Market Update: 12-10-18

The Issachar Fund (LIONX) is on Defense with 100% in Cash! I believe this is a trader’s market and not an investor’s market. I consider myself an investor who sometimes trades when I feel the opportunity outweighs the potential risk. I wrote the LIONX Prospectus to allow me the flexibility to be long, short or anywhere in between. I did not want to manage my money inside LIONX with one hand tied behind my back, so I designed LIONX with the ability to invest in pretty much any asset class at any time. In my opinion, market risk is high, and the S&P 500 may be headed lower to test the February lows. The S&P 500 ended Friday resting on the October 29th and November 23rd support lows, so I am expecting a bounce which might provide an opportunity to get short.

This could be the worst quarter for the S&P 500 Index in 7-years, since 2011! The market seems to be concerned that the Fed will raise rates next week which could potentially cause slower economic growth leading to lower earnings and stock prices. The Fed has raised rates eight times in the last 2.5 years in an effort to tame inflation that we have yet to see. If the Fed does not raise rates next week, the market may conclude that the Fed sees economic trouble ahead and institutions may sell en masse creating fear and panic. If the Fed raises rates next week, the market may conclude that as the straw that breaks the camel’s back. Either way, I believe that we have entered a Bear Market where “buy and hold” and “buy the dip” investors will eventually get mauled by a vicious Bear that has been stalking the Bulls for 9 years.

Santa Claws away from a Christmas Crash? PE ratios are stretched and trading near 5-year highs for most leading stocks that I follow. The Cyclically Adjusted PE ratio (CAPE) is more over valued than it was in 1929 but remains below the spike it achieved in the 2000 Dot Com Bubble. All major indexes are trading below their 200 day moving averages which is a major red flag. Junk Bonds are in a steep down-trend indicating to me that risk of default is similar to the risk we experienced in February when the S&P 500 dropped 10.10% from top to bottom. Senior Loans (short-term corporate paper) dropped about 1% from top to bottom in February. However, Senior Loans have already dropped about 2.5% since November 7th so I am concluding that risk is extremely high of another sharp decline in the S&P 500. Instead of a Santa Clause Rally, we may get a Christmas Crash!

Gold is now in an up-trend! I am watching Gold closely for an entry position should things play out as I expect. There seems to be a flight to safety in US 20-year Treasury Bonds as money flees stocks. Gold may be benefiting as investors look for places to hide should the Bear start to growl a little louder. Gold has not been a profitable position in the last 9-years but that may be changing if fear overtakes greed. Our greatest opportunities may be in Gold and on the short side of the market. Time will tell.

Check out where Morning Star has placed LIONX in the Tactical Allocation Category:

Bottom line: I am independent and flexible, so I can be bullish or bearish. Currently, I am bearish and looking for low-risk opportunities expecting stock prices to decline. I do not intend to take on risk that I cannot manage. Therefore, I plan to tread lightly seeking opportunities as they present themselves.

(Portfolio holdings are subject to change at any time and should not be considered investment advice. There is no guarantee that any investment will achieve its objectives, generate positive returns or avoid losses.)

Health Tip:
Learn to do stretching exercises when you wake up. It boosts circulation and digestion, and eases back pain.

Inspirational Quote:
You have as much laughter as you have faith.

Verse of the Day:
Now faith is confidence in what we hope for and assurance about what we do not see. Hebrews 11:1

The chart below shows the YTD total return of LIONX (red) verses S&P 500 (green). I believe that managing risk is the key to long-term success. Notice how less volatile LIONX is for a similar return! Past performance is no guarantee of future results.