Stock Rally Near Probabilistic Sweet Spot

By: Chris Ciovacco | Tue, Feb 18, 2014
Print Email

Slow Growth Still A Concern

While Janet Yellen signaled last week the Fed's taper game plan was still in place, recent economic data has the markets thinking a taper pause could be seen later in 2014. The terms "inadequate demand" and "slow growth" speak to increasing odds the Fed may alter their taper schedule. From Bloomberg:

Federal Reserve chair Janet Yellen is generally taking the right approach in continuing efforts to boost a tepid U.S. economic recovery, former U.S. Treasury Secretary Lawrence Summers said in an interview airing today. Summers, who had sought the post Yellen assumed on Feb. 3, said on "CNN's Fareed Zakaria GPS" that inadequate demand and slow growth remain the greatest threats to the economy and that the Fed's bias toward expansion is "broadly the appropriate orientation to have."

Bulls Have Sweet Set-up

Markets are where investors cast their future economic perception ballots. The current rally has reached the point where the last few votes have shifted the balance slightly in the bulls' favor. Charts are a polling mechanism that allow us to monitor the temperature of the voters. Point A in the chart below shows the last time the mix between buyers and sellers reached a probabilistic sweet spot. The S&P 500 posted some nice gains after point A; what happens after point B remains to be seen, but the set-ups are similar.

This week's stock market video covers the probabilistic sweet spot concept in more detail. It also covers risk management and the current read on market leadership.

It's All Greek To Me

While the European Central Bank's unlimited three-year loan program and the Fed's printing press changed the dynamics in Europe, the concepts described in this 2011 European Debt Crisis Explained video will likely move back into the market's focus at some point since can-kicking and band aids were applied to swelling global debt problems. However, the band aids have taken Europe off the imminent crisis list, allowing for improvement in the markets and European economy. Sunday brought some more encouraging news on the balance between revenue and expenses. From The Wall Street Journal:

Greece's primary budget surplus for 2013 will be nearly double its target, the country's prime minister said Sunday. Antonis Samaras said the primary budget surplus, which doesn't take into account interest payments, will exceed €1.5 billion ($2.05 billion), compared with an upwardly revised target of €812 million. The apparent improvement comes a year ahead of schedule and after years of tax rises and spending cuts demanded by international creditors in exchange for two bailouts worth a combined €240 billion. Athens wasn't expected to achieve a primary surplus until the end of 2014, according to goals set by the European Union and the International Monetary Fund.

Investment Implications

Regular readers know our approach frowns upon forecasting and instead focuses on the economic and technical evidence in hand. Since no economic report, chart, indicator, or moving average provides accurate signals all the time, diversification is needed. One way to diversify your monitoring system is to look at multiple time frames. The first chart in this article was a daily chart; the next charts take weekly snapshots of investor conviction. The first chart is from 2011 and the second from 2014.

Based on improvement in the market's profile, our market model made two incremental buys on the equity side last week (SPY) and one incremental cut on the bond side (TLT). The terms odds and probabilities speak to uncertainty about future outcomes. Therefore, we will enter next week with a more bullish, but flexible stance.



Chris Ciovacco

Author: Chris Ciovacco

Chris Ciovacco
Ciovacco Capital Management

Chris Ciovacco

Chris Ciovacco is the Chief Investment Officer for Ciovacco Capital Management, LLC. More on the web at

All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors and tax advisors before making any investment decisions. Opinions expressed in these reports may change without prior notice. This memorandum is based on information available to the public. No representation is made that it is accurate or complete. This memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. The investments discussed or recommended in this report may be unsuitable for investors depending on their specific investment objectives and financial position. Past performance is not necessarily a guide to future performance. The price or value of the investments to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. All prices and yields contained in this report are subject to change without notice. This information is based on hypothetical assumptions and is intended for illustrative purposes only. THERE ARE NO WARRANTIES, EXPRESSED OR IMPLIED, AS TO ACCURACY, COMPLETENESS, OR RESULTS OBTAINED FROM ANY INFORMATION CONTAINED IN THIS ARTICLE.

Ciovacco Capital Management, LLC is an independent money management firm based in Atlanta, Georgia. CCM helps individual investors and businesses, large & small; achieve improved investment results via research and globally diversified investment portfolios. Since we are a fee-based firm, our only objective is to help you protect and grow your assets. Our long-term, theme-oriented, buy-and-hold approach allows for portfolio rebalancing from time to time to adjust to new opportunities or changing market conditions.

Copyright © 2006-2016 Chris Ciovacco

All Images, XHTML Renderings, and Source Code Copyright ©