Pullback (Three Reasons It Isn’t Over)

“What do I do now?”

I was talking to a prospective subscriber recently (an RIA) who said he’s very nervous about the rest of the year because:

  • He didn’t buy the dip in August or September,
  • His clients are underweight equities, and
  • After last week’s 3% rally in stocks, he is nervous that they could finish the year in the red while the S&P 500 manages to make a small gain.

That’s concerning because we all know that clients are more likely to leave when they lose money, especially when the S&P 500 is up and their portfolio is down.

I empathize with this RIA because all of us have felt this type of anxiety at some point in our careers.   And, I’m sure this gentleman isn’t alone right now, because with all the loud opinions out there, it’s very hard to keep a clear focus on what’s truly driving the market and make good tactical decisions.

I created The Sevens Report specifically to eliminate the information overload – because I don’t believe that an advisor should have to sacrifice time with current and prospective clients just to stay up on a volatile, macro driven market.

That’s exactly what we do for paid subscribers to The Sevens Report (which are some of the most successful advisors, RIAs and portfolio managers in the industry).

Here’s how we help our subscribers at The Sevens Report avoid this type of situation:

1. We watch all assets classes every single day,

2. We find strong risk/reward opportunities to tactically outperform

3. We, identify and monitor leading indicators across markets that will give us “warning signs” before the next bear market.

That’s what we do every day at 7 AM 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 our retention rate is remains over 90%, because our subscribers trust us to:

1) Watch markets while they are out getting more clients and

2) Give them talking points 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.

We want everyone to have the best year possible, so in that spirit we have included an excerpt from the research that was sent to our paid subscribers at 7 AM Monday morning.

Three Headwinds Remain

Despite the fact that the stock market just finished its best week in 3 years, we remain skeptical of this rally for two reasons:

1. The Fundamental Headwinds That Caused this Correction Are Still in Place

2. Key Leading Indicators are Not Yet Confirming this Rally 

To that point, a little over two weeks ago, once the test of the August lows of 1,867 held, we said we could easily see a sprint higher back towards the higher end of the 1,900-2,000 trading range—and that’s basically what’s occurred.

To be sure, there has been legitimate fundamental and technical improvements in the market over the past two weeks, and much of the recent rally is justified by the fundamentals (China is showing signs of stabilization, commodities are bottoming, and the extreme negativity of Aug/Sept has rightly faded). Yet for the S&P 500 to extend the rally and get back to flat year to date or take a run at 2100 three things have to happen:

1. Chinese data must improve while authorities continue to show competence,

2. 3rd Quarter earnings, which start this week in earnest, need to stay decent and full-year 2016 S&P 500 EPS needs to stay above $125

3. A Fed rate hike needs to be considered imminent (this point encompasses economic data—the data has to stay good or get better for the Fed to get serious about hiking rates).

In the very short term we would not be adding incremental capital to the market at these levels, as we’re probably looking (at most) at another 20-30 points of near-term upside in the S&P 500 vs. the potential for 100 points down, if earnings or Chinese data is light. But given the improvement in fundamentals, putting some money to work in the mid-1,900s or lower seems like a decent risk/reward set up, so some patience is needed.

Leading Indicators Still Not Confirming a Bottom (Sevens Report Excerpt)

Over the past few weeks we’ve been keeping you up on the movements of the two leading indicator ETFs that accurately predicted the collapse in August and September.

The reason we are still following these leading indicators so closely is because neither one has confirmed that a bottom is in and that an upside breakout in stocks is eminent.

For us to safely declare the bottom is in and stocks are set to rally, we need confirmation from these two leading indicators, and that simply hasn’t happened yet.

Leading Indicator #1:  A Real Time Barometer on China and Global Economic Growth Fears

This leading indicator is a specific commodity ETF that has large exposure to specific industrial commodities – which are a proxy for:

1) Chinese growth and

2) Emerging market sentiment.

It has been a strong leading indicator for China in 2015 as it broke a four month uptrend in early July, right before the rest of the market got dragged down by “China” worries.

