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Market Direction Model - Model switches to CASH/NEUTRAL on March 8, 2021

Model switches to CASH/NEUTRAL. Please read the updates:

https://www.virtueofselfishinvesting.com/reports/view/market-lab-report-update-on-rising-bond-yields-vs-stocks

https://www.virtueofselfishinvesting.com/reports/view/market-lab-report-gils-take 

Recent selling pressure suggests sidelines for now. Powell did not give the market what it wanted. Powell is concerned about being behind the inflation curve which would be a big issue for bonds, so CME Fed Fund Futures is now putting a 4.1% chance of a 25 bps hike by the April 28 meeting. Nevertheless, as bond yields continue to shoot higher on the longer end of the curve, the Fed was expected to invoke what they did in 2011, dubbed Operation Twist, where they sell shorter term bonds and use the money to buy longer term bonds which somewhat flattens the yield curve. This spike in rates is not sustainable given the lack of economic growth, lockdowns, and new COVID mutations which mainstream media can paint to their wishes which then begets more lockdowns and quarantines. But the current spike in rates could continue higher for a bit longer pushing stocks lower.

Just a few people who joined VSI in the last couple of years asked why didn't the Market Direction Model go to cash sooner? The reason is simple. A material change was made to the model on Feb 9, 2019 which accounts for its dramatically improved performance. It is still up triple digit percentages on a 12-month rolling basis as measured by one of its two benchmarks, the Direxion TECL, which is a great proxy for leading tech stocks. In this Era of QE, corrections have generally been smaller than usual since the QE bull began in early 2009. The only correction that pushed the market into bear market territory where the corrections well exceeded -20% was the COVID pandemic that was reflected in the major averages in March of 2020. Keep in mind the MDM is not a day or swing trading model but aims to capture the "meat" of the moves in the major averages. Details HERE.


If and when the Fed reinstates Operation Twist or some variation thereof, stocks should find their floor. In the meantime, high yields on the long end make bonds more attractive than stocks which attracts capital away from stocks and into bonds. That said, together with the next stimulus package, always keep in mind that shorting carries ample risk, so should you have short exposure in stocks, when you show a fast profit, take it.
This information is provided by MoKa Investors, LLC DBA Virtue of Selfish Investing (VoSI) is issued solely for informational purposes and does not constitute an offer to sell or a solicitation of an offer to buy securities. Information contained herein is based on sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of available data. VoSI reports are intended to alert VoSI members to technical developments in certain securities that may or may not be actionable, only, and are not intended as recommendations. Past performance is not a guarantee, nor is it necessarily indicative, of future results. Opinions expressed herein are statements of our judgment as of the publication date and are subject to change without notice. Entities including but not limited to VoSI, its members, officers, directors, employees, customers, agents, and affiliates may have a position, long or short, in the securities referred to herein, and/or other related securities, and may increase or decrease such position or take a contra position. Additional information is available upon written request. This publication is for clients of Virtue of Selfish Investing. Reproduction without written permission is strictly prohibited and will be prosecuted to the full extent of the law. ©2021 MoKa Investors, LLC DBA Virtue of Selfish Investing. All rights reserved.
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