&P 500 or the Aggregate Bond Index is included for comparative purposes only, as an index is not a security in which investment can be made. Indices are unmanaged benchmarks that serve as broad market or sector indicators and do not account for management fees or transaction costs generally associated with investable products. Clear Capital may discuss and display, charts, graphs, formulas and specific stocks which are not intended to be used by themselves to determine which securities to buy or sell, or when to buy or sell them. This information offers limited information and should not be used on its own to make investment decisions. Investing involves risk, including the potential loss of principal, and investors should be guided accordingly.
