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Category: Chart of the Week

Stock Buybacks Hit Record

By John Del Vecchio and Brad Lamensdorf

As the pandemic wanes and daily life quickly gets back to normal, corporations have been busy buying back their own stock.

Just like the good old times.

Not just normal buybacks. Record buybacks.

This should be expected. Last year, buybacks and dividends were often suspended and now the runway is clear to resume stock buying.

As the chart below shows, corporations are wasting no time in taking stock out of circulation.

Stock Buybacks Hit Record

The figure is almost a $500 billion through April, 2021.

Daily activity is about three times what would normally be considered aggressive buying. This is bullish for stocks in the short-term but does come with a caveat.

Many companies will buy back stock and then assume debt, thus recapitalizing their business. Debt is cheap. Debt may be much cheaper than paying dividends. Finally, all else being normal, debt allows for higher returns on invested capital.

This will work well until it doesn’t. When the next bump in the road comes along, poorly managed companies or those with competitive disadvantages may find themselves vulnerable to a massive butt-kicking.

This is another reason why stock picking, as opposed to blindly buying indexes, may come back into vogue. Stock pickers could very well shine over the next cycle as better returns may be had by differentiating among the best positioned companies.

To learn more about how these indicators can help manage risk in your portfolio, book a call with Brad.

You may book a call here.

DISCLOSURE: LAMENSDORF MARKET TIMING REPORT

Lamensdorf Market Timing Report is a publication intended to give analytical research to the investment community. Lamensdorf Market Timing Report is not rendering investment advice based on investment portfolios and is not registered as an investment advisor in any jurisdiction. Information included in this report is derived from many sources believed to be reliable but no representation is made that it is accurate or complete, or that errors, if discovered, will be corrected. The authors of this report have not audited the financial statements of the companies discussed and do not represent that they are serving as independent public accountants with respect to them. They have not audited the statements and therefore do not express an opinion on them. The authors have also not conducted a thorough review of the financial statements as defined by standards established by the AICPA.

This report is not intended, and shall not constitute, and nothing herein should be construed as, an offer to sell or a solicitation of an offer to buy any securities referred to in this report, or a “buy” or “sell” recommendation. Rather, this research is intended to identify issues portfolio managers should be aware of for them to assess their own opinion of positive or negative potential. The LMTR newsletter is NOT affiliated with any ETF’s.  Active Alts  is affiliated with Lamensdorf Market Timing Report. While LMTR uses charts from SentimenTrader, they do not have a financial arrangement with SentimenTrader  Past performance is not indicative of future results.

Wealthy Investors Continue to Pile into Stocks

By John Del Vecchio and Brad Lamensdorf

Wealth investors are loaded to the gills with equities. This begs the question, how much more can they pile into stocks?
As the chart from Bank of America shows, the equity allocation among private clients has broken out to new highs at 64.3%. This compares to the previous high of 62.5% in 2015 and 56% in April in 2007 just as many stocks were starting to turn down before the financial crisis was at its worst a year and a half later.

Wealthy Investors Continue to Pile into Stocks

The allocation can certainly go higher from here. As the market marches higher combined with excessive optimism, investors will likely continue to plow money into stocks.

However, this is a contrary indicator. It’s highly likely the easy money has already been made.

Not how far we have some from a generational buying opportunity one month before the bottom in 2009. We very may well see a level of 39% again in the future that will once again present a major level of bearishness and warrant aggressive buying.

Hedging remains virtually non-existent.

All the more reason to continue to monitor these trades and build up hedges. Before it’s too late…

To learn more about how these indicators can help manage risk in your portfolio, book a call with Brad.

You may book a call here.

 

Nearly Every Stock is Up. Where to Next?

By John Del Vecchio and Brad Lamensdorf

The market has been the little engine that could over the last year. After a nasty move down during the COVID hit, stocks have done nothing but gone up.

Nearly every stock.

Market breadth is now reaching extreme highs.

Take a look at this chart courtesy of SentimenTrader.com

Nearly Every Stock is Up. Where to Next?
Nearly Every Stock is Up. Where to Next?

As the chart illustrates, the percentage of stocks in the S&P 500 that are above the 200-day moving average hit 95.23%.

That’s a 15-year high.

From here, one might expect a bit of a cooling off. After all, everything is up. We are now in a situation that is 180 degrees from a year ago.

From here, it likely gets a bit more challenging to generate excess returns.

Can stock push higher from here?

Absolutely.

Highs may be tougher to predict because people can keep buying and buying. On the other hand, bottoms may be easier to see because once they have sold all they can, the market looks very washed out and the only place to go is higher.

But at 95%, a level not hit going back 15 years, things would have to be awfully different this time for the not to be a meaningful pullback in stocks sooner than later.

To learn more about how these indicators can help manage risk in your portfolio, book a call with Brad.

You may book a call here.

 

Weak(er) Hands are Holding More Stock

By John Del Vecchio and Brad Lamensdorf

Buying climaxes continue to jump, just hitting the highest level in year. A buying climax is when a stock makes a 52-week high but then closes down for the week.

