October was a much kinder month for investors than those of late. We are also delighted that our investment portfolio continues to outperform our FTSE 100 benchmark1.
This information is taken from The Big Picture, to download a sample copy please just click here.
1 Period measured, December 31st 2014 – October 30th 2015. ISACO -1.7%, FTSE 100 -2.6%. 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 six and a half years old.
Since the uptrend began, the NASDAQ Composite has made a very impressive return of 302.5%2. However, to make that gain it has had to experience four 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. This second one was quite harsh and resembled a ‘mild’ bear market’. The third (Point D), began in late March 2012 and finished March 2013. The final one is occurring right now and resembles the 2011 retracement. This one therefore also has the hallmarks of a ‘mild’ bear market and it began July this year (Point E). The good news for investors is that it currently looks like it may end fairly soon.
2 Performance data taken October 29th 2015. ISACO investment performance verified by Independent Executives Ltd.
Market looks back on track
On Thursday October 29, we pointed out numerous key observations with regards to the market.
The first was the bullish behaviour of the S&P 600.
We said…
‘It was therefore good to see that the US small cap index broke out of a ‘low handle’ (Point F), surging 2.8% (Point G) in very fast trade (Point H).This activity is the second confirmation that big money appears to be flowing back into CLASSIFIED.’
The second observation we made that day was bullish activity spotted this time from the NASDAQ. We pointed out that recently the Composite had cleared three key hurdles.
Our comments were…
‘The first was its 50-day moving average (Point I), the second its 200-day moving average (Point J) and the third, the 5000 price level (Point K).’However so far it’s not had chance to retest the 5000. This is important because ideally this price point will have turned into an area of support. The good news is that the way that the Composite has been acting since breaking through 5000, the likelihood of this scenario being the case is increasing each day.’
The third and final observation was related to where the big money was flowing.
We said…
‘As this latest rally continues to gather momentum, we continue to watch where the big money is flowing. So far it appears that CLASSIFIED is one area that is benefiting and so is CLASSIFIED, especially CLASSIFIED. The CLASSIFIED is also doing well and the CLASSIFIED sector appears to be slowly coming back to life.
Also as mentioned before, it appears that CLASSIFIED are now being accumulated by the big players which means funds focusing on investing in these types of businesses may start to pop up when we do our big money inflow scans.
As we’ve said now on quite a few occasions, with the CLASSIFIED, we think that there may be a rotation occurring right now out of the CLASSIFIED and if this is true, this would affect our two CLASSIFIED funds. Over the last month, the CLASSIFIED has underperformed the CLASSIFIED which raises a flag however over the last week, the CLASSIFIED has had the edge. This is why right now we have a strong focus on the CLASSIFIED ongoing performance versus the CLASSIFIED.’’
NASDAQ setting up for breakout?
When we looked at the market on Friday November 6th, the NASDAQ appeared to be setting up for a breakout. We pointed out in our Daily Market Update that from September 29th to November 3rd, the Composite surged 13.9% (Point L).
We said… “Gaining almost 14% in just over a month is very unusual activity however technically it’s viewed as extremely bullish behaviour. After an index makes so much ground in a very short space of time such as in this case, it is perfectly normal to see the index pause for breath. And that’s just what the NASDAQ appears to be doing right now. We believe that the last two days of activity may be the start of ‘handle building’ (Point M) and if this was true, from here we’d see the NASDAQ continue to shuffle sideways before eventually making a breakout move (Point N) – helping to provide the momentum for the Composites next leg higher.”
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.
