This an example of the monthly updates from the new Research & Investment joint venture between Incredible Charts and Porter Capital.
S&P 500 Momentum – October 2013
Latest Performance
S&P 500 Momentum is based on Porter Capital’s successful ASX200 Prime Momentum strategy which returned +38.43% for the 12 months ended 31st October 2013. Actual historical performance for the S&P 500 is not yet available.
Sectors
The portfolio includes the usual technology, Internet retail and biotechnology sectors but also insurance, airlines, and oil & gas exploration.
Stock Performance
Star performer Netflix (NFLX) climbed from $80 to above $350 over the last year, breaking its 2011 high of $300. Twiggs Money Flow troughs above zero indicate strong buying pressure.
Stock Selections
Hold
We continue to hold the following stocks:
New Additions
There are four new additions this month:
Biotech newcomer Gilead Sciences (GILD) climbed from $20 to above $70 over the last three years. Short corrections indicate buying pressure and respect of support at $64 would signal a fresh advance. Twiggs Money Flow troughs high above zero also suggest strong buying pressure.
Disposals
Stocks replaced are:
- REGN (SELL)
- BSX (SELL)
- GT (SELL)
- CELG (SELL)
Regneron Pharmaceuticals (REGN) rose from $30 to $300 over the last three years, but encountered strong resistance at $300/$320 and has fallen outside our top ten ranking. Breach of support at $270 and the rising trendline would warn that the primary trend is weakening. Recovery above $320, however, would most likely see it regain its position in the portfolio.
Market Outlook
Market Filters
Our market filters indicate low to moderate risk and we maintain full exposure to equities.
General Outlook
As global growth recovers we expect equity markets to be buoyed by improvements in both earnings and dividends, with strong momentum over the quarter. There is much discussion in the media as to whether various markets are in a “bubble”. Little attention is devoted to the fact that bubbles can last for several years, and sometimes even decades. The main driver of both stock market bubbles and real estate bubbles is debt. Anna Schwartz, co-author with Milton Friedman of A Monetary History of the United States (1963) described the relationship to the Wall Street Journal:
If you investigate individually the manias that the market has so dubbed over the years, in every case, it was expansive monetary policy that generated the boom in an asset. The particular asset varied from one boom to another. But the basic underlying propagator was too-easy monetary policy and too-low interest rates …..
Currently, there is evidence of expansive monetary policy from the Fed, but the overall impact on the financial markets is muted. Most of the QE bond purchases are being parked by banks in interest-bearing, excess reserve deposits at the Fed. The chart below compares Fed balance sheet expansion (QE) to the increase in excess reserve deposits at the Fed.
A classic placebo effect, the Fed is well aware that the major benefit of their quantitative easing program is psychological: there is little monetary impact on the markets.
Corporate debt (green line below) is expanding rapidly as corporations take advantage of the opportunity to issue new debt at low interest rates, but household debt (red) is still shrinking.
There are pockets of concern, like the rapid recovery in NYSE margin debt, but risk of a Dotcom-style stock market bubble or a 2002/2007 housing bubble is low while household debt contracts.
Regards,
Colin Twiggs
Excellence is an art won by training and habituation. We do not act rightly because we have virtue or excellence, but we rather have those because we have acted rightly. We are what we repeatedly do. Excellence, then, is not an act but a habit.
~ Aristotle
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