Every month I document a list of the top 25 equities that my financial models indicate are the most attractive among a portfolio of 187 companies. The June list reflects 17 equities with price gains and 8 with price declines for the period June 30, 2017 through August 7, 2017. The top double digit gainers are Diamond Offshore +12.7%, Orbotech Ltd +11.0%, Lam Research +10.2%, Apple +10.1%, and Netgear +10.0%. The largest double digit decliners are Viacom Class B shares at a minus 20.4%, Mylan -17.6%, and Southwest Airlines -10.9%.
As of this past week, two of the June Top 25 selections have come off the list and have been replaced by two new addtions. Of the remaining 23 companies, 14 companies have moved up or down on the list’s rankings. Lam Research is now number one, displacing Diamond Offshore which fell out of the top 25 after its recent increase in price.
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|Fundamentally, the equity market remains at a level that is historically over-valued. In each prior monthly newsletter, I have written at length about the extended levels of the key fundamental metrics which cause me to believe that we are at a high-risk level for a market correction. In this month’s newsletter, I will focus entirely on the technical measures of the equity market to help assess where we may be in terms of the timing of a stock market correction.
The summary view is that there are two dominant themes evident from the technical data:
1. Many technical indicators are at peak levels that have historically preceded a stock market downturn, and
2. Other indicators have already made the turn lower, indicating a near-term decline has a greater probability than has been the case in a very long time.
After you read and digest this newsletter, please feel free to email me with any questions you may have. The array of technical information may be a bit “wonky” and challenging to understand, so I have included charts to help sort through the numbers that are contained in the paragraphs.
My overall view is that equities are priced at levels that are not supported by the fundamentals. This valuation disconnect has not mattered during the past eighteen months, and the technical side has supported the rise in the equity indexes. Absent signs of fatigue in the technical indicators, or signs of actual underlying weakness within the many key technical variables, the market risk of a decline has been muted. That fact is changing, and the array of information set out below should be clear in providing the signs that the tide is turning and that the recent alignment of market fundamentals and market technical indicators are exposing a great level of risk that a material decline in market prices is not far off.
With this preamble, I wish you all well and prescribe a heavy dose of coffee.
This month we cover a number of topics in our 15 pages of economic and market analysis. The picture of our economy and the market is painted as if it were a Thunder Storm. Being prepared is the key, while also investing for the future. The potential of Crypto-currencies is a meaningful part of the investing discussion, and should not be missed.
The topics covered in this month’s newsletter include:
- Developed economies across the globe are navigating an emerging world of less liquidity, and while economic growth is present, is it accelerating?
- What are fiscal budgets indicating?
- What happened to capital investment?
- Do current stock market valuations make sense?
- Should we be anticipating a continued increase in equity prices?
- Where in this market am I allocating my capital?
- Which equities am I tracking for buying and selling purposes?
- The Imagining the Future section focuses on the world of Digital currencies and attempts to answer the question “Are we interpreting this phenomenon correctly?”
A subscription to the monthly newsletter costs $150 on an annual basis for twelve newsletters. In addition to the newsletters, for an additional $100 per year, subscribers also receive Trade Alerts on the day I buy or sell any investment. The Trade Alert feature adds $100 to the annual subscription cost. For a total of $250 per year, you receive an Economic and Market newsletter each month and Trade notifications on any day I make an investment decision.
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This month we cover the following topics:
Developed economies across the globe are exhibiting growth, but the US growth is decelerating.
What are stock market valuations telling us?
Are we peaking or setting up for a continued increase in equity prices?
Digital currencies, fever or reality?
Where in this market am I allocating capital?
The Imagining the Future section focuses on China and the One Belt One Road initiative.
Subscribe now for the insights that will help you better manage your investments and position your portfolio for greater success.
