"Turner Capital Total Market Index" (TMI) a tool-kit and financial partner to grow your wealth and reach your goals.
The market opened with a yawn this morning, following an iffy last week.
As you know, we are happily sitting on the sidelines, waiting for the signal (and strength of signal) to get back in. Could that signal happen this week? Absolutely, but we will not know until after the signal has (note the past-tense) occurred.
This past Friday, we had several indicators that it was time to get back into the market, but not all of our indicators were positive. Two of them were negative and one was quite negative. Yes, the trend data are quite positive but our strength of trend indicators are not nearly so positive.
All of the stars in our market analysis universe could come into alignment this week and if they do, we could be back in the market on Friday. Our biggest concern is our volatility indicator. It is at the highest point for the year and while that will not keep us out of the market, I would prefer it to pull back some.
At this point, of the five major indicators that we monitor regarding getting into the market, three are positive, one is neutral, and one is negative. We like to have all five in the positive condition.
One of the things I love about helping our clients to grow and protect their stock market investment capital, is how much more we can do in the world of 'what-if-ing' through the use of artificial intelligence. AI is changing everything. I am in the camp of those who believe that AI is, historically, the biggest change to have ever occurred in how the world moves forward. Bigger than the industrial revolution; bigger than the Internet; bigger than any prior technological advancement. And, it is just in its infancy.
We are so fortunate to be able to see the birth of this evolution in mankind. We are implementing AI in our company from marketing to trading acumen. Our ability to 'try-and-test' any nuance for advancements in capital growth while reducing risk using AI has grown by orders of magnitude over what we were able to do this time last year. AI is not a crystal ball. No one and no technology has that capability, but our ability to test, almost instantly, trading decisions over any period of time in history is unparalleled. AI is not going to suddenly make every trade a winning trade. AI is not going to guarantee success. But AI will help all of us to improve our strategies and expand our abilities to make smarter, better, more profitable trading decisions.
One of the AI-driven enhancements to our trend-based trading methodology is our "Capital Preservation" Rule. This rule steps outside the structure of trend and moves clearly into the structure of human nature. Everyone 'likes' it when a trade generates a great result. That result is measured in percent profit. But as much as we all like to have profitable trades, we all abhor losing money. Here is where AI comes into play...
Let's use our most recent trade as an example... We were 3+ months into the trade and it was doing great. Our 3x Strategy was up over 55% and our trend rules had our exit at about 30% to 40% below where the market was trading. This was to avoid market whipsaws. When you only use trends to get in and get out, those trends can sometimes be substantially far apart. From a purely trend perspective, most if not all of our 55% of unrealized gain in the 3x Strategy, could have been lost if we only use trend-based rules for exiting the trade if/when the market moves against us. This is the problem with buy-and-hold strategies and trend-based strategies as well.
But, with AI, we have another exit rule called our "Capital Preservation" rule. This rule doesn't care about trends in the least. It cares about the client losing all or a substantial portion of the hard-earned unrealized gain. The purpose of the Capital Preservation rule is preserve as much of that unrealized gain as possible without getting out of the trade too soon... this is a non-trivial exercise. AI has helped us in the development and deployment of our Capital Preservation rule, which did trigger a couple of weeks ago. The rule triggered an exit and turned 90% of that huge amount of unrealized gain into realized gain and portfolio growth for our 1x, 2x and 3x clients.
We are in the process (and it will never completely end, I suspect) of using all the technical acumen at our disposal to constantly look for ways to get us into the market at the best time, capture profit through the conversion of unrealized gain into realized gain, and protect us from as much downside risk as we can.
We are the opposite of buy-and-hold. We are active, opportunistic and careful at the same time.
Alex Goodwin, Vice President
The indexes continued their push to new highs last week, though they were not as stable as weeks prior. The S&P 500 and the Nasdaq 100 both retreated from their all-time highs on Friday, and while there was no obvious headline, it was likely a combination of July PPI report and semiconductor tariff threats made by the Trump administration. So, while it was a successful week for the Bulls, some investors believe there is a market top coming soon.
We have known for some time now that the market rally has been driven significantly by the top 7 companies, and that was before the AI fueled rally began its meteoric rise. Now AI and big tech companies are even more in the drivers seat, and this has some investors concerned. The first case for a potential pullback is the S&P 500 price-to-earnings ratio which currently measures 22.54, a figure eerily similar to the February number before the market sold off.
The second case is the top-heavy nature of the market. Goldman Sachs pointed out that the top 20 companies in the S&P 500 are trading at a 57% price to earnings premium to the lowest quality stocks. This means that companies at the top get an additional boost from investors believing that they are a safe haven and are ‘immune’ from economic uncertainty.
The third and final case for a potential pull back is our own technical data. As mentioned above, our technical indicators certainly observe that the market is still in a bullish condition, however, our strength of trend measurements are not nearly as bullish. This simply tells us that cash is the best place to be until we get data that tells us otherwise.
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