NAAIM Speaks is bi-monthly newsletter containing market insights and analysis from NAAIM member firms. “Speaks” is designed to provide a plethora of market analysis, indicators, some occasional humor, as well as a summary of NAAIM’s proprietary Dynamic Asset Allocation Model and Managers Exposure Index. The report is for informational uses only and is not to be construed as investment advice.

Assuming The Worst (Again)

By: David Moenning, Heritage Capital Research

Published: 10.2.19

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One of the bullish arguments that has been bandied about by many analysts (including yours truly) is that the major indices have been hanging tough lately and remained, until yesterday at least, a stone’s throw away from all-time highs. This despite the impeachment headlines, the ongoing trade war, the unrest in Hong Kong, the worries over BREXIT, and recent economic data from places like Germany which were just plain ugly.

Until yesterday, the thinking had been that the majority of the bad news was well worn. And the stuff that was new – i.e. the Dem’s Impeachment Inquiry – wasn’t likely to upset the apple cart to any great degree due to the assumption that a conviction in the Senate is a low probability bet.

So… Lots of folks (me included again) assumed that with the major averages a stone’s throw from the Promised Land, it meant that Ms. Market was likely discounting better days ahead.

Well, until the ISM Manufacturing data was released, that is…

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Can Bulls Make a Stand?

By: Paul Schatz, Heritage Capital LLC

Published: 10.2.19

S&P 500 Chart

Last week was the single worst week of the year based on seasonal patterns and it certainly lived up to the billing I gave it several times here. Weak seasonality didn’t end last Friday. It extends to the first part of October. For the past few weeks I have been in the trading range / mild pullback camp with an eye on the upper and lower ends of recent range. After stocks failed to exceed the top of the range last month, I offered that a visit to the lower end of the range would probably be in line.

After a feeble bounce to close the month and quarter on Monday, the bears made a lot of noise on Tuesday after the ISM economic report came in much weaker than expected with a chorus of recession calls following. While I continue to expect a mild recession beginning in the next year, I don’t think it’s right here and now. And certainly, the markets are not forecasting recession just yet.

So, the question is…

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ETFs Kill Fundamentals (And Why Technicals Matter)

By: Jeffrey Miller Dash of Insight

Published: 10.1.19


This week we tease the idea that growth in passive ETF investing is killing the appreciation for fundamental analysis, and increasing the importance of paying attention to technical analysis when placing trades.

Now aside from active mutual fund managers complaining about the dangers of this trend (on the inside they’re complaining about their lower AUM revenues), there are implications worth considering.

One of the commonly mentioned dangers of this trend is that it leads to bloated large cap stock market caps, because many cap weighted ETFs end up buying more and more large cap stocks in a bit of dangerous cycle. Arguably, this trend causes stock prices to detach from fundamentals.

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The Message From the NAAIM Indicator Wall: The Primary Cycle Remains Bullish

By: National Association of Active Investment Managers

Updated: 9.28.19

The NAAIM Indicator Wall provides a weekly update to a robust array of stock market indicators. The “wall” includes readings and explanations of indicators and/or models in the areas of price/trend, momentum, key price levels, overbought/sold readings, sentiment, monetary, economic, inflation, and market cycles.

This week, we’re featuring the Primary Cycle Board, which is designed to indicate the “state” of the market and which team is in control of the ball.

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Link to NAAIM Indicator Wall

Note: The Indicator Wall is a benefit provided to NAAIM Members and is password protected. To obtain a temporary password, contact NAAIM at 888-261-0787.

Mining the NAAIM Indicator Wall for Real World Applications

Len Fox at Scarecrow Trading, who is a two-time winner of the NAAIM Shark Tank Active Investing Strategy Competition developed a couple of portfolio strategies based on the NAAIM Indicator Wall. Below is an update of the two portfolios Scarecrow runs:

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Feel free to contact Len or his team about the methodology used in these portfolios at (952) 250-7453.

Does Junk Hold the Key?

