It may have felt more extreme this week, but stocks were down worldwide around 1% and in the US a bit less than 1%. The declines from earlier in 2018 have continued to hold globally, so we are not seeing improvement in the global Universe Trend Indicator. However, we are seeing an improvement for the US version in June. Thus, there is a divergence forming between the US market and the foreign markets. Small caps have been outpacing large caps as well. Additionally, there is very little difference in ranking now between Cash and the Global Stock Index, which does not give a great opportunity cost to investment right now. Our Asset Class Ranking System reflects these observations.
The Tactical Indicators remain Neutral. The 10-week has dropped to the 46%, breaking the triangle pattern to the downside and moving closer to the Low Risk zone. We could possibly see a third visit to the Low Risk Zone this year. The Overbought/Oversold Indicator fell this week as the MSCI All Country World Index dropped this week. It is now about 4-4.5% below the Bull Trend Average, and within 1% of the Oversold zone, now well above the critical 500-level of support. Ideally, we would look for opportunities to put cash to work if the Tactical Indicators reach their respective lower risk levels simultaneously. Even though we can’t and don’t want to predict that event, we stand ready to act should it happen. With the beginning of summer, along with more socioeconomic and geopolitical events creating choppier trading, we still feel it a wise course to maintain cash from a risk-reward perspective. Markets dropping more aggressively could set up for a bigger rebound. Our goal is to move money into the markets on short-term weakness and in anticipation of the seasonality shift later in the year.
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