August 21, 2019

08-21-2019 BLA

The HCM-BuyLine Alpha is doing a good job of keeping emotions in check during a very volatile market. The market was setting up to be a nice cup and handle pattern a few weeks back when a tweet came out about additional tariffs, and the yield curve inverted. This has shaken global confidence and sent fears of a recession running high. No one wants an inverted yield curve, but what does this really mean for equities?

Before we jump out a window, let’s do a little research on the history of an inverted yield curve. It might surprise you.

Surprise number 1.

Every time the 10-year and the 2-year yield curve has inverted, the S&P 500 has made a new high. The curve has inverted five times since 1976. We have blocked off where the curve inverted on the chart below, and every time new highs were made.

08-21-2019 Curve

Surprise number 2. 

The last three times it has inverted, stocks gained a whopping 33% before peaking. We are not talking about 3% or 4%, but 33%! Even in the most recent case of December 2005 (which is when more computerized trading was at work), the S&P 500 still gained another 25%. 

If there is a recession coming, we feel that it is down the road, but we have the HCM-BuyLine Alpha on our side to take emotion out of the mix. There are still a lot of reasons to be bullish, including (i) strong corporate earnings, with over 490 of the S&P 500 reporting, and 71% beating expectations (ii) a White House that wants stocks to go higher (iii) and a dovish Fed, which is still the most powerful central bank in the world.

This week’s HCM Optimized Trend Indicator (OTI) stock of the week is Alteryx, Inc. (AYX). Yahoo Finance says, “Alteryx, Inc. operates a self-service data analytics software platform that enables organizations to enhance business outcomes and the productivity of their business analysts, data scientists, and citizen data scientists worldwide.” We chose this stock to show that there aren’t always going to be very many buy or sell signals, but there is always a reason behind them. Any move up or down in a stock may or may not generate a signal. We want it to use math and keep emotion out of the picture, utilizing the OTI. In our opinion, this stock is a great example of the OTI recognizing the beginning of an uptrend, getting in, and staying in. Just look at all those gains. Way to go OTI!


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