by Michael Tarsala
One of Covestor model managers I think has an excellent feel for the markets is Michael Arold, who runs the Technical Swing model. He says he’s now backing out of his short positions.
“The direction of the trend is still down, but oversold conditions are telling me that a bounce is coming, then it could be time to keep shorting again.” Arold told me this week.
In the short term, Arold thinks stocks are oversold. The put-call ratio, as well as other indicators, are at extremes. As a result, he has trimmed short positions to about 15% of the portfolio, down from 25% a few weeks ago. And he is 85% in cash, with nothing long right now.
Here are five other timely insights from Arold:
1) Volatility is not that high in the big picture. While sentiment readings are very oversold, the VIX, for example, is not at a historical extreme. He would be more bullish if the VIX were higher than it is right now.
Source: Stockcharts.com
2) Currencies continue to dictate moves in cyclical stocks, he says. Materials and energy are two of the weakest sectors. Yet he thinks they would strengthen if the Euro were to change course and rise versus the dollar – most likely on positive news from Greece. It’s not time to pull the trigger yet, Arold says, but he is watching the DIG for a possible reversal; it is a 2X levered ETF to the energy sector. Below is a chart of the ProShres Ultra Oil and Gas ETF (the DIG). I marked the next technical levels of interest.
Source: Stockcharts.com
3) Arold had positions last month in the defensive utilities sector. The group remains in a strong uptrend. But he says it could be getting long in the tooth. If the market turns, other riskier assets will begin to outperform utilities. Check out a chart of utiliites, relative to the cyclical energy sector, and how it’s at a near triple-top extreme.
Source: Stockcharts.com
4) One of his favorite assets to opportunistically re-short is the silver ETF (SLV). He says the recent bounce was predictable. But the longer-term picture for the metal is still bearish. He sees downside potential on a break below $26.
Source: Stockcharts.com
5) Some stocks will see false breakdowns, then eventually be buying opportunities. One of those in the beleagured banking sector is Wells Fargo (WF). He adds that it is not exposed to the same international risks faced by the money-center banks. I marked the next volume support level.
Source: Stockcharts.com
