Quarter 2 is over and we are delighted to report that we continue to outperform our benchmark. Year to date we have made a return of 7.4%1 compared to the FTSE 100’s 2.9%1.
This information is taken from The Big Picture, to download a sample copy please just click here.
1December 31st 2014 - June 27th 2015.
ISACO investment performance verified by Independent Executives Ltd.
Is the market healthy or unhealthy?
The way we use to check if the market is behaving as it should is to look at the trading action (price and volume activity) of institutional investors. Why do we do this? The stock market is about six month forward looking and its daily activity is the consensus conclusion whether institutional investors like or don’t like what they see happening down the road. By watching what the big players are doing (buying or selling) each and every day, it can provide essential clues to which way the market is likely to head.
It’s best to try to get ‘in sync’
Institutional investors control approximately 75% of the market’s future direction, which is why we aim to keep ‘in sync’ with them. If you don’t, it feels like trying to swim against a strong current. When you don’t get in sync, you often get hurt financially and that’s why we like to see if the 800-pound gorilla investors are buying, because when they do, it strengthens the market.
However, if they are selling, it weakens it. The other thing we like to keep a close eye on is the behaviour of leading stocks. If the markets best stocks are acting weaker than the general averages, it’s negative. However when leading stocks are outperforming the market, it’s positive.
Bull market? Bear market? Where are we?
Take a look at this 20-year chart of the NASDAQ Composite and you’ll see that the bull market that began in March 2009 (Point A) is just over six years old and for now remains intact.
Since the uptrend began, the NASDAQ Composite has made a very impressive return of 307.9%2. However, to make that gain it has had to experience three quite challenging corrections. The first (Point B) occurred from April to November 2010. The second (Point C) is a correction that started in May 2011 and ended in January 2012. The third (Point D), began in late March 2012 and finished March 2013. Since then we have had several retracement periods but none of them have been as severe as these three.
2Performance data taken June 25th 2015.
ISACO investment performance verified by Independent Executives Ltd.
A quick recap
In last month’s edition of The Big Picture, we showed you this chart below.
In relation to that chart, we said…
“The Composite fell 0.77% (Point E) in average volume (Point F). Declines in average or above average trade indicate that institutional investors are dumping stock – a bearish sign.
Even though Friday’s action was bearish, we still think that the NASDAQ may be setting up for a breakout move (Point G). Notice its rising relative strength (RS) and how this key technical line is bullishly moving into higher ground (Point H). When we see this happen before the market makes a fresh high, it’s good because it signifies underlying strength. It also tells us that the market indexes may be ready for their next leg higher.”
NASDAQ breaks out
Following up on those comments, when we took a look at the NASDAQ Composite on Friday June 26th 2015, you can see that the Composite broke out of its base Thursday June 18th (Point I). From June 18th to June 26th, we liked how the NASDAQ and leading stocks had been behaving.
Commenting on the chart, we said…
“…in the short term we believe that the Composite will probably find support at these current levels however if it does drop further, we’d expect it to find its footing at its 50-day moving average (Point J) or failing that, at the 5000 level (Point K).”
Breakout fails
When we took a look at the NASDAQ Composite’s activity just one week later, Friday July 3rd 2015, the picture had significantly changed. As you can see, the June 18th breakout hit a top June 24th (Point L) and then proceeded to fall hard and fast.
Notice how trading volume bearishly spiked up on the two heavy loss days of June 26th and 29th (Point M). This negative recent behaviour prompted us to change our short-term stance to bearish and we now believe that from here the Composite is more likely to come down and test the thick wall of support between 4800 and 4815 (Point N).
This information is taken from The Big Picture, to download a sample copy please just click here.
As always, if you have any questions or thoughts on the points covered in this post, please leave a comment below or connect with us @ISACO_ on Twitter.
As we grow our wealth, you grow yours. Together we prosper.
ISACO are a specialist in ISA and SIPP investment and together with our clients have an estimated £75 million actively invested3. To help investors like you, we offer a high end service called ‘Shadow Investment’. Put simply, we invest and you invest beside us. As we grow our wealth, you grow yours.
How does Shadow Investment work?
Shadow Investment allows you to look over our shoulder and buy the same investments that we are buying. It’s an intensely personal service which gives you the opportunity to piggyback on our expertise and makes investing easier, simpler and much more enjoyable.
Delivering superior performance
We have an active investment strategy which aims to control risk and deliver superior performance. Over the last 17 years4, we’ve beaten the FTSE 100 by 77.9% and over the last 3 years5, we’ve made an average annual return of 9.5% versus the FTSE 100’s 5.7%.
Get in touch
If you have over £250,000 actively invested, click here to arrange a free financial review (valued at £495) with Paul Sutherland, ISACO’s Managing Director.
3 Internal estimation taken January 1st 2015 of total ISA and pension assets owned by the ISACO Investment Team and ISACO premium clients.4 December 31st 1997 - December 31st 2014 ISACO 105.5%, FTSE 100 27.6%.
5 December 31st 2011 – December 31st 2014.
ISACO investment performance verified by Independent Executives Ltd.
