Major Trend Index

The Major Trend Index defied the wild swings of the past few weeks, remaining within a tight range deep in its bearish zone, before closing the week of October 2nd at 0.72.

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Major Trend Index remains decisively negative at 0.72. The “market action” category is the primary culprit behind this bearish tally, but we’ve also seen the Economic category deteriorate in recent months and would expect this trend to continue. This sequence is typical: Market action leads economic trends (and, we would argue, is a major cause of those trends).

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The Major Trend Index broke into negative territory shortly after the August Green Book was released, with an initial bearish reading of 0.90, based on data for the week ended August 7th. That move prompted us to cut net equity exposure in tactical accounts to 38% (down from 48%); ensuing market action trimmed net exposure in the Leuthold Core and Global Funds to about 35% by September 8th.

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August is “National Eye Exam Month,” but this is the rare year we can confidently recommend that you skip it.

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The U.S. stock market has largely shrugged off the latest round of worries related to China’s stock market collapse, the new down-leg in crude oil, a more hawkish tone in Fed-speak, and sizable second-quarter declines in S&P 500 sales and earnings.

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The MTI is holding just above the Negative zone and net equity exposure was reduced to 48-49% in the Leuthold Core and Global Portfolios (from 55% in early July, and 61-62% in June).

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New late-June highs in NASDAQ, Small Caps, and key Financial groups weren’t enough to stem the past few weeks’ slide in the Major Trend Index, which has landed back in its neutral zone (1.01 reading).

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The smoothed, 26-week rate-of-change in the DJ Corporate Bond Index, a reliable indicator of monetary conditions over many different market and economic cycles, turned negative in mid-June.

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The MTI dropped to Neutral in July and net equity exposure was reduced to 55% in the Leuthold Core and Global Portfolios (this is down from the 61% target of recent months).

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The MTI dropped to 1.08 in May, despite a move by the DJIA and S&P 500 to new cycle highs. Net equity exposure remains around 61% in the Core and Global Funds.

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The safest highs to sell in the stock market are “lonely” new highs. Fortunately, the April 24th bull market high in the S&P 500 was anything but, as that index enjoyed a varied swath of Large Cap, Small Cap, and foreign company (although the DJIA was a mysterious no-show).

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New S&P 500 bull market high on April 24^th confirmed by all manner of traditionally leading indicants.

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The stock market generated enough positive evidence by the second week of February to knock us from our comfortable perch on the fence. We covered a portion of our equity hedges on February 12th, bringing net equity exposure in the Core and Global Funds up to 58% from the 50% level that had prevailed since November.

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While we remained in the Neutral zone throughout January, the margin for error by month’s end had diminished to just 0.01. The neutral zone was designed to withstand a fair amount of market noise, and that’s certainly been a good thing in light of the market chop experienced since November.

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We are pleased with our results for 2014, as we averaged about 58% net equity exposure throughout the year and were within throwing distance of the all-equity benchmarks. Our performance run was substantially smoother, though, and earned good risk adjusted returns. We made no substantial changes to our allocation in December.

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We don’t yet know whether our second-half adjustments to equity exposure will prove premature or just plain wrong. Our tactical funds remain positioned with below-average net equity exposure of about 50%.

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After two months in neutral territory, the Major Trend Index finally broke to negative for the week ended October 3rd, with a decline to the 0.90 level.

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Latest MTI calculation deteriorated to Negative (based on data for the week ended October 3rd). We expect further significant losses in the stock market near term and have cut net equity exposure in Core and Global asset allocation portfolios to 40%.

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The weaker pattern of MTI readings since August 1st supports the reduced net equity exposure in our tactical portfolios (targeting 55% net equities since early August).

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