The State of the Markets:
After moving to within a whisker of the 2.6% level (2.595% to be exact) yesterday, the yield on the U.S. Government's 10-Year Treasury pulled back in the afternoon and closed at 2.55%. The key is the closing level was only a smidge higher (.004%) from Tuesday's fix. So, since the bond bears failed to create a second consecutive day of panic, should we conclude that the worry about the bond market is over?
Lest we forget, the driver - at least in the very short-term - to the recent spike in yields had been a Bloomberg report that the Chinese were going to either reduce or halt their buying of U.S. Treasury securities. And with a large amount of supply slated to hit the market in the coming months (the new tax bill will cause even more bonds to be issued this year), traders naturally panicked.
However, anyone who knows anything about China's currency flows is aware of the fact that the world's second largest economy generates a massive amount of U.S. dollars due to its trade with the United States. The problem for China is, what to do with all of those greenbacks. And this is the reason that China is the largest foreign holder of U.S. bonds on the planet.
Yesterday's report, which cited officials close to the matter, suggested that China would begin to diversify its holdings away from the U.S. bond market. And while this sounds all well and good, my understanding is that there just isn't anywhere else in the world to put the sheer volume of dollars that China takes in. So, the idea of China simply halting the purchase of U.S. bonds is humorous. Oh, and if memory serves, China has been talking about this type of diversification for as long as I can remember.
Then this morning, we get word that yesterday's report - the report that caused all the hand wringing - was labeled "fake news" by the Chinese.
Yep, that's right; China's foreign exchange regulator said Thursday that the report in question may not be accurate. The following statement was published on the State Administration of Foreign Exchange (the country's foreign exchange regulator) website:
The statement went on to say that China's currency reserves have always been managed in a diversified manner in order ensure "the overall safety of foreign exchange assets and maintain and increase their value."
So, there you have it; at least one reason to panic about the bond market, and, in turn, the stock market, seems to have been laid to rest. Well, for now at least.
However, I, for one, am going to continue to watch bond yields very closely here.
Let a fool hold his tongue and he will pass for a sage. -Publilius Syrus
Today's Model Review:
LEADERS Model: The LEADERS currently holds positions in the Technology, Industrials, Health Care, and Financial sectors. We continue to look for an opportunity to make an adjustment to our holdings.
CORE Model (Risk Managed Exposure): Today's CORE model's exposure is a bit below the current target at 90% vs. 100%. To review, the goal of this model is to stay in tune with the overall risk/reward environment. Therefore, we make adjustments only when there is a meaningful and sustained divergence between the target model reading and our current positions.
TRADING Model: We currently hold trades in the Russell 2000, India Small Caps, Eurozone, a dividend-payer ETF, and the emerging markets.
2018 YTD Performance Update:
DD LEADERS: +3.5%
DD CORE: +3.0%
DD TRADING: +2.7%
S&P 500: +2.8%
|Daily Decision Trading Service
Current Portfolio Summary
|The LEADERS Model|
|% of |
|Technology Select Sector SPDR||XLK||25%||12.1.16||$46.64||Buy|
|Industrial Select Sector SPDR||XLI||25%||8.14.17||$68.58||Hold|
|Health Care Select Sector SPDR||XLV||25%||11.27.17||$81.79||Hold|
|Financial Select Sector SPDR||XLF||25%||12.12.17||$28.19||Buy|
|The CORE EXPOSURE Model|
|% of |
|ProShares UltraPro S&P (3X)||UPRO||30.00%
(Equiv 90% Long)
|The TRADING Model|
|% of |
|iShares Eurozone ETF||EZU||20%||5.11.17||$40.25||Buy|
|First Trust Value Line Dividend Fund||FVD||20%||5.11.17||$28.88||Buy|
|iShares Emerging Markets ETF||EEM||20%||6.112.17||$41.57||Buy|
|VanEck Vectors India Small-Cap Index ETF||SCIF||20%||7.18.17||$58.00||Buy|
|iShares Russell 2000 ETF||IWM||20%||10.19.17||$146.09||Buy|
% of Model Explained
The number shown in this column represents the percentage of the the model this position represents.
Current Rating Explained
This is our rating for the day. The Current Rating tells you what action we would take if we did not currently hold the position. A "Buy" rating means we would be willing to purchase the position at current prices. A "Strong Buy" suggests this would be our first choice to buy. A "Hold" rating indicates we would not make new purchases at current levels. And a "Sell" rating indicates we will likely exit the position in the near-term.
Positions Can Change
Positions often change during the trading session. Remember that we will send a Trade Alert via SMS Text Message and/or Email BEFORE we ever make a move in the models.
About the Daily Decision Models:
The Daily Decision is designed to be a simple, easy-to-follow e-letter service showcasing 3 different model portfolios. The LEADERS model is the flagship, growth oriented strategy that focuses on "where the action is" in terms of market leadership. The CORE model is a longer-term, risk-managed approach to keeping exposure to market risk in line with prevailing conditions. And as the name implies, the TRADING model is intended to be a tactical, opportunistic trading strategy.
Wishing You All The Best in Your Investing Endeavors!
The Front Range Trading Team
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.