Our "Reward Opportunity and Risk" (ROAR) score just dropped to 10 from 30. This means the allocation for a simple two ETF portfolio that can only be allocated to the SPDR S&P 500 ETF Trust (SPY) and the SPDR Bloomberg 1-3 Month T-Bill ETF (BIL) would be 10% SPY and 90% BIL. But the real potential market trouble is more focused in the Invesco QQQ Trust (QQQ), writes Robert Isbitts, founder of Sungarden Investment Publishing.
This move is what I mean by “avoid big loss.” Even if this latest dip doesn't get much worse, I made it this far in the investment business (39 years) by never trying to be a hero.
The ROAR Score is a simple concept, and it has been very effective for me. However, it only scratches the surface when it comes to how investors can use periods of volatility to their advantage. I think this is MUCH better than sitting there and hoping the market goes back up. The stock market is an inanimate object that doesn't care about us or who we are. Treat it as such.
Weeks like the one we've had so far are when I've done my best work over the years, losing a lot less or increasing my portfolio value. This is what Sungarden is all about. Because while investments can always go up, as noted here many times, risk is as high as I've seen it.
It sure doesn't help that the long US Treasury market is doing this! That looks like a breakout in price/lower in yield (purple circle at bottom). If it stops around TLT = $95, false alarm. If not, the Trump Administration and many homeowners will be very happy. They can both refinance (US government debt and mortgages) at lower rates.
But what helps bonds might hurt stocks. The S&P 500 is so driven by the Nasdaq, thanks to flying “Magnificent Seven” stocks leading it. That sets it up to be vulnerable by association. And small caps look at least as bad.
This market has escaped from this type of trouble many, many times. We'll see if Houdini has another one here. My approach is not about predicting the future. It is about evaluating the market's “story” from all sides, and choosing and adjusting my exposure as that story evolves.