As the chart above shows, this leading indicator has held a key support level at $15.00, but it failed to trade materially above the late August high.

This ETF needs to trade decidedly above that August high to give positive confirmation to the recent rally in stocks. 

Leading Indicator #2:  A Real Time Measure of Financial Stress in the US

The potential still 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, the December/January 2015 pullback as well as this current pullback.

Most importantly, though, it’s also bottomed each time before the broad market, and we expect that to happen again this time.

This ETF has is now hitting a downtrend in place since June and it’ll take a decisive break of that downtrend to confirm that stocks are poised to move higher. 

No one can know for sure at this point whether a bottom for the market is “in” and that’s why we are focused on key leading indicators for the two risks to this multi-year stock market rally.  Those leading indicators are in the commodity and bond markets, and you need to have an analyst who knows those markets and who is watching those indicators for signs of further stress or for signs of a bottom. 

Our subscribers know that we will do that for them, and we will tell them when those indicators in commodities and bonds go from flashing a “warning” sign to flashing a “crisis” sign.

As a courtesy, I am extending a limited time, special offer to new subscribers of our full, daily report that we call our “2 week grace period.”

If you subscribe to The 7:00’s Report today, and after the first two weeks you are not completely satisfied, we will refund your first quarterly payment, in full, no questions asked.

Click this link to start your quarterly subscription and learn which two leading indicator ETFs we are watching.

Macro Commentary That Can Help You Impress Prospects and Outperform

The past 2+ months have not been easy, and it’s been a lot of early mornings and late nights here at The Sevens Report, but I’m especially proud of the service we’ve provided to our subscribers during what has been the most volatile and painful market since 2011.

Over this period we’ve provided value to our subscribers by:

1.  Ensuring they knew the real macro factors that were causing the declines in stocks so they could project control and competence to their clients.

2.  Providing a strategy to responsibly buy the dip in stocks and take advantage of the declines while still protecting capital.

Specifically, we:

  • Warned subscribers in late July/early August that stocks were not trading well and that 2050 was a key technical level to watch in the S&P 500.
  • Identified that Chinese growth concerns and Fed uncertainty were two building headwinds on the markets.
  • Alerted subscribers to two key leading indicator ETFs that forecasted the declines.
  • Presented a systematic, methodical way to “Buy the Dip” in the market that has allowed subscribers to take advantage of the plunge in stock prices in late August and September.

On August 26th, when the market was plunging, we included a special section in the paid edition of The Sevens Report titled:  “How to Responsibly Buy This Dip.”
In that section, we gave our subscribers:

1. “Six Steps to A Market Bottom” that consisted of six events that need to occur before an “All Clear” could be declared.

2.  A basic capital deployment strategy by which 1/6 of cash on hand would be allocated to buy the dip as each one of the “Six Steps” was met.

We did this for two reasons:

First, we wanted our subscribers to see the fundamentals weren’t declaring a bear market, and communicate that to nervous clients.

Second, we wanted to make sure that our subscribers had a strategy to methodically buy that dip, so that when they were talking to prospects over the coming weeks, they could tell them they had a methodical strategy to take advantage of the dip and help clients outperform once markets recovered.

Most importantly, we identified three specific tactical ETFs to buy when each step was met.

These tactical ETFs were selected because of attractive fundamentals and technicals, and we believe they can outperform the broad market into year end.

We told subscribers to add to these three ETFs on August 25th, September 14th and September 15th.

Those tactical ETFs have risen an average of 4.27% since then. 

That may not seem like a lot, but it can make the difference between a client’s account ending positive or negative for the year, which can mean the difference between retaining that client, or losing that client.

We continue to believe these three tactical ETF can outperform the S&P 500 if the rally continues, and we will continue to cover them for our subscribers.

Click this link the begin your quarterly subscription and learn which three tactical ETFs we believe can outperform into year end.

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 valueHelping our clients outperform markets, and Helping them build their businesses:

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”

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

Subscribe Now
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.

Annual Subscription (Save $65)
TomTom Essaye,
Editor of The 7:00’s Report

Leave a Reply