August 28, 2019

The market is very frustrating right now. We should have broken out of a nice cup and handle in late July, but we were knocked back by a tweet. The market then stabilized only to be knocked back by another tweet last week. Is this a gut punch, or re-test, of last Friday's high-volume sell-off which collapsed most equity market indices back to the lower end of their high volatility? August trading ranges are raising the question of whether another shoe is set to drop heading into and through September?


Understandably, investors are pessimistic given the fragile technical backdrop currently in place. If you combine that with a lengthy list of negative political and economic headlines, it is hardly surprising that investors remain defensively positioned. Bond yields are probing new lows while gold and USD/CNH are probing new rally highs adding to the list of worries for investors.


The markets are currently above the HCM BuyLine®, and the S&P 500 is still above the 200-day moving average. Even though it is very uncomfortable to buy during a pullback, we should be buying. Unfortunately, as we know all too well, a simple tweet could knock the market even lower. We continue to follow our analysis showing the market should be higher by year-end, with a strong move taking place in Q3 and Q4. There is a lot of cash build-up, but how fast we will see deployment with everything that is going on is the big question.

This week's HCM Optimized Trend Indicator (OTI) stock of the week is Prospect Capital Corporation (PSEC). Yahoo Finance says "Prospect Capital Corporation is a business development company. It specializes in middle market, mature, mezzanine finance, later stage, emerging growth, leveraged buyouts, refinancing, acquisitions, recapitalizations, turnaround, growth capital, development, capital expenditures and subordinated debt tranches of collateralized loan obligations, cash flow term loans, marketplace lending and bridge transactions. It also makes real estate investments particularly in multi-family residential real estate asset class." As you can see below, this stock has been trading in the $4-$8 range for the past several years, meaning it can be tough to read, but potentially lucrative. Some of the OTI signals to pay attention to are the sell in late 2015, the subsequent buy, and the sell in mid-2017. The most recent signal was a sell in May of this year, and after a disappointing earnings call PSEC is trading down roughly 4% today. Way to go OTI!

 OTI 082819

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