Stock Prices Have Peaked - Time for Cash

Covestor portfolios: Tactical All Asset and Tactical Growth

Bottom Line: Stocks have peaked. Asset protection is the main objective at this point.
A 100% allocation to Cash is recommended.

• Long-Term Stock Pattern (3-5 yrs) – Bearish, Lower stock returns ahead
• Intermediate-Term Stock Trend (1 year) - Bullish, Stock prices have peaked
• Short-Term Stock Volatility (30 days) - Bearish, Lower stock prices ahead
• Inflation –
  • · Developed Economies - At or Above Target (except Japan)
  • · Emerging Economies - Above Target
• CURRENT ASSET ALLOCATION OBJECTIVE – PROTECTION

Fundamental, Technical, Trend, & Volatility Indicators

Fundamentally, the S&P 500 is trading at a 22.55 P/E (Shilller approach) as of March 7, a 36% premium over the long-term average of 16. Lower than average returns on stocks over the next 5-10 years are therefore expected.

Strategy Factors
PATTERN: BEARISH; Stock prices are pushing against the upper bound of a long-term secular bear market pattern. Prices will eventually give way and start heading lower.

TREND: BULLISH; Stocks have been in an upward trend since early January however there are clear indications that stocks have peaked. This is reflected in investor sentiment, the S&P 500 advance/decline line, the number of stocks above their 50 day moving average, and the divergence between the Dow Jones Transports Average and the Dow Jones Industrial Average.

VOLATILITY: BEARISH; The trend in prices of the S&P 500 VIX “fear index” is lower and therefore bullish for stocks. However until it trends toward 17 consistently for several weeks the volatility indicator will remain bearish.

Asset protection is essential. An allocation to Cash is suitable at this time.

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