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Perspective: The Worry-Trade,  Meetup,  Strategy Upgrade

June 28, 2020

Rebound... to Recovery... to Worry 
Judging by the S&P500 chart (right), the broad market has produced a V-bottom bottom recovery with the FED’s unprecedented massive liquidity injection and the $3 trillion stimulus bill passed by Congress. Even the tech-heavy Nasdaq has broken through to record highs. The market always tells us what it believes will be true 6-12 months from now - and the smart money moves in early. Rebounds eventually end when future expectations are reasonably priced-in. It is easy to believe we are already in that zone, or perhaps even too optimistic, and a correction may well be in store. 

Recovery?  A Chameleon
Pick a recovery story and you can find a chart to support it. The tide is not lifting all boats equally, as illustrated in the chart (right). The Nasdaq 100 (QQQ tech index) is making all-time highs, while the broader S&P500 has recovered only two-thirds of its losses and many industries and countries (such as Hong Kong EWH) are barely recovering at all. A few weeks ago beaten down travel and hospitality stocks popped as portions of the economy began to reopen, but that sharply reversed last week when increased infection rates topped the headlines leading investors to believe that reopening may take somewhat longer.  If one adds to that the November election worry-trade, then a sideways market may be realistic until these uncertainties are resolved.
 
New Economy and Unkillable Company Premiums?
Just because the market as a whole may be lackluster for a few months, it does not mean there are no worthy momentum leaders. Momentum algorithms are at their best when boats are not lifted equally by the tide. It shouldn’t be surprising to anyone that the shift in consumer shopping style has rapidly accelerated toward evaluating and buying everything possible online. Many companies are also finding efficiencies and cost benefits to having a large portion of their employees work from home. These shifts are creating large categories of winners and losers. Furthermore, companies that have come through the Covid-19 crisis financially unscathed are now said to have higher intrinsic value and are being rewarded with an unkillable company premium (video right). Momentum leaders may yet have room to run.

What the Market Indicators Say
The March Newsletter and May Newsletter commentaries about StormGuard’s Black Swan response are recommended reading for those who may be new or may have missed those newsletters. The Market Indicators (right) show that: (a) the SG-Standard indicator reached positive territory in late May, (b) the SG-Market Momentum indicator of high volume trading sentiment is still quite negative, but is rising strongly, (c) the SG-Value Sentiment indicator of new highs/lows strongly reached positive territory in early June, (d) the faster response SGS Delta Market Sentiment Indicator sits at extreme highs, and just for fun, (e) the well-known Death Cross indicator crossed into SELL territory at the very bottom of the market and looks like it won’t be back for another month. Ugh.

StormGuard Status - What's Next?
StormGuard-Armor is now free of its conditional restrictions (related to the intense rebound) and may now freely trigger at month-end if any one of its three main components is negative and declining. The Market Momentum indicator is currently negative, but is strongly rising. If July delivers a protracted moderate correction, StormGuard could trigger at its month-end. The SwanGuard Vaccination algorithms will be implemented across the platform during July and will stand ready to deliver an early exit when the next Black Swan event arrives. If one should occur in early July, be assured that we will be watching closely and will do what is necessary to complete the update in time.

Bull-Rider Bear-Fighter 6-Month Rolling Checkup
The relative performance of the Bull-Rider Bear-Fighter Index (BRBF) is charted (right) relative to the S&P 500 Index (SP500), the Dow Jones Industrial Average (DIA), and the Berkshire Hathaway fund (BRKB – just for fun) to show how Merlyn’s BRBF magic is doing compared to the legendary Warren Buffet’s magic.     ;^)

Meetup Webinar - July 22 at 7:00 PM PT
Black Swan: Mitigation & Vaccination  (See Details Here)
The COVID Crash “black swan” event took the market from its high on February 19th to bear market territory about 3x faster than 1929, 4x faster than 1987 and 6x faster than 1990 – the prior record holders. The good news: We now have its DNA and fingerprints. Its unusual characteristics in volatility and a flight of capital from equities to treasuries makes early detection possible. While this pandemic too shall pass, the question remains: how we will react to the next virus? Is this the new normal? Perhaps most importantly, will we do anything different next time? We intrinsically know there will be a next time, and that the cost of being unprepared is huge. Come see how SwanGuard mitigation and vaccination will change the game.

Note: Forced Strategy Upgrade Pending
Forward-Walk Progressive-Tuning Becomes Mandatory
On Monday night, June 30th, all Strategies that have a disabled Forward-Walk Progressive-Tuning option in the Strategy Advanced Options popup (right) will be forcibly enabled. This upgrade option became available in July of 2012. It is a superior momentum methodology that removes hindsight bias during the forward-walk part of testing. The old method is incompatible with some existing and planned future StormGuard-Armor improvements. You may manually reconfigure your Strategies beforehand or just allow the system to do the conversion. Please note that this conversion will result in a complete recalculation of the trading history of the Strategy and will likely display a different sequence of ownership. In most cases, the displayed performance will be similar or slightly better. In cases where it is perceptibly worse, it will be a sign that in fact there are problems with hindsight cherry picking in your original Strategy.  

May the markets be with us,



S&P 500 Index - 4 Years



Recovery?  A Chameleon
(click to enlarge)



Unkillable Companies







Market Status Indicators
(click to enlarge)




6-mo. Performance
Bull-Rider Bear-Fighter
See: BRBF Index for Info & Ways to Invest   


Meetup Webinar
Wed. July 22 - 7:00  PM PT
Click for Meetup Details



Month-End Forced Upgrade:
Forward-Walk Progressive-Tuning
Becomes Standard - Not Optional.

Watch Merlyn.AI’s story evolve on LinkedIn and Facebook.

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Disclaimers: 
Investing involves risk. Principal loss is possible. A momentum strategy is not a guarantee of future performance. Nothing contained within this newsletter should be construed as an offer to sell or the solicitation of an offer to buy any security. Technical analysis and commentary are for general information only and do not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of any individual. See additional disclaimers HERE. Before investing, carefully consider a fund’s investment objectives, risks, charges and expenses, and possibly seeking professional advice. Obtain a prospectus containing this and other important fund information and read it carefully.

 
Disclosures: 
Merlyn.AI Corporation is a Palo Alto-based exchange traded fund sponsor, launched in January 2019, exclusively licensed to create and market ETFs based on the Merlyn.AI technology and indexes developed by Seattle-based SumGrowth Strategies, LLC. “Merlyn.AI” and “Bull-Rider Bear-Fighter” are trademarks of SumGrowth Strategies licensed to Merlyn.AI Corp. SumGrowth Strategies is an Index Provider for funds and a Signal Provider for its SectorSurfer and AlphaDroid subscription services. It provides no professional financial investment advice specific to anyone’s life situation, and thus is not a registered investment advisor.

   
Copyright © 2020 SumGrowth Strategies, LLC, All rights reserved.


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