Six Signals of a Market Bottom (Updated)

I haven’t seen the market this tense since 2009, as sentiment, fundamentals and the charts are all telling us that stocks are at a multi-year tipping point, one that will likely be resolved positively or negatively as early as next week.

And, frankly, our subscribers (advisors, RIAs, portfolio managers) and their clients are feeling that tension as well. 

I know that because over the past three weeks we’ve seen a big uptick in the number of subscribers asking permission to send The Sevens Report directly to their sophisticated, higher net worth clients.

In fact, a subscriber called last week and asked if he could send it to his five best clients during this time of market turmoil, and our response was an enthusiastic “Yes!”

We all know that successful advisors grow their book and their business by connecting with high net worth clients, and to build trust with those clients you can’t just repeat company “perma-bull” strategies.

Especially during times like this, we want our FA subscribers to share our independent, concise market analysis because it is volatile markets like these where you can demonstrate to your clients that:

1. You aren’t just a passive participant in the market, and

2. You know the key catalysts to watch and have a plan to protect portfolios and seize opportunities. 

Doing that is how you get larger allocations and more referrals.

Case in point, last year, during a time of market volatility, a subscriber from Raymond James shared our Report with a prospect and it ultimately got him a 25 million dollar account!

This market is at a tipping point, and the chances of a breakdown or rally are about balanced, despite what the bears and bulls are saying.

So, advisors like the one I spoke to last week are 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 and not miss buying this dip, if stocks start to recover.

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

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 a “warning sign” for that ultimate big correction.

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 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.

Below we’ve included an excerpt from Monday’s Report that details the latest signals from the leading indicators in the market.

Signs of a Bottom or Just a Head fake? (Sevens Report Excerpt)

We continue to monitor our “Six Steps to a Market Bottom” and while there has been some additional progress made, it’s still way too early to declare an “All Clear” in stocks.

1. Markets need to see competence from Chinese authorities. Accomplished Two Weeks Ago. Chinese authorities cut one-year lending rates, lowered reserve requirements, initiated liquidity injections and began to outright buy stocks to support the market beginning last week. But despite all of the efforts, the market continues to have a confidence problem with Chinese leadership that needs to be further resolved, which is likely achievable by ongoing and further efforts to induce stability in the markets.

2. US economic data needs to stay decent. Accomplished Last Week. The August jobs report was stronger than the headlines implied and the truth is that (so far) US and European economic data is not being negatively affected by the China turmoil.  That was further confirmed last week by the JOLTS data and this morning’s August Retail Sales Report.  We added to our three preferred tactical ETFs last week.

3. The Fed needs to get on one page and stop letting the market view the indecisiveness in real time. When: Potentially This Week.  The FOMC meeting is looming and although markets are pricing in no hike, we still hope for some additional clarity from the Fed regarding when it will hike rates.  Paid subscribers already have our full FOMC Preview.

4. People need to get back to work (i.e. trading desks need to get back to full staff and add human liquidity). When: Potentially This Week.  It usually takes a few days for trading desks to get back to full staff after Labor Day, but the Rosh Hashanah holiday has attendance levels depressed again.  We are watching volumes closely and if they rise back to “Pre-Summer” levels after the FOMC meeting we will add to our three preferred tactical ETFs.

5. Oil needs to bottom. When: Potentially This Week. In the Report we identified a key technical level that, if held, will signal to us that the bottom in oil is “in” as fundamentals are slowly turning less negative (which is enough for a bottom near term).  If a bottom is “in” for oil we will add to our three preferred tactical ETFs.

6.  Economic data does need to stabilize in China. When: Next Week.  Data from China over the last week was “Not as Bad as Feared.”  August Trade Balance, August Fixed Asset Investment and Industrial Production missed estimates but not by that much, and importantly Retail Sales beat estimates which shows the consumption side of the economy is stable.  If flash PMIs next week can stabilize that will be a positive and we will likely add to our three preferred tactical ETFs.

Bottom line: We have added 1/3 of our total “Buy the Dip” allocation to our three preferred tactical ETFs, and this week could see us double that allocation, if not more.

But, in volatile markets it pays to be patient, so that’s what we are doing. 

Subscribers trust us to alert them first thing each morning if another “Step” has been met – because we do not want to miss the opportunity of buying this dip, should the market continue to stabilize.

Make sure you have an analyst team working for you that’s committed to helping you seize this potential opportunity in stocks, while also staying vigilant to a further decline.

If all we do is help your successfully navigate this challenging environment for the remainder of 2015, it will be well worth the quarterly subscription cost.

Click this link to start your quarterly subscription for just $65/month ($195 total). 

Leading Indicators at a Tipping Point

Our two leading indicators have once again forecasted the short term path of the broad markets.

Our two key leading indicator ETFs bottomed two weeks ago and have been consolidating that bounce for the last week, just like the broad stock market.  And, we firmly believe that both leading indicators will break out or break down before the broad market, so we continue to focus on them.

It should become clear in the next week or so whether a bottom in those two indicators is “in,” or if this was just a bounce in a still downward trending market.

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.

Most recently it broke a two month old downtrend two weeks ago and is now consolidating that move. And if it can hold these current levels, then it will indicate a “bottom is in” for this leading indicator.

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

With oil plunging to fresh, 6 ½ year lows below $40/bbl. in late August, concerns continued to rise that we will start to see stress in the junk bond markets, as 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 was beginning to come into question.

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, and we expect that to happen again this time. Unfortunately it has not yet broken through resistance and still has some work to do on the charts in the near term.

After bouncing off the bottom this leading indicator ETF is also consolidating recent gains, and if it can hold and move higher this week, that will be another sign that the bottom is “in.” 

Bottom line, the next two weeks are going to be critical with regards to signaling whether this correction is nearing an end, or if this bounce in stocks and commodities is just a counter trend rally in a now declining market.

No one can know for sure at this point 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.

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.

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Best,
Tom

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

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