This is a sign of distribution.

As the market inches higher, more and more distribution is occurring. Investors and speculators are selling off the moves higher in an increasing number of stocks. Ideally, we would like to see strong buying power as the indexes push higher.

The trend in buying climaxes is a warning sign of weakness under the market.

According to research from InvestorsIntelligence, traders selling off buying climaxes are correct 80% of the time over the next four weeks.

Given the increase in buying climaxes it would not be a surprise to see some market weakness in the coming weeks. Shares have exchanged hands from the strong to the weak in greater and greater proportion.

Weak(er) Hands are Holding More Stock
Weak(er) Hands are Holding More Stock (Chart provided by chartcraft, chartcraft is a division of https://www.investorsintelligence.com)

To learn more about how these indicators can help manage risk in your portfolio, book a call with Brad.

You may book a call here.

DISCLOSURE: LAMENSDORF MARKET TIMING REPORT

Lamensdorf Market Timing Report is a publication intended to give analytical research to the investment community. Lamensdorf Market Timing Report is not rendering investment advice based on investment portfolios and is not registered as an investment advisor in any jurisdiction. Information included in this report is derived from many sources believed to be reliable but no representation is made that it is accurate or complete, or that errors, if discovered, will be corrected. The authors of this report have not audited the financial statements of the companies discussed and do not represent that they are serving as independent public accountants with respect to them. They have not audited the statements and therefore do not express an opinion on them. The authors have also not conducted a thorough review of the financial statements as defined by standards established by the AICPA.

This report is not intended, and shall not constitute, and nothing herein should be construed as, an offer to sell or a solicitation of an offer to buy any securities referred to in this report, or a “buy” or “sell” recommendation. Rather, this research is intended to identify issues portfolio managers should be aware of for them to assess their own opinion of positive or negative potential. The LMTR newsletter is NOT affiliated with any ETF’s.  Active Alts  is affiliated with Lamensdorf Market Timing Report. While LMTR uses charts from SentimenTrader, they do not have a financial arrangement with SentimenTrader  Past performance is not indicative of future results.

 

Massive Leverage Suggests Painful Downside (When it Comes)

By John Del Vecchio and Brad Lamensdorf

Many investors have short-term memories. In late 2018 as speculators came off margin
there was a very painful decline. Speculators got a lump of coal in their stocking for
Christmas that year. This set up a very tradable bounce in early 2019.

Fast forward to 2020, and take a look at just how fast the balances decline once COVID
hit. While COVID by itself was a scary event for the markets and the world at large, the
massive amount of negative balances likely contributed to the pace and severity of the
decline. It was a record for the shortest time from a bull market to a bear market.

That record may be broken next time as negative balances have exploded yet once
again.

Massive Leverage Suggests Painful Downside (When it Comes)
Massive Leverage Suggests Painful Downside (When it Comes)

By itself, the level of margin is not an indicator that market is about to crater. In
fact, short-term we are bullish as the market, particularly in technology stocks
became too oversold.

However…

When the tide turns, this will just make the downside just that much worse. It will likely
happen swiftly as peculators come off margin all at once

There are pockets of speculation everywhere. Look at the watch market. Steel Rolex
watches are through the roof, in just 2021 alone. That’s just one example among many.
Of course, people can borrow against their portfolio to purchase all sorts of baubles.
Items that have no liquidity in a swift move to the downside. Shockingly, the banks don’t
much care what you buy when you borrow against your portfolio.

This too will lead to more pain once the market experiences a downdraft.

In our view, this presents opportunities going forward for individual stock selection and
for tactical risk management.

To learn more about how these indicators can help manage risk in your portfolio, book a call with Brad.

You may book a call here.

DISCLOSURE: LAMENSDORF MARKET TIMING REPORT

Lamensdorf Market Timing Report is a publication intended to give analytical research to the investment community. Lamensdorf Market Timing Report is not rendering investment advice based on investment portfolios and is not registered as an investment advisor in any jurisdiction. Information included in this report is derived from many sources believed to be reliable but no representation is made that it is accurate or complete, or that errors, if discovered, will be corrected. The authors of this report have not audited the financial statements of the companies discussed and do not represent that they are serving as independent public accountants with respect to them. They have not audited the statements and therefore do not express an opinion on them. The authors have also not conducted a thorough review of the financial statements as defined by standards established by the AICPA.

This report is not intended, and shall not constitute, and nothing herein should be construed as, an offer to sell or a solicitation of an offer to buy any securities referred to in this report, or a “buy” or “sell” recommendation. Rather, this research is intended to identify issues portfolio managers should be aware of for them to assess their own opinion of positive or negative potential. The LMTR newsletter is NOT affiliated with any ETF’s.  Active Alts  is affiliated with Lamensdorf Market Timing Report. While LMTR uses charts from SentimenTrader, they do not have a financial arrangement with SentimenTrader  Past performance is not indicative of future results.

 

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