November 21, 2018

Valens Market Phase Cycle Monitor & Corporate Credit Macro View for November 2018


Market Phase Cycle™ Investing Strategy

In the middle of a retest is the hardest, and best, time to trust the (right) data


Tell me if you’ve heard this before:

“Any time the market falls 6%+ in 2 days, investors justifiably ask whether something has changed that should impact their investment thesis.  This is when a consistent framework like the Market Phase Cycle is most valuable.”

We wrote that 1 month ago, and if we replace 6% with 3.5%, we would be in today’s situation as we approach Thanksgiving.  It is rare that a major market sell off does not have a retest of the lows.  We are in the midst of that retest.

It is times like this that investors most struggle to look to the data as opposed to headlines.  It is also times like this that looking at the data can pay the biggest dividends for investors.

None of the key indicators we monitor in the Market Phase Cycle have turned more negative in the past month.

  • Investor sentiment has again reached oversold levels – pointing to potential capitulation
  • UAFRS earnings growth and ROA’ remains very healthy, and market valuations are not pricing in that strong earnings growth.  The market is undervalued and fundamentals are still trending positively
  • Corporate credit fundamentals remain healthy, not providing a catalyst for a deeper sell-off

All the datapoints we highlighted a month ago hold true, and should give investors confidence that as Santa Claus rolls through NYC at the end of the Macy’s Day Parade, he is likely to bring a more positive market environment with him.