(Harvest) The long-term models, CMG Ned Davis Research (NDR) Large Cap Momentum Index and 13/34-Week EMA, inform our long-term market outlook. The primary trend remains negative. The long-term signals guide our cautious view on the market. Hedge equity exposure and raise some cash on rallies.
Mohamed El-Erian is suggesting 25% in cash. I’m not suggesting that much, but we should take note of his reasoning. I favor using our CMG NDR Large Cap Momentum Index to have a systematic process in place that does it for us.For example, let’s say you allocate 10% of your portfolio to U.S. Large Cap stocks. On sell signals, you position from cash to a shorter-term bond fund ETF like “BIL.” On buy signals, you position back to an equity market ETF like “SPY” or Vanguard’s “VOO.” Thus, creating a disciplined way, within your long-term overall investment plan, to decrease and increase equity market exposure as part of your overall plan.
Shorter-term based trend indicators are positive. The rally has been a relief with investor sentiment now neutral and nearing excessive optimism. The high level of extreme pessimism (which is short-term bullish) is now behind us. I’d use the rally to raise cash and/or hedge equity exposure (or find funds that do it for you).
