Small caps’ strong momentum, oil rally, TLT fund outflows

Small caps’ strong momentum

The Russell 2000’s massive rally has caused it to reach an all-time high on more than half of all days in the past 3 months.

Historically, similar or higher streaks were only seen 7 other times. This was a more bearish than random signal for the Russell 2000 over the next 3 months.

Oil/Gold RSI

Oil’s recent rally pushed the oil/gold ratio higher, causing its RSI to hit levels only matched by 4 other times in the past. This is a sign that the global economy is improving.

 

This always drove oil’s price higher over the next 1-3 months:

And this was a bearish sign for the S&P 500 over the next 6 months:

TLT fund flows

As noted by many, the 10 year Treasury bond ETF TLT saw massive outflows recently.

When this happened in the past, TLT rallied higher over the next 12 months.

All aboard the penny stock train

And finally, trading in penny stocks has exploded.

Conclusion: market outlook

I diversify my portfolio into 3 different strategies & time frames. Diversification reduces volatility in my aggregate portfolio.

  1. My short term trend-following portfolio remains long since the stock market is in an uptrend. This part of my portfolio employs stop losses to guard against the possibility of a trend reversal.
  2. My medium term contrarian portfolio is neither long nor short. There is plenty of risk in this speculative rally, but shorting into a speculative rally can end in disaster.
  3. My long term portfolio is defensive right now. Stock market returns over the next 3-5 years will be poor, so I have pivoted this part of my portfolio away from public markets and towards private markets (e.g. real estate).

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