12-08-2020: Inching Closer to OB

Updated: Dec 9, 2020

Year-to-Date Strategy Stats as of today:

+ 45.77% : Turner Quant Advantage (TQA)

+ 16.77% : Tactical Growth (TG)

+ 6.25% : Diversified Income (DIS)

+ 30.10% : Leveraged Index (LI)

+ 14.59% : S&P 500

While we are almost at a formulaic overbought condition, the market is NOT officially overbought. So, what the heck does that mean and how does that impact my trading strategies?

When you gaze out across the great landscape of "The Market", what do you see? Do you see many reasons why this market could be way over valued and just itching for a reason to drop 10% to 20%? Yep... I see that, too... (more egregious lock-downs, economy tanking, roll-out of vaccine taking far longer than expected, inflation rising in the energy sector, small businesses going out of business forever, etc.)

Do you see many reasons why this market could be juiced a lot higher and become even more OB (OverBought)? Probably not as many reasons as to why this market could take a tumble, but still... there are reasons (vaccine, so-called stimulus bill, greatly improved employment numbers, Christmas, etc.) Have you noticed the "Now hiring" signs all over the place? Maybe it's just an Austin thing...

So... what's my investment strategy?

I am very bullish, but am very aggressive in the updating of stops. Today, for example, all 4 of my Leveraged Index holdings moved higher (up 1.04% for the day!). Tonight, I am adjusting my stops higher before tomorrow's open. I am doing the same thing in each of my 4 portfolio models. Every day that a holding moves higher, I am moving my stop for that holding higher. My goal is to get as many stops as possible above their respective basis prices to, in effect, 'lock in' profits; but, I want to give those stocks enough room to 'breathe' and not get stopped out from simply oscillating within its normal volatility band.

I have 2 of our 4 models fully invested and will be making that 3 out of 4 tomorrow morning. My most conservative model (the Diversified Income Strategy) is about 85% invested. Why so bullish??

Here is a fact about the current bullish trend in the market: The current market trend will continue... for another day?... for another week?... through the end of the year?... for the rest of our lives? Nope... but, I do know EXACTLY how long this current trend will last (and so do you)... The current trend in the market will last exactly until... it doesn't. But, of course, you knew that. And, you know something else? That fact that the market will continue this current trend until it doesn't is actionable. You can act on the knowledge that the current trend in the market has NOT ended; at least as of the close today, it hadn't ended. And since the market is not (yet) OB and since the current trend in the market is decidedly bullish, the investment bias is bullish and the investment strategy is to get as fully invested as possible.

But, you just 'might' be saying to yourself... "Come on, Mike... the market could crash tomorrow!" And, you could be right. But, you could say that on any given day in any given market. No one knows what will happen tomorrow. If the market tanks tomorrow, our stops will fire and we will go flat. If it continues to drop, we have the option to put capital to work in inverse index ETFs and stay on that bear-trending slope until it ends.

Still... there is this thing called "risk" that we must contend with.

The closer we get to OB, the higher the risk of a market correction. And, one of these days, the much anticipated correction will occur and then at some point, one of these corrections will become the first leg of the next major bear market. When risk of a correction increases, I raise stops more aggressively. And, that is exactly what we are doing.

The risk of a correction is growing, but the market is booming higher. The higher it goes, the greater the correction is likely to be when it does occur. And that, my friend, is why we have OverBought rules and why we have stop loss rules and why we constantly look for ways to err on the side of caution when the market is inching closer and closer to being OB. We know that one of these days, our stops will fire and we will be moving into cash and/or inverse index ETFs... but that didn't happen today. And with tomorrow's market futures trending higher this evening, it doesn't look like it will happen tomorrow.

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