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Weekend Reading: Vacation Head

Courtesy of Lance Roberts, RealInvestmentAdvice.com

Ah…yes. It is FINALLY that time of the year when I take a week off with the family for our summer vacation.

Don’t worry, I have been fiendishly writing for the past two weeks and have blog posts all ready to go for next week. You won’t left hanging.

However, let me just leave you today with one parting thought.

The chart below is the S&P 500 on a WEEKLY basis going back to 1992. While it is clear the bullish trend is currently intact, which suggests the markets could indeed rise further, the deviation from the 1-year moving average is pushing more historical extremes.

Furthermore, the two circles on the lower part of the chart show the longer-term “buy/sell” signals which have been historically accurate in adjusting risk in portfolios. As you will notice, just like in late 1998 and early 1999, there was a sell signal which was reversed WITHOUT the market dropping into a bear market. The subsequent rally pushed asset prices and valuations to extremes in early 2000.

I don’t need to remind you what happened next. 

Currently, we see the same build up in exuberance, leverage, and speculation. The sell signal in 2015/2016 has been reversed following the Trump election. More importantly, just like in 1999, the indicators are running at historically very high levels.

I probably don’t need to remind you what will happen next. 

It is just a function of time.

In the meantime, the bullish trend remains intact. So, we participate for now but we do so with a high level of caution and very tight stop losses.

So, with that said, this is what I will be reading on vacation.

Politics/Fed/Economy

Markets

Research / Interesting Reads

“Sometimes buying early on the way down looks like being wrong, but it isn’t.” – Seth Klarman


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