House of Cards

“House of Cards.”

That’s how a subscriber (a Raymond James FA from Tennessee) described this equity market when he and I were speaking yesterday afternoon.

And, because of that general opinion, he’s kept his clients in diversified portfolios over the past few years, and as a result they have underperformed the S&P 500.

And, while he’s been (appropriately) conservative from a risk standpoint, we all know that at some point clients get greedy and want better returns, regardless of the risk.

So, last year he subscribed to The Sevens Report to get access to independent tactical investment strategies, and I’m happy to say those strategies have helped his clients outperform (otherwise I’m sure the conversation wouldn’t have been so pleasant!).

Like all of us, he’s gotten more nervous about the stock market lately given all this volatility, but at the same time he said that it’s almost like his clients have totally forgotten about 2008/2009 and are only focused on making money – not protecting portfolios.

So, he’s faced with this dilemma:

How can he stay vigilant to a significant breakdown in stocks, while still keeping his clients in tactical strategies that can outperform in the meantime?

Here’s how we solve that dilemma at The Sevens Report:

1. Watch all assets classes every single day,

2. Find strong risk/reward opportunities to tactically outperform, and

3. Identify and monitor leading indicators across markets that will give us a “warning sign” for that ultimate big correction.

That’s what we do every day for subscribers to The Sevens Report, so that those advisors can make sure they have an independent analyst that communicates with them every day and quickly identifies for them the risks and opportunities for:

  • Stocks
  • Bonds
  • Currencies
  • Commodities, and
  • Interprets what economic data means for the market. 

And, that’s why this gentleman continues to renew his subscription – because he trusts us to

1) Watch markets while he is out getting more clients and

2) Give him talking point and tactical strategies that can help current clients outperform.

The Sevens Report is the daily market cheat sheet our paying subscribers use to keep up on markets, seize opportunities, avoid risks and get more assetsWe firmly believe we offer the best value in the independent research space.

Despite it being the absolute peak of summer vacation season, the markets are still volatile, and this week between FOMC Minutes, CPI, Flash PMIs and continued Chinese macro turmoil (Shanghai was down 6% last night) there will be more volatility, regardless of whether it’s your week off.

Below please find a short excerpt of the paid edition of The Sevens Report:

Break Out or Break Down?  Three Key Events

Despite all the focus on China, the yuan, and global economic growth, the ongoing real-time debate in markets between the domestic economic data and the Fed speakers (which point towards a September hike), and unending negative macro threats including Greece, Chinese growth, plunging commodities, yuan devaluation (which argue for no hike) is at the heart of all this market volatility.

Unfortunately, we will not get any more definitive clarity on a September hike until the August jobs report, which won’t be released until September 3rd and that means there is more volatility ahead.

Despite the bounce from last week’s lows, we believe that three things have to happen in this market for stocks to stabilize, and the longer they go without occurring, the greater the chance of a material breakdown in the S&P 500.

Key Event #1:  China Stabilizes 

China has been at the heart of macro volatility for over a month now, and it’s the main reason cited for the Fed potentially not raising rates in September.

China has shown some signs of stabilization over the past few days, but volatility returned last night as Shanghai and Shenzen markets fell 6% each.  So, clearly China related volatility isn’t over, and getting China “right” from a macro standpoint is still very important to client portfolios.

But, trying to follow the news on China is a fool’s errand – because you never know whether you can trust anything Chinese officials say or trust the official economic data that’s being released.

That’s why we identified a specific commodity ETF that has been a leading indicator for China and, by default, US stocks.  This ETF has its finger on the pulse of Chinese growth, and can cut through all the noise and miss-information and give us a true read on sentiment towards China.

This leading indicator ETF made a new low late last week, and it needs to bottom before the broad US market can bottom. 

Key Event #2:  Junk Bonds and Other Areas of Excessive Risk Taking Need to Stabilize

A lot of risky “junk” loans have been extended to small oil companies over the past several years and bought up by bond funds who were starving for higher yield, and the health of those loans is now being called into question with oil threatening to trade under $40 per barrel for the first time in years.

