If there’s one thing that has worked since October, it’s cash.
I feel like people are afraid of that word. Like you’re doing something wrong for raising some (or a lot of) cash.
Do you think it makes sense to always be fully invested? I don’t.
I look at everything through the lens of potential opportunity cost. What else could we be doing with that money?
In liquid markets, sometimes it’s treasury bonds; other times it’s gold. And of course all of the market-neutral pair trades and options strategies that profit from sideways markets.
Cash is an investment too.
Why do you always have to be all in? You want to think 50 years out? Go ahead. We’re only concerned about the next couple of quarters.
We’ll worry about next year, next year. And 50 years from now? I only hope to be around sipping wine and ripping through charts. We’ll see…
So about today.
Let’s look at the Dow Jones Industrial Average going back to the 1990s. Whether you care about the horizontal lines or not, you can still agree that we’ve been in a sideways range for about 14 months.
This comes after an epic rally from 2016 and through 2017. The consolidation is well deserved, and perfectly normal.
If you’re interested on how these lines are calculated, here’s some explanation, and I’ll talk more about that on Wednesday.
If you don’t care, that’s cool too. The point is, we’re in a sideways range and it’s coming at a logical level and classically after a substantial advance.
When you look at market breadth, as we did last week (“27 Indexes. 3 Big Turning Points. What’s It All Mean?” March 11, Big Market Trends), most stocks in the U.S. and globally are still below their January 2018 lows.
In fact, internationally, only six of the 46 indexes we cover are above those highs. It’s just two if you price them in U.S. dollars and not in local currency.
It’s clear to me that stocks are still below overhead supply, as the chart of the Dow clearly shows as well.
When you go down the list of characteristics of a sideways range, a flat 200-day simple moving average is definitely on the list. Another one is when momentum keeps getting both oversold and overbought.
It’s evidence that supply and demand are near an equilibrium. And what’s wrong with that? It’s always only temporary, but it does occur.
Here is the NYSE Composite showing these characteristics:
The Russell 3000 is doing the same.
Remember, this index represents approximately 98% of all investable assets in the U.S. equities market.
From any sort of tactical perspective, it’s hard to argue that this is an uptrend or a downtrend. It’s a mess:
Again, I’d like to ask: What is wrong with cash? If there is one thing we’ve learned is that we don’t want to fight trends.
What do you think? Is cash an option for you? Let me know at firstname.lastname@example.org.
To wise investing,
Editor, Big Market Trends