OK, it’s time to get defensive

Harloff CapitalAuthor: Gary Harloff

Covestor model: Opportunistic ETF

Disclosure: None

Time to be defensive!

This month all but one of our market timers has changed. We have neutral signals on both the S&P500 and NDX, a sell on PHLX Gold/Silver Sector ETF (NYSE: XAU), and our US 10 year bond yield signal remains on a sell (that means a buy on this bond). The S&P500 current trend is flat to down. It is time to be defensive.

Our style box analysis indicates that all U.S. styles have negative momentum. Our sector analysis indicates that only utility has positive momentum. Semiconductor, financial, oil, silver and gold are all negative at this time. On a worldwide scale, only the U.S. dollar has positive momentum. U.S., Germany, London, and emerging markets stocks all have negative momentum.

We continue to like consumer products, biotechnology and pharmaceuticals.

The Federal Reserve will soon stop pumping liquidity into the financial sector when QE2 ceases next month. This will remove a large upward force from the equity markets. Japan has entered yet another recession partly due to their nuclear power disaster and destruction of part of their manufacturing base. China is slowing its economic growth in hopes of slowing its growing inflation. In general, the emerging markets appear to be slowing down their growth as a reaction to a reduction in global growth.

The lackluster equity market trends may need 2 to 4 months to adjust to new global realities.

Because the markets can turn quickly, be ready. May the market be with you!