Follow the global leaders
No Impediments Showing Up
The global rally is gaining some international
breadth and appears likely to continue at least through the seasonal time-frame
into the first quarter at least, and possibly further until some impediment
shows up. Breadth in the US market is still indicative of a late-cycle action
typically preceding a top though, so less than normal allocation is still
suggested.
We continue to like the global leaders such as
Japan, Korea, US transports, insurance, Latin Banks, Brazil, Gold/EUR and
gold/Yen, and the platinum-palladium group of metals.
Gold in dollar terms is at important resistance
between 500-520 — areas that stopped every advance since 1982. Gold is as far
above its 200 ma as it has been in many years and is also hitting the upper
boundary of a very well established uptrend channel intact since the bull market
began in 2001. It would not surprise us to see a pause or correction here soon.
However the breadth of metal bull market is impressive, including copper, almost
all base metals, and substantial breakouts in the platinum/palladium group.
The dollar is also at a critical level. Our bias
has been to expect more dollar strength than others. Continued dollar strength
through 1.17 again in EUR will likely lead to another dollar leg up, whereas
holding here and declining through 1.20 will be positive for other currencies.
Bonds globally appear in a trading range, though
double tops have been put in longer-term. Key questions for all markets are
whether inflation will stay contained and whether the US consumer can remain
resilient in the face of Fed hikes and a housing slowdown.
This equity market still isn’t the stuff of
long-term wonderful trading opportunities in our opinion — but particularly for
traders, the rally is playable with less than normal allocation in the globe’s
best relative strength sectors.
Mark Boucher
Mark Boucher has been ranked #1 by Nelson’s
World’s Best Money Managers for his 5-year compounded annual rate of return of
26.6%.
Boucher began trading at age 16. His trading
helped finance his education at the University of California at Berkeley, where
he graduated with honors in Economics. Upon graduation, he founded Investment
Research Associates to finance research on stock, bond, and currency trading
systems. Boucher joined forces with Fortunet, Inc. in 1986, where he developed
models for hedging and trading bonds, currencies, futures, and stocks. In 1989,
the results of this research were published in the Fortunet Trading Course.
While with Fortunet, Boucher also applied this research to designing
institutional products, such as a hedging model on over $1 billion of debt
exposure for the treasurer of Mead, a Fortune 500 company.
For those not familiar with
our long/short strategies, we suggest you review my book The Hedge Fund Edge.
Basically, we have rigorous criteria for potential long stocks that we call
“up-fuel,” as well as rigorous criteria for potential short stocks that we call
“down-fuel.” Each day we review the list of new highs on our “Top RS and EPS New
High List” published on TradingMarkets.com for breakouts of four-week or longer
flags, or of valid cup-and-handles of more than four weeks.
Buy trades are taken only on
valid breakouts of stocks that also meet our up-fuel criteria. Shorts are
similarly taken only in stocks meeting our down-fuel criteria that have valid
breakdowns of four-plus-week flags or cup and handles on the downside. In the
U.S. market, continue to only buy or short stocks in leading or lagging
industries according to our group and sub-group new high and low lists.
We continue to buy new long
signals and sell short new short signals until our portfolio is 100% long and
100% short (less aggressive investors stop at 50% long and 50% short). In early
March of 2000, we took half-profits on nearly all positions and lightened up
considerably as a sea of change in the new-economy/old-economy theme appeared to
be upon us. We’ve been effectively defensive ever since, and did not get to a
fully allocated long exposure even during the 2003 rally.