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The May Newsletter on the U.S. Economy and the attractiveness of Investment choices from Connolly Financial Advisors is due to be released to subscribers on May 20, 2017. The April newsletter that discusses the attractiveness of investing in India, Bitcoin, currency positions in the Foreign Exchange markets, long and short positions in commodities such as Cocoa, Oil and Precious metals, and a select group of long and short equity candidates for future investment, was distributed to subscribers on April 23rd, and is attached below for your enjoyment. I should also note that subscribers to the newsletter receive trading alerts during each month on the day of the trade when I buy or sell any investment asset.
Should you wish to subscribe to the upcoming May newsletter, please drop me a note here or email me at email@example.com
The Connolly Financial Advisors April 2017 Newsletter
A key statement from this month’s Executive Summary is: “As we wade through the Economic, Fundamental, Technical and Tonal aspects of the markets in this month’s essay, all of which confirm the current state of Market Churn and possible topping action, there is a gem hidden within these writings, one that should be pursued in terms of seeking knowledge.”
The April 2017 newsletter has just been issued and covers the following areas:
- Economies across the globe are exhibiting growth.
- What are stock market valuations telling us?
- Why are we churning each day in a way that leaves us running in place?
- Are we going through a topping pattern?
- Where am I allocating capital in this environment?
- The “Imagining the Future” section looks into what may be one of the most compelling investment opportunities in the world today
Subscribe now by emailing firstname.lastname@example.org to enroll in our annual membership plan.
The Newsletter for March is now free and is available below by clicking on the link to the article.
|Executive Summary Issued March 17, 2017
|Economic growth, inflation and interest rates are on the rise across the globe. Fiscal stimulus is beginning to complement/replace monetary stimulus and the impact is giving us economic green shoots, optimism, expanding employment, increases in production and consumption, and the emergence of rising inflation expectations. These factors, along with a pro-business posture in government, have directed the strong monetary flows that have been in the financial system and channeled them with aggressiveness into the equity markets. The result has been a dramatic rise in the equity indexes since November 2016. This rise has been further fueled by the movement of the retail investor out of money markets and into equity index funds. The monetary fuel and the expectations of a struck fiscal matchstick have ignited this fire, and for many it has been a great ride. For others, there is a sense of having missed the parade which is driving a newly inspired desire to join in and to buy stocks. Per the WSJ, Fund tracker EPFR Global reported record net inflows into equity mutual and Exchange Traded Funds during the week of March 1st, clear evidence of the herd moving in one direction. Jamie Diamond of JP Morgan was recently reported to have stated that the animal spirits are back and in play. I wonder if that is good or bad.
A contrary observation to the above is the ratio of company executives buying shares to those selling shares in their own companies. This ratio has slumped to a 29-year low as selling overwhelms buying. That observation more or less aligns with my personal activity in the market. I am not joining the buying parade, for while the reasons for the powerful move higher have substance, the regime of the market in terms of over-valuation, weakening market internals, and the move towards tightening of monetary policy present a real reason to be cautious and conservative until a better entry point appears. That summarizes my current approach.
The link below will provide you with the full report.
CFA March 2017 Newsletter
What investing regime are we now in?
We are transitioning away from the Central Bank stimulation regime.
What may be the new Regime? An environment of fiscal stimulus in China, Japan and the United States. A spending of money by governments to stimulate growth, a global reflation environment.
This is what has driven the equity markets to new highs. My sense at this point, given the anticipatory move higher in equity prices that has already occurred, is that it is too late to buy and too early to short.
The phase we are in is an early inflation set-up, one that will continue to expand and that will have meaningful impact on various asset classes. What to do? Buy Gold and Silver. With inflation emerging, real interest rates will become negative and that will drive interest rates higher. Short bonds and buy TIPS. Inflation should help commodity countries, so emerging market ETFs and commodity ETFs become more attractive. Finally, with paper currencies walking around with a target on their back as governments try to increase tax revenues by attacking the black market and the shadow economy, it may be prudent to establish a small position in Bitcoin.