Defensive Stock Market Posture

Stock market investing tends to be tied to either a buy and hold approach or a timing approach.  We operate with a timing paradigm based on a combination of technical algorithms and fundamental economics.

If one goes back three years to June of 2012 you see the base of where regular FED market intervention/reaction to the 2009 crash ended in a FED panic and the FED accelerated to the market manipulation QE3 model which has since been essentially adopted by Japan, Europe, and China.  The sum result of that move has been artificial stock markets that rebuff all declines of greater than 5 or 10 percent with inequality accelerating in terms of moving assets to the top layers of the population through stock buybacks and other market manipulation actions.

We now come to the present situation where if has felt like we were witnessing paint dry (we have not posted a comment in the past 10 days).  It is true that macro investing does involve a lot of days that you do not need to act.  In the sense that a potential market moving situation is presenting itself, one of two things seem soon to occur, 1) the FED will step in again with something; or 2) we are on the cusp of a major market down move.

If one looks at basic money flows through the use of Granville’s On-Balance-Volume indicator in the largest stock index, the S&P 500, you see that the numbers topped on December 2014 and a sell signal was triggered on March 10, 2015 when the S&P closed at 2044. Since that time the index has traded in a narrow range of 2039 to 2135.  From a macro sense on this indicator, a close under 2039 would be of some significance.

Deflation continues to compound, the index we follow and showed on this website recently (copper/lumber/gold) has seen new lows since the 2009 low recently.  The soft commodity markets like oil and grains are also under pressure with a real possibility for corn to decline to the 2.50 level this fall.

Volatility continues to decline as FED backstops have seemingly taken out most of the risk of the stock markets.  (there might be a new generation of investors/traders here who will be able to add a major lesson to their portfolio).

Our fast money index, which we call the “Three Horseman” (Apple,Starbucks,Goldman Sachs), was created at the beginning of May to track the leading edge roll over of the hot money stocks involved in the macro stock rally. We started that index at 100.0 on May 1st, it peaked at 108.97 on July 20, and is at 105.62 today.  If it goes negative, under 100.0, things will get interesting.

We remain short stocks, long the dollar, long T-Bonds, and short commodities.