Author: Jesse Barkasy
Covestor model: Trend Following
The major stock market indices have had a good run in January and many stocks are breaking out to new 52-week highs. Our Trend Following model now seeks to find if there are any clear leaders to invest in while being cautious about a return to a choppy market.
We have tested a few breakouts and they certainly are holding much better than they were in the past few months. This may indicate institutions are buying and holding. This U.S. market is in rally mode and that makes sense, given the slim choice of investments in the world today. The many large natural gas discoveries in North America is also very welcome news in my view. This puts our electrical grid economy on a solid foundation for many years to come.
Should there be a group of investments that are making the economy more efficient or productive, they will certainly show themselves if we are entering a new bull market phase. The trend is up and there are many stocks that are extended beyond a reasonable buy risk point as well. We may need a correction to be able to enter some trades at better levels and so the Trend Following model will be patient when looking for longer term investments lasting more than a few days and weeks.
At the same time the model seeks out buying opportunities in this market, we will also look for sectors that are breaking down just in case the Europe factor or budgetary issues in the United States resurface. The markets have come a long way in just a few months. This is encouraging and also makes us brace for a potential correction.
