Premium Flagship Update
This week we are covering the Premium-exclusive Small-Cap Momentum Portfolio. We were all set for another positive month until events last week sparked a strong selloff across all momentum strategies. We were on a solid roll until late in the week when developments surrounding trade relationships with China triggered enormous waves of selling across all areas of the stock market.
Micro-cap stocks were hit particularly hard as markets switched very quickly into risk-off mode. The micro-cap index pulled back to the 20-day moving average and closed right at that critical trend support line. The S&P 500 and NASDAQ 100 were not quite as fortunate, as both crossed under the 20-day moving average. Many traders consider this to be a very important trend line in the stock market, and this breach could attract additional selling pressure.
The fact that there was absolutely no resolution over the weekend to what is increasingly looking like a major trade war, as we discussed in the macro portion of this presentation, adds to the concern.
Momentum and Market Conditions
While the combination of tight credit spreads and loose financial conditions is generally very favorable for momentum investment strategies like the one we use in this portfolio, it is important to remember that momentum must be watched on its own merits. The market has had extremely strong momentum with significant buying pressure and abundant liquidity and capital flowing into stocks.
We like our companies, we like the fundamental momentum, and we like the way we are positioned with the portfolio. However, we can easily be taken down by market risk, and we need to take steps to avoid that outcome.
To use a metaphor from the fighting ships of old, like the flagship in our logo, it does not matter how well-stocked our gun deck is or how beautifully appointed our cabins are if our hull has been holed by fire from enemy ships.
Right now, the market has gone from friend to foe, and we need to take steps to protect our flagship as we continue on the journey.
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