2015 has been a difficult year for equity investors. However we are very proud that we continue to outperform our benchmark, currently1 up 7.4% for the year versus the FTSE 100’s 2.8%.
This information is taken from The Big Picture, to download a sample copy please just click here.
1December 31st 2014 - August 7th 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 almost six and a half years old.
Since the uptrend began, the NASDAQ Composite has made a very impressive return of 303.8%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 taken July 30th 2015.
ISACO investment performance verified by Independent Executives Ltd
NASDAQ gives mixed signals
On Friday July 31st we pointed out in the Daily Market Update that the NASDAQ had gained for three consecutive days (Point E) and that all of them had been in heavy trade (Point F). We also said that the Composite had recently been successful in finding support just above 5000 (Point G).
On that same day we also commented on further bullish activity such as recently managing to get back above its all-important 50-day moving average (Point H) and that in the previous day’s session, it had successfully tested this key technical line (Point I). We also noted that the NASDAQ ended that day trading near its intraday highs (Point J).
But we also sounded a word of caution.
We said…
“However we are far from out of the woods and the Composite still has a lot of work to do. Let’s not forget that previous to these three decent trading days, the market sold off hard (Point K).”
NASDAQ looks set to correct
When we took a look at the NASDAQ Composite’s activity just one week later, Friday August 7th 2015, the Composite was looking more like it was heading into a correction. The 1.62% plunge on extremely heavy trade (Point L) that occurred Thursday August 6th appeared to be a continuation of the sell-off that began July 22nd 2015 (Point M).
Even though the NASDAQ does have a lot of support at the 5000 level (Point N), because of the intensity of the recent selling, we believe this price point could break. If it did, its next level of support would be its 200-day moving average (Point O) and failing that between 4800 and 4815 (Point P). If it did come down as low as 4800, in total it would be a 8.3% retracement from its 5232 July 20th 2015 high.
Some investors might fret about such a correction however we still view this pullback as perfectly normal and natural. We are of the opinion that the NASDAQ has most probably just started another healthy bull market correction.
That’s good because these types of retracements are less severe than their bear market counterparts and they get rid of all the excess and set the market up for its next push higher. They are also not as deep and nor do they last as long as bear markets and therefore much easier to stomach. The key is to have patience and think long-term.
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.
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