With the S&P 500 Index pulling back form its March 1st closing high of 2396 with a braometer reading 130 (overbought) to yesterday's close of 2344 Old_Skeets market barometer now has a reading in its fair value range at 147. (Remember a higher barometer reading indicates there is more investment value in the Index over a lower reading). This is due to a decline from an elevated technical strength reading along with a better earnings perspective. Currently, 76.8% of stocks in the Index are above their 200 moving average which is down from the March 1st high of 84% along with a continued decline in the Index's price could lead to a good set up for the next leg up with the approaching 1Q2017 earnings reporting season soon to begin in April.
Some investors could have been selling in the recent elevated market to raise money needed to pay upcoming April tax bills. In addition, if bond yields keep rising then from a yield perspective stocks will have to compete more with bonds for investors money.
Just this week, I deployed some of my cash and begin to restore my CD ladder. I was able to get an 18 month CD paying 1.5%. In six months I plan to buy another 18 month CD should interest rates continue to rise. And, repeat the process again in another six months thus having and maintaining a three step ladder while interst rates are rising. Once, I feel interest rates are peaking I'll begin to streach out the number of steps in the ladder along with the maturities. Since, the CD's I buy are FDIC insured I consider them to be part of my cash allocation as they are a form of a time deposit. I plan (over time) to split my cash allocation 50% to CD's and 50% to demand cash along with keeping cash at 20% of my portfolio's overall asset allocation with stocks at about 50%, bonds at about 25% and other assets (as defined in Xray) at 5%.
Now being in retirement, I consider the above asset allocation more of an all weather asset allocation for me. I may from time-to-time adjust my equity allocation keeping it between 45% to 55%; but, set based upon my equity weighting matrix which is driven by the market barometer along with a seasonal investment strategy that I usually follow where I load equities in early fall through the winter months and begin to lighten up come spring and through most of the summer. Then I repeat the process. This investment strategy and process lets me harvest some of my capital gains (profits) that I have built over time.
With the current barometer reading of 147 calls for an equity weighting of 49% within my portfolio. Should the barometer rise above a reading of 156 I may become a buyer of the Index which would set a target of 52% equity. Currently, as I write, I am at 50% equity. But, I'll have to see some good investment value develop in the Index before I begin to load equities. After all, winter (for the most part) is gone, spring is here and summer is soon to come. I wonder, is there time for one last good play before I close shop for the summer? Perhaps.
And, so it goes ...
I wish all ... "Good Investing."
Old_Skeet
Comments
I (try to) manage my risk, but don't fight the tape. Being doing this for 6 years now and sleeping like a baby, and I don't mean the cranky ones.
Thanks for making comment.
I'm thinking it is important for ever investor to have some sort of system to in some way they can measure the markets. The system I use is a hybrid system of what my late father used. I first had it scaled for a 60/40 portfolio and used this scaleing for a good number of years up until my retirement to where I now use a 50/50 model. To utilize the 50/50 model I added floors and ceilings for the data feeds into the weighting matrix. Thus far, for me, it works like a cahmp because it keeps me from buying in an overheated market or selling in an undervalued market.
And, yes ... I sleep well at night too.
Thanks again form making comment.
Today is Saturday March 25th.
The weekly closing reading on Old_Skeets market barometer was 146 putting it just barely in the fair value reading area. For the past four weeks the barometer has had weekly closing readings of 135, 144, 140 and 146 for a rolling four week average of 141. Thus, over the past four week period the baromter has scored the Index overvalued. With the barometer data input into the equity weighting matrix suggest an average equity weighting of 47% for the portfolio for this rolling four week period. My equity allocation is based upon a risk tollerance analysis which calls for an equity allocation range of 45% to 55% equity within my portfolio. I use the matrix as a tool to help me adjust my portfolio's equity weighting form time-to-time plus I generaly overweight equities during the early fall, winter and into early spring (seasonal investment strategy).
If you remember, I was well north of the suggested reading 47% at 53% equity (due to a seasonal investment strategy) and thus far this month have reduced equities down to the 50% range still north of the suggested allocation by the matrix. Also, during the week I purchased two CDs ... one an 18 month with a yield of 1.5% and a 12 month with a yield of 1.25%. In six months I plan to buy another 18 month CD and will be well on my way towards restoring my CD ladder as anticipated interest rates continue to rise. Again, I consider CDs as part of my cash allocation along with my savings and my demand cash held inside of any portfolio. I have had no earnings coming from CDs for a good number of years due to low interest rates.
Next week with the 135 reading falling off of the rolling four week period I am looking for an improved barometer reading for the Index and an increase in the sugested portfolio equity weighting reading. With this, during the coming week I plan to just sit and not make any equity weighting adjustments until April arrives.
Also, remember a higher reading on the barometer indicates there is more investment value in the Index over a lower reading. At the moment the investment climate seems to be improving coming off the recent March 1st highs.
Have a good weekend ... and, most of all, I wish all "Good Investing."
Old_Skeet