11-24-2020: To be OB or to not be OB

Year-to-Date Strategy Stats as of today:

+ 42.79% : Turner Quant Advantage (TQA)

+ 14.19% : Tactical Growth (TG)

+ 6.57% : Diversified Income (DIS)

+ 20.70% : Leveraged Index (LI)

+ 12.52% : S&P 500

Here are the facts and they are undisputed:

  1. The market is way up... way, way up. How way up, you ask? Well my Total Market Index is 20.77% above its 200 DMA.

  2. A 'normal' standard deviation unit of measure (SDU) for the market (TMI) is about 5%.

  3. The current SDU is 9.15%; nearly twice the so-called, 'normal' value.

  4. At the current value of one SDU, the market would have to move up 11.25% from where it closed today (at record highs) to be considered OB (Overbought). The market, according to the current definition of one SDU, is only 2.27 SDU's above its 200 DMA. The critical level is 3.75 SDU's... but, that has a LOT to do with the size of the SDU.

  5. At the 'normal' value of one SDU (e.g., 5%), the market is 4.15 SDU's above the 200 DMA and would be considered significantly OB.

By historical standards, the market (TMI) is well above the level to trigger an OB situation where we tighten stops significantly on each holding.

But, the market is what the market is and the market, right now, defines an SDU to be equal to 9.15%. In today's market, that number could/should/might be considered "normal". But, I am not so sure...

The market has a great propensity to revert to a mean; or in this case to a normal standard deviation of volatility. That being said, the only prudent, technical conclusion that can be drawn is: The market is currently overbought by historical standards and risk of a correction has grown significantly in the last few weeks.

So... We have been tightening stops and in some cases, tightening them significantly. In my most risk averse portfolio model (the Diversified Income Strategy), all stops were hit today and the model went completely to cash. Up nearly 7% for the year is a major accomplishment for an income strategy. We will look for some opportunities to dip our investment toe into the water, going forward, but with the market in an OB condition, we are in no hurry to do so.

Stops were tightened in all ports today; even our most risk tolerant portfolio, the Turner Quant Advantage model.

Yes, I know... if you are a perma-bull, then all of this is just so much hot air. I have heard from both sides today... perma-bull and perma-bear. But, those opinions (with all due respect) are just guesses and as you know, I do not guess (or certainly try my best to avoid any guessing). I like where we are and I am comfortable with our tightened stops. The quantitative analysis supports significantly tightened stops. And... they are trailing stops that move up as positions move up.

Before I sign off, I want to wish you and your family and friends (hopefully they are the same) a wonderful Thanksgiving. Our Turner team has a lot to be thankful for. You have helped us achieve goals this year that we could only dream about, just a few short years ago. We are grateful for your trust and commitment to our approach to growing and protecting client capital. Thank you!! Stay safe out there.

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