To make matters worse, these fears got realized over the weekend when Samson Resources announced an intention to declare bankruptcy, and while it’s just one company, it’s certainly not helping to calm nerves regarding the potential credit risk in the junk bond market.

Bottom line, pressure on the “junk” sector of the bond market is rising, and this is important because it is the same concern that led to the broad market dropping last December/January.

Again, the underlying fear here is that the potential exists for a stampede out of overvalued junk bonds that could grow into a bigger bond crisis here in the US, given the still over owned nature of bonds.

To monitor this risk, we are watching a specific bond market ETF that has been a fantastic leading indicator of market pullbacks for over a year, and it correctly forecasted the July 2014 pullback, the Sept/October 2014 pullback, and the December/January 2015 pullback.

Most importantly, though, it’s also bottomed each time before the broad market.

It is worrisome then that this ETF made new 52 week lows last week, crashing through support, and like our other leading indicator commodity ETF, this has to bottom before the broad stock market can bottom.

Key Event #3:  Clarity on a September Rate Hike

We believe that ultimately the market needs clarity on future Fed policy to trade higher, and that if the Fed hikes 25 basis points in September and then promises to not hike again for a while (the so called “One and Done” policy) that can give the market the clarity it needs to move higher.

But, gauging the chances of a Fed rate hike is very difficult given all the “noise” in the market right now.  But, we have identified a specific bond yield that is historically a very good indicator of market expectations of a hike, and we are focused on that specific Treasury yield to give us an indicator as to whether the Fed will hike, or not.

This is especially important because if the Fed does not hike in September, and the longer the market remains in Fed hike limbo, the worse the volatility will get, and a breakdown out of that 2,050-2,130 range will be possible and likely.

So, getting the expectation of a hike “right” will be critical in being properly positioned for the rest of 2015.

We will continue to watch these three key leading indicators (The two ETFs and the specific bond yield) for clues as to the next direction of the market.

Most importantly, though, our paid subscribers will know they have an analyst team watching for signs of a breakdown, should these indicators not bottom and the volatility get worse.  They know they can trust us to warn them of a potential breakdown in stocks, so they can spend more time with clients and building their books.

Click this link to start your quarterly subscription and learn which two leading indicator ETFs and bond yield we are watching for signs of a bottom or breakdown in markets.

Value Add Research That Can Help You Grow Your Business

Our subscribers have told us how our focus on medium term, tactical opportunities and risks has helped them outperform for clients and grow their books of business.

In three years of doing this the absolute best feedback I’ve ever received was when a client (an FA from a bulge bracket firm based in Florida) called me late last year and said our Report helped him land a 25 Million dollar client!

But, while obviously not as monetarily impressive, we continue to get strong feedback that our report is: Providing value, Helping our clients outperform markets, and Helping them build their business: 

Thanks for your continued insight; it has saved my clients over $2M USD this year… Keep up the great work!” – FA from a Bulge Bracket Firm.

“Let me know if there is anything else that you need from us. Thanks again for everything. I really enjoy the Report – it is helping me grow my business and stay on top of things.” –  Independent RIA.

“Great service from a great company!!” – FA from a Bulge Bracket Firm.

“Great report. You’ve become invaluable to me, thanks for everything…!  –  FA from a Bulge Bracket Firm”

If reading The 7:00’s Report each day helps you retain just one client with an average balance of $80,000 (based on an assumed 1% management fee), then you’ve already more than paid for the subscription price.  Subscribe today and give yourself the market intelligence you need to help reassure your current clients, and acquire new ones.

Subscriptions start at just $65 per month, billed quarterly, and with the option to cancel any time prior to the beginning of the next quarter, there’s simply no reason why you shouldn’t subscribe to The 7:00’s Report right now.

Begin your subscription to The 7:00’s Report right now by clicking this link and being redirected to our secure order form.

Finally, everything in business is a trade-off between capital and returns.

So, if you commit to an annual subscription, you get one month free, a savings of $65 dollars.  To sign up for an annual subscription, simply click here.


Tom Essaye,
Editor of The 7:00’s Report

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