By: Rob Bernstein, RGB Capital Group

Published: 9.30.19

Generally, stocks have moved sideways over the last three
months and, if I look back 12 months, I see the same type of
sideways trend. The market is being driven up and down based
on news headlines…China trade negotiations, Federal Reserve
announcements, global growth concerns and now
impeachment hearings. While junk bonds declined slightly over
the last week, the trend remains up. When junk bonds are
trending up it is generally a good sign for the stock market as a

Link to the Full Article

The Cycles Have Shifted

By: Ryan C. Redfern ShadowRidge Asset Management

Published: 9.30.19

Depending on where the market closes on Monday, the S&P 5001 could end up flat on the month and the quarter. It hasn’t been without its ups and downs, at one point having a peak-to-trough draw-down of a little over 6% in August (FastTrack data).

Smaller cycles like these can be more difficult to work with when trying to find a bigger trend-based move to latch on to. These cycles led to a change that was implemented this year across most of our investment strategies. We believe it to be more effective to plan entry points based on cycles, rather than arbitrary dates like the first of the month.

Our current take is…

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The NAAIM Dynamic Allocation Model

Designed to be a value-add benefit to membership, NAAIM offers a Dynamic Asset Allocation Model based on the NAAIM Indicator Wall of indicators and models. The overall objective of the model portfolio is to dynamically adapt to changing market environments and to keep equity exposure in line with current conditions. The model targets a normalized allocation of 60% stocks and 40% Bonds.

Here is this week’s model allocation:

The model has been run live on the NAAIM website for several years and has demonstrated the ability to reduce exposure to market risk during negative environments such as those seen in 2015-16 and 2018.

More on the Dynamic Allocation Model and Historical Readings

The NAAIM Dynamic Allocation Model is for illustrative and informational purposes only, and does not in any way represent an endorsement by NAAIM or an investment recommendation.

About That Big Shift To Small Caps

By: Sam and Bo Bills Bills Asset Management

Published: 9.27.19

It has been another relatively quiet week so I will be brief as I am traveling. The S&P has traded down slightly this
week losing .25% at the time of this writing. The dramatic shift to small caps and other lagging areas of the
market that we wrote about a couple of weeks ago has subsided and small caps have resumed their relative
underperformance. The Russell 2000 is down 1.5% for the week thus far. The market appears to be awaiting a
catalyst for the next big move. Large caps remain a stone’s throw from their highs, but will need positive news
from some front in order to push through. With earnings season just around the corner, it would appear as if the
market is biding its time before making its next move…

Link to the Full Article

P/E Expansion Is Now P/E Contraction

By: Dexter P. Lyons Issachar Fund

Published: 9.30.19

P/E expansion stocks are now becoming P/E contraction stocks as sellers capitulate! Momentum stocks with high Price/Earnings (P/E) ratios performed very well this year until they came under attack recently by the Algos (algorithmic computer driven trading programs). As momentum buying in the clouds and software stocks picked up steam their P/E ratios expanded rapidly and now they are contracting in relentless fast-action declines. The algos are programmed to squeeze the most out of every trade long/short and they do not operate on human emotions of fear and greed but on mathematical probabilities. I believe the algos were created out of excessive amounts of QE pouring into the “system” that has to go somewhere, right. I believe further…

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The NAAIM Member Exposure Index: Managers Remain Cautious

The NAAIM Exposure Index represents the average exposure to US Equity markets as reported by our members in the organization’s weekly survey. Note that many NAAIM members are risk managers and tend to reduce exposure to the markets during high risk environments.

Below is last week’s exposure reading. We note that managers had approximately 35% cash in their portfolios BEFORE the most recent decline began…

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More on the NAAIM Exposure Index

NOT INVESTMENT ADVICE. The analysis and information in this report and on our website is for informational purposes only. No part of the material presented in this report or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the editors and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. Investors should always consult an investment professional before making any investment.

Tags: NAAIM, NAAIM Speaks, Stocks market analysis, Stock Market Analysis, Stock market, stock market indicators, David Moenning, Paul Schatz, Jeffrey Miller, Rob Bernstein, Sam Bills, Bo Bills, Ryan Redfern, Dexter Lyons, NAAIM Exposure Index, NAAIM Dynamic Allocation Model, Len Fox