Foreign Stimulus Could Push U.S. Stocks To New Highs

By: Chris Ciovacco | Fri, Mar 28, 2014
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Stocks Impacted By Comments Overseas

Chinese and German officials indicating economic assistance coming

Even with the Fed trying to cut back on their stimulative efforts, U.S. investors are still being impacted by talk of new programs in China and Europe. From CNBC:

In a speech reported by state media on Friday, China's premier indicated the Beijing government was prepared to take action to bolster the world's second biggest economy, saying the government would gradually roll out targeted measures to help economic activity. And on Wednesday, Germany's Bundesbank said the ECB could buy loans and other assets from banks to support the euro-zone economy, with the statement marking a dramatic departure from its previous stance on the policy.


Debt: A Recurring Theme

Consumer Debt Levels increasing

Europe is still trying to stimulate their way out of a debt crisis. China is worried about loans made against frothy real estate. Back home in the U.S.A. we have similar concerns. From Yahoo Finance:

As of March 2014, American consumers owe $11.52 trillion in debt, an increase of 1.6% from last year. The average household owes $7,115 on their credit cards and the average indebted household owes $15,252. Americans owe $8.05 trillion in mortgages (the average mortgage debt being $152,209) and $1.08 trillion in student loan debt. When combined with corporate debts the U.S. collectively owes about $28 trillion in private debt.


Investment Implications - Let The Game Come To You

We have been talking about S&P 500 levels 1,844 and 1,848 longer than any investor or trader would care to admit. For the record, those levels have been relevant for three months. Based on our master market model reading during Friday's trading session, stock bulls continue to maintain a slight edge over stock bears. The tweet below sums up the current state of affairs:

Ciovacco Tweet

Do it yourself investors and traders tend to be "hands on, I am going to make something happen" people, which can lead to overtrading. A blurb from the Point Of The Game reminds us of the value of patience during periods of indecisiveness in the financial markets:

How many coaches have counseled anxious and pressing players, "let the game come to you." It's hard advice, even odd advice in a world of sports and professions where aggression and taking control are the preferred strategies. "Getting there first" or "controlling the tempo fly" in the face of this disciplined approach. Yet this sage advice matters profoundly for successful athletic and professional endeavor. Let the game come to you, however, takes strong virtue and character to learn the skills and insight needed to achieve it.

This week the S&P 500 closed at 1,857 (above 1,844). At a minimum, stock bears need to take out 1,844 before they can reach even modest corrective milestones. Before the bulls can make any significant progress, they need to take out the recent high of 1,878. Therefore, between 1,844 and 1,878, we prefer to remain as patient as possible within the context of our rules-based asset allocation system. The rules have been trying to "let the market come to us" as they did not call for an across the board adjustment between March 18 and March 27.

Our asset allocation system has master allocation rules and rules tied to each ETF held in the portfolio. On Friday, the rules called for an incremental reduction on the growth side of the portfolio. We continue to maintain a respecting-the-market's-vulnerability level of cash, along with stakes in U.S. stocks (SPY) and technology stocks (QQQ). We will enter next week with a flexible and open mind.


Weekends - A Time To Improve

Covey's quadrant

As we covered in detail on March 27, weekends are often the best time to plug holes or refine your approach to the markets, which is a quadrant 2 activity. It is difficult to visit Stephen Covey's quadrant two when the financial markets are open. Reading can often spark creative ideas. The articles below cover investment and risk-management topics that apply to all economic environments:

  1. 1994, Rising Interest Rates, And Your Approach To The Markets
  2. 5 Reasons Your Simple Bear Market Plans Could Backfire
  3. How To Monitor Increasing Risk Of A Stock Market Correction
  4. The 2 Most Important Questions For Investors

 


 

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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 www.ciovaccocapital.com.

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.

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