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Tactical Portfolio Outlook

Tactical Portfolio Outlook

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Published by AHGrimes
Waverly Advisors' research product for longer-term trader, allocators, and portfolio managers.
Waverly Advisors' research product for longer-term trader, allocators, and portfolio managers.

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Published by: AHGrimes on Oct 15, 2013
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1Copyright © Waverly Advisors, LLC 2012. Please review Disclosures on the final page of this report.
 Tactical Portfolio Outlook 
For the Week of October 14, 2013
Major tactical themes to watch over the coming weeks and months include:
 
Broad strength in Equities. Look for leadership in Europe and domestic mid and small caps. Hong Kong has the potentialto lead on a trend leg or two, but we do not yet see support for persistence there.
 
No changes to Equity sector biases or allocations this week.
 
 A generally adverse environment for Fixed Income, with a few possible bright spots.
 
 Tactical directional trades setting up clearly to short Precious Metals. As always, these are biases and tendencies supported by market structure and statistical tendencies on many timeframes, and mustbe considered within your specific investment mandate and risk tolerance. There are some environments that reward a moreaggressive stance toward risk, and we believe that we are entering one of those environments in Equities. Risks abound, but, withproper management, they become risks that fuel potential outperformance rather than simple risks to capital.
ContentsMarket Bias
................................................................................................................................................................................................ 2
 Market Perspective: Equities
................................................................................................................................................................... 3
 Market Perspective: Fixed Income & Currencies
.............................................................................................................................. 6
 Market Perspective: Commodities
......................................................................................................................................................... 7
 Tactical Trade Ideas
.................................................................................................................................................................................. 8
 Portfolio Perspective
................................................................................................................................................................................ 10
 Macro Perspective
.................................................................................................................................................................................... 12
 Data Tables
............................................................................................................................................................................................... 17
 Tactical Equity Screens
.......................................................................................................................................................................... 19
 
 Waverly Advisors, LLC
228 Cedar StreetCorning, NY 14830(607) 684-5300
 Adam Grimes
Chief Investment Officer Tactical Investments & Research 
grimes@waverlyadvisors.com
 Andrew Barber
Chief Executive Officer  Macroeconomic Research 
barber@waverlyadvisors.com
Options Research
Options Market Outlook Report Contact Sales for more information 
Contact Sales:
sales@waverlyadvisors.com(607) 684-5300 www.waverlyadvisors.com www.tacticalplaybook.com
 
Tactical Portfolio Outlook 
 – 
October 14, 2013 2Copyright © Waverly Advisors, LLC 2013.Please review Disclosures on the final page of this report.
 
