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 our short-term moving averages move below the 30-day exponential moving average for price, it is usually wise to cut back risk significantly. 

We attempted to construct a tool that would help us evaluate several indexes and sectors at-a-glance.  Here is what we developed: 

Data Source: Refinitiv, calculations USAM

A graphic presentation of the Russell 2000 looks like this today:

Chart Source: Refinitiv

What we are looking for is when the red lines on top, dive into and below the blue lines. When that happens, we’ve seen a correlation to stocks going down for a month or more afterwards.

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 the Hedger’s Combo data that 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 can move higher.  You can view that current chart here:

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.

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
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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.