Price
Source: dshort blog, Moving Averages: August Month-End Update
Jill Mislinski, writing for the dshort blog, summarized the price indicators as follows:
All three S&P 500 MAs are signaling "invested" and four of five Ivy Portfolio ETFs — Vanguard Total Stock Market ETF (VTI), iShares Barclays 7-10 Year Treasury (IEF), Vanguard REIT Index (VNQ), and PowerShares DB Commodity Index (DBC) — are signaling "invested".A few notes on the Ivy Portfolio signals. VEU has been signaling cash since the end of May. IEF, which had been signaling cash since the end of December, switched to "invested" this month for the 10-month simple moving average indicator but remains in cash for the 12-month simple moving average indicator.
Sentiment
Source: CNN Money Fear & Greed Index
The CNN Money Fear & Greed Index ended August measuring "Greed." Of the seven fear and greed indicators none of them ended August with a "Fear" or "Extreme Fear" reading. Two indicators were neutral: 1) CBOE 5-Day Average Put-Call Ratio 2) VIX and its 50-day moving average. During the month this index reached a high of 78 and was briefly in "Extreme Greed" around August 28, 2018. Remember, we want to be greedy when others are fearful and fearful when others are greedy.
Valuation
Please click on image to enlarge
Source: MarketWatch, Opinion: The stock market’s latest sell signal has happened only 5 other times since 1895
As I continue to look for valuation metrics describing this market, Mark Hulbert's article from August 22, 2018 about the "Sound Advise Risk Indicator" deserves highlighting. The “Sound Advice Risk Indicator", the brainchild of Gray Cardiff, editor of the Sound Advice newsletter, is derived from the ratio of the S&P 500 SPX to the median price of a new U.S. house. For the first time since the late 1990s, and for only the sixth time since 1895, this indicator has risen above the 2.0 level that represents a major sell signal for equities. Please read Mark Hulbert's article Opinion: The stock market’s latest sell signal has happened only 5 other times since 1895 to learn more about this valuation measurement.
Summary
At the end of August, monthly moving average indicators reveal to be invested in all asset classes except foreign stocks as represented by ETF VEU. Sentiment remains greedy. US stocks remain modestly to aggressively overvalued depending which measurement your using to evaluate them.
As we mentioned in the introduction, emerging markets aren't keeping pace with a US market experiencing a sugar high from recent tax cuts. Poor economic conditions have impacted many emerging markets and their currencies. As global economies "decouple" from each other, 2018 is turning into the year we watched the effects ripple through our global markets. Notable issues observed to date include financial drama in Brazil, China, Turkey, Greece, South Africa, Indonesia and Argentina. Let's focus on China for a moment. Their economy is dealing with negative economic trends on a year over year basis while lacking the capacity to sufficiently stimulate to halt decelerating growth. The macro economic picture in 2018 is helping push the dollar up. With recent new highs in August for the S&P 500, a fluctuating global backdrop, and a Federal Reserve raising interesting rates, let's review the five most important questions for investors:
1. How much cash do you need to feel secure with your finances?
2. Do you have a written investment plan?
3. How does each investment enhance your portfolio?
4. Are you adequately insured against catastrophic risks? (i.e. auto, house, life, disability, long term care, longevity, health insurance, etc.)
5. Have you created and implemented your estate plan? Is it updated?
A bonus question: Do you have an evaluation framework for your portfolio? (i.e. Are you aware of the costs of your investments? the diversification of your investments? the risk/volatility of your portfolio? the tax impact of your investments? and do you have a method for tracking your performance?) As Warren Buffett said, "If you're emotional about investing you're not going to do well. You may have all these feelings about a stock, but the stock has no feelings about you."
Let's end with a few quotes from Oprah Winfrey:
"On my own I will just create, and if it works, it works, and if it doesn’t, I’ll create something else. I don’t have any limitations on what I think I could do or be."
"The big secret in life is that there is no big secret. Whatever your goal, you can get there if you're willing to work."
"With every experience, you alone are painting your own canvas, thought by thought, choice by choice."As always, wise investing my friends.
Please consult a qualified financial advisor before making any investment decisions. This blog is for educational purposes only and does NOT constitute individual investment advice.--------------------------------------------------------
Here's what I've been reading recently:
- Vanguard Warns of Worsening Odds for the Economy and Markets (NY Times)
- Second Hand News: Facing a Second Derivative Economic Inflection Point? (Schwab)
- China-Double Topping At 2007 highs? (Kimble Charting Solutions)
- Schwab Market Perspective: Stocks Laboring to Move Higher (Schwab)
- Why (Prudent) Spending Rates Matter More Than Savings Rates (Kitces.com)