Market Bias:
Our Current Investment Allocation View 
 Asset Ticker Eval 52wkRet RS Trend Condition Asset Ticker Eval 52wkRet RS Trend ConditionDomestic Equities World Equities
S&P 500SPYMarket18.1%4.7Bull NormalJapan EquitiesDXJOk55.4%8.8Bear/Neut. NormalRussell 2000IWMOver30.4%8.9Bull NormalItaly EquitiesEWIOk23.9%17.4Bull QuietRussell 1000 GwthIWFMarket18.7%5.6Bull NormalEAFEEFABest21.5%6.8Bull QuietRussell 1000 ValueIWDMarket20.5%4.7Bull NormalEmerg Mkt EquitiesEEMOk3.8%4.3Bull Normal
Domestic Equity Sectors
DJ Euro STOXX 50FEZBest27.3%12.1Bull QuietEnergy SectorXLEMarket14.2%4.4Bull QuietCanada EquitiesEWCAvoid-0.5%2.1Bull QuietIndustrial SectorXLIOver27.9%7.8Bull NormalHong Kong EquitiesEWHOk12.5%5.5Bull QuietTechnology SectorXLKMarket7.5%3.4Bull NormalFrance EquitiesEWQOk30.0%11.4Bull QuietMaterials SectorXLBMarket15.7%5.7Bull QuietGermany EquitiesEWGOk25.4%9.9Bull QuietCons Disc SectorXLYMarket29.9%7.1Bull NormalFTSE Europe EquitiesVGKBest21.0%7.5Bull QuietFinancial SectorXLFOver27.3%6.1Bull NormalUK EquitesEWUOk12.7%4.4Bull QuietCons Staples SectorXLPMarket12.6%1.6Bear/Neut. Normal
Fixed Income
(evaluations apply to specific ETP)Health Care SectorXLVOver26.1%6.0Bull NormalVanguard Total Bond MarketBNDOk-4.8%-1.2Bear/Neut. NormalUtilities SectorXLUUnder3.8%0.3Bear/Neut. NormaliShares CORE Tot. US Bond MktAGGOk-4.3%-0.9Bear/Neut. NormaliShs 20+ Yr Treasury BdTLTAvoid-13.5%-4.7Bear Quiet
Currencies
iShs 3-7 Year Treasury BdIEIOk-1.9%-0.4Bear/Neut. NormalPwrShrs DB US DollarUUPShort-1.3%-2.0Bear QuietiShs TIPS BondTIPAvoid-8.5%-2.2Bear/Neut. QuietJapanese YenFXY-21.0%-2.3Bear/Neut. NormaliShs JPM USD Emerg Mkt BdEMBOk-9.4%-1.9Bear/Neut. QuietEuro TrustFXELong4.9%2.6Bull QuietPwrShrs Emg Mkts Sovrgn DebtPCYOk-10.6%-2.0Bear/Neut. Quiet
Commodities
Market Vectors High YieldHYDAvoid-13.8%-6.4Bear NormalGoldGLDShort-28.3%-9.4Bear/Neut. NormalVanguard Short-Term BondBSVOk-1.3%-0.2Bear/Neut. NormalSilverSLVShort-37.5%-9.2Bear/Neut. QuietNuveen Barclays STrm MuniSHMBest-1.1%0.0Bull QuietCrude OilUSO7.5%1.3Bull/Neut. NormaliShs iBoxx $ Inv Gd Cor BdLQDAvoid-6.9%-1.8Bear NormalNatural GasUNG-13.1%-2.1Bear/Neut. QuietiShs iBoxx $ Hgh Yd Cor BdHYGAvoid0.1%-0.2Bear/Neut. QuietPwrShrs DB AgsDBA-12.3%-0.9Bear/Neut. QuietSPDR Barclays Hi Yld BdJNKOk-0.1%-0.1Bear/Neut. Quiet
   P  o  r   t   f  o   l   i  o   W  e   i  g   h   t   (  r  e   l  a   t   i  v  e   t  o  c  o  r  e  a   l   l  o  c  a   t   i  o  n  m  o   d  e   l   )   D  e   f .   O  p  p  o  r   t  u  n   i  s   t   i  c   T  a  c   t   i  c  a   l   A  s  s  e  s  s  m  e  n   t   T  a  c   t   i  c  a   l   A   l   l  o  c  a   t   i  o  n   A  s  s  e  s  s  m  e  n   t   C  y  c   l   i  c  a   l   S  e  n  s .
 
Tactical Portfolio Outlook 
 – 
October 14, 2013 3Copyright © Waverly Advisors, LLC 2013.Please review Disclosures on the final page of this report.
 
Market Perspective:
Equities
 
 The bulls are solidly in control.
 
Despite a volatile week, tactical signs point higher on intermediatetimeframes.
 
Look to Europe for leadership.
 
No changes in sector biases or allocations.One of the challenges of tactical allocation is managing the balance betweenclear setups on longer timeframes and the risks of shorter timeframes. In thecase of Equities, there are clear and strong multi-year bullish setups on the weekly/monthly timeframe. From a tactical standpoint, this is sufficientmotivation to hold aggressive tactical allocations to equities
 — 
simply put,these patterns are why you want to be long stocks. However, a lot can happen within a large scale framework like this: significant, sharp declines, very high volatility, and perhaps even months to quarters of sideways-down prices would not necessarily negate that higher timeframe long bias, but how toeffectively manage those shorter term risks? We believe that the solution is simple and elegant: First, acknowledge that any position brings uncertainty and risk as part of the cost of being involved inthat market. With that in mind, consider that short term patterns can beimportant for risk management; breakdowns of higher timeframe patterns willbegin as adverse price movements on lower timeframes. To ignore thatmessage is to ignore much of the power of tactical signals, but it is alsounacceptable to constantly adjust longer term allocations based on thisinformation. Furthermore, doing so would often mean repeatedly buying highand selling low 
 — 
a losing plan. So, the correct course of action is toacknowledge and note the tactical warning signals as they emerge. Someallocators will use this information to make adjustments to hedges (i.e.,heading more or more aggressively as tactical risks grow), and some may choose to make small adjustments to actual allocations, but, above all, keepthe higher timeframe bullish setup in mind at all times and maintain heavy long exposure to Equities. If the tactical situation degrades to the point theseallocations are no longer justified we will let you know, and this is the type of 
risk that must be borne in today’s market
.
S&P 500 Cash , Weekly with AlgoSwings®Russell 2000 Cash, Daily 

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