"Patience, persistence and perspiration make an unbeatable combination for success." - Napoleon Hill
The S&P 500 (SPY) rose last week, with the gains all coming on Friday as market participants ignored weaker GDP data and money continued to chase risk assets higher. The market has been on a tear since the start of the year, as the "Winter Breakout of 2013" I wrote of January 3rd took hold in a very fast way. The world is abuzz at the possibility of the Dow hitting new all-time highs. It seems like everywhere I look everyone is talking about stocks again.
However, with the media focusing in on Dow (DIA) 14,000, I am struck by the lack of attention to intermarket deterioration. On CNBC Friday, I appeared on Closing Bell expressing my concerns, making the case that the world should be focused more on a retest of Dow 13,000 in the short-term. Very little internally within the market is expressing the same level of excitement as absolute price movement. Intermarket trends appear to be reversing. Utilities, Consumer Staples, and Healthcare have all started to outperform in the past week and a half, and Junk debt alongside Emerging Market debt may be cracking. Treasury yields are rising, but by all metrics government bonds appear deeply oversold and disconnected from the action in low beta dividend stocks. The Nouveaux Bulls are chasing stocks, believing it is impossible for equities to decline.
Anecdotally, I am stunned by the pushback I have gotten over the past week on the near-term bearish and correction stance. The aggressive sentiment is EXACTLY like the kind of counter-arguments I would get when arguing for the Fall Melt-Up of 2011, the June 4, 2012 melt-up call, the October correction call, and the rally call throughout the Fiscal Cliff. This is not about "thinking" markets will go up or down from these levels. This is about consistency of process and analysis in identifying the conditions under which stocks do well.
Our ATAC models used for managing our mutual fund and separate accounts remain positioned in bonds out of stocks. Is it possible that stocks continue to move higher and higher and that our positioning ends up not yielding the best of results in the short-term? Absolutely - no approach and no system is infallible. The future is never about certainties and always about probabilities. Given the weekly nature of our inflation rotation strategies, if enough improvement happens within the market we could be right back into equities again. We respect price and have no problem changing positions if price says we should. The implication? We will either be wrong for a short amount of time by being in bonds and out of stocks, or really right by avoiding a stock market decline just as everyone is under the impression stocks can't fall.
Additional disclosure: This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.