U.S. Asset Management

stock exchange, profits, boom

USAM Daily Risk Analyzer

By David Cross, CPM®, CRPC®, CDFA®

By David Cross, CPM®, CRPC®, CDFA®

David.Cross@us-am.com

We have and continue to be long-term investors with an eye on where we think stock prices could be in 12 to 18 months, but during the COVID Crash of 2020 (can I call it that?), we felt it best to add a short-term timing element to our investment processes.  After an exhaustive search of historic market price data, we found a correlation between tracking multiple short-term prices trends and intermediate-term price trends.  What we found was simple: when the short-term moving averages on the graph in RED move below the 30-day exponential moving averages in BLUE, it is usually wise to cut back exposure to stocks significantly.

What we like to see is a red, white and blue pattern where the short term moving averages in RED are above the longer term moving averages in BLUE with some white in between.  What we don’t want to see is the red lines dive into and below the blue lines. When that happens, we’ve seen a correlation to stocks declining.

US Market Charts

Chart Source: Refinitiv

We attempted to construct a tool that would help us evaluate several indexes and sectors at-a-glance.  Very simply, Green is good, Red is bad.  The column marked “Uptrend Test” in the next to last far right column scores from -10 to +10.  -10 indicates a downtrend and +10 indicates an uptrend. Here is what we developed:

USAM Daily Risk Analyzer

Data Source: Refinitiv, calculations USAM

Our long-term model for the Dow Jones Industrial Average (click here) can help guide us as it helps us determine the potential upside for the Dow.  If our model suggests only a 5% return in 1 year, we will likely reduce our exposure to stocks because the typical downside at any given moment is usually 10% or more.  If you can make 5% in a year but your downside is 10%, that’s not a favorable risk/reward ratio.

And, another tool we incorporate is Hedger’s Combo.  This data helps us understand how much stock exposure major institutions have on the books. The more exposure they have, the more confident we are that stocks may move higher.  You can view that current chart here Hedgers Combo:

These are just some of the tools we use in addition to what we believe is good old fashioned fundamental research.  The bottom line is that in our opinion, your chances for good investment performance are better when the trend is up and big investors are buying stocks.

We believe investing today requires a customized financial plan integrated with a well thought out investment approach. If you have questions about how to invest or which investments may make sense for you, schedule an appointment by clicking this link or contact us today at david.cross@us-am.com or 678-894-0697.

Important Notes: The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Russell 2000 index is an index measuring the performance of approximately 2,000 smallest-cap American companies in the Russell 3000 Index, which is made up of 3,000 of the largest U.S. stocks. It is a market-cap weighted index. The term, “Nasdaq” is also used to refer to the Nasdaq Composite, an index of more than 3,000 stocks listed on the Nasdaq exchange that includes the world’s foremost technology and biotech giants. Indexes are unmanaged and do not incur management fees, costs, or expenses.  It is not possible to invest directly in an index. 

David Cross is a wealth advisor with U.S. Asset Management, a Registered Investment Advisor. He holds the designations of Certified Divorce Financial Analyst, Certified Retirement Planning Counselor and Certified Portfolio Manager.

US Asset Management

A Member of Advisory Services Network, LLC

Direct: 678-894-0696

david.cross@US-AM.com

www.us-am.com

1960 Satellite Blvd – Suite 2200 Duluth, GA 30097
© 2020 USAM LLC. All Rights Reserved

All views/opinions expressed in this article are solely those of the author and do not reflect the views/opinions held by Advisory Services Network LLC.  Advisory Services offered through U.S. Asset Management, a member of Advisory Services Network, LLC.

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U.S. Asset Management is a fiduciary advisor offering portfolio management and financial planning services. We help clients make better decisions with their money and assist with overseeing every aspect of their financial lives.  David Cross is a Certified Portfolio Manager, Certified Divorce Financial Analyst and Certified Retirement Planning Counselor.

U.S. Asset Management and Advisory Services Network, LLC do not provide tax advice.  The tax information contained herein is general and is not exhaustive by nature.  Federal and state laws are complex and constantly changing.  You should always consult your own legal or tax professional for information concerning your individual situation.

All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed.  Financial data changes rapidly.  All economic and performance data is historical and not indicative of future results.  This material is of a general nature and intended for educational purposes only.  This information does not constitute a recommendation or solicitation or offer of the purchase or sale of securities.   Indexes are unmanaged and do not incur management fees, costs, or expenses.  It is not possible to invest directly in an index.