John Rothe | Market Strategist, Portfolio Manager, Quant Guy, And Sometime Superhero To My Kids http://www.johnrothe.com Thu, 26 Mar 2015 15:18:07 +0000 en-US hourly 1 http://wordpress.org/?v=4.1.1 Will The Collapsing US Macroeconomic Data Keep The Fed At Bay? http://www.johnrothe.com/will-the-collapsing-us-macroeconomic-data-keep-the-fed-at-bay/ http://www.johnrothe.com/will-the-collapsing-us-macroeconomic-data-keep-the-fed-at-bay/#comments Thu, 26 Mar 2015 15:13:14 +0000 http://www.johnrothe.com/?p=5396 It is starting to feel like the release of any good economic data is being cheered on by an army of PR people nowadays.

People are quick to point to the improving unemployment rate and the rise in housing data.

But the reality is, economic data is still mixed and does not paint a rosy picture.

Below are two data points that I think we should all be closely watching...

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It is starting to feel like the release of any good economic data is being cheered on by an army of PR people nowadays.

People are quick to point to the improving unemployment rate and the rise in housing data.

But the reality is, economic data is still mixed and does not paint a rosy picture.

Below are two data points that I think we should all be closely watching:

The Deterioration In US Profits:

profits-deterioration

Albert Edwards, global strategist at Societe Generale, has warned that investors are ignoring a “savage deterioration in US profits”.

In his latest research piece he states:

The downturn in US profits is accelerating and it is not just an energy or US dollar phenomenon – a broad swathe of US economic data has disappointed in February.

 

The investor “herd” seems to be more focused on what the Fed will do next instead of underlying economic data.

Perhaps they are hoping that the decline in macroeconomic data will keep the Fed at bay a little longer.

Bloomberg US Macro Surprise Index:

edwards-sp-v-us-macro-0215

In the past, when the Bloomberg Macro Surprise Index has significantly declined it has been met with a more aggressive Fed.

Will this time be different, or is a surprise QE right around the corner?

Questions? Thoughts?

 

Feel free to leave a comment below or you can reach out to me privately here.

Thanks,

John Rothe

CEO & Chief Investment Officer

Riverbend Investment Management

 

 

Feature image: Craig Sunter/ Flickr

 

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Is It Time To Sell Equities? http://www.johnrothe.com/time-sell-equities/ http://www.johnrothe.com/time-sell-equities/#comments Wed, 11 Mar 2015 15:23:57 +0000 http://www.johnrothe.com/?p=5379 From a trading perspective, this has been a frustrating market. For most of 2015 the markets have been stuck in a sideways trading pattern. Every time the market looks like it is going to break out (either up or down) of its trading range, we get a lackluster follow through and move back into a widening trading range.

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From a trading perspective, this has been a frustrating market. For most of 2015 the markets have been stuck in a sideways trading pattern. Every time the market looks like it is going to break out (either up or down) of its trading range, we get a lackluster follow through and move back into a widening trading range.

Investors don’t seem too committed at this point. Uncertainty about what the Fed’s next move will be, combined with the mixture of good and bad economic data, has many scratching their heads.

All we can do at this point as active, technical traders is follow the charts and not second guess or try to anticipate future reversals.

With that said, let’s take a look at the current market trends and how we are, once again, at another “line in the sand” moment.

 

S&P 500 Index

The S&P 500 Index has quickly broken through various support levels. The one that sticks out the most to me is the failure of the support level established when the market broke above the trading range that has been in place since December 2014.

We now need to pay attention to the upward rising trendline that has been in place since October 2014.

I should also note that the bond markets are facing a similar “line in the sand” moment (which I will discuss further below).

 

SPX daily

Going back to the S&P 500 Index, a look at the weekly charts show the longer term, upward channel is still in place. A move below this trendline will be a big deal to market watchers.

 

spx weekly

Nasdaq 100

Technology names, which make up most of the Nasdaq 100’s weighting, typically lead the market. As investors are feeling aggressive, they are the first to rise. Likewise, as investors become more risk adverse, tech names are the first to decline.

Notice how the “QQQ” ETF has been holding onto its breakout support level:

qqq

 

Small Caps

Small caps are also facing a “line in the sand” moment.

Small cap stocks have broken below its breakout support levels. Up next is the rising trend line that has been in place since October 2014.

I find it interesting that so many indices are testing their long term trend lines.

 

small caps

US Treasury Bonds

As a chart watcher, this is where it starts to get interesting…

US Treasury bonds are testing their downward trend line.

Typically, US Treasury bonds are considered a safe haven asset group. As equity markets break down, risk adverse investors move out of equities and into bonds.

As the S&P 500 Index tests its upward trendline, US Treasury bonds will be facing a similar test. A break down in the S&P’s trendline, combined with a break ABOVE the downward trendline in US Treasury bonds, is a clear signal that investors’ perception of the market has changed.

 

us treasuries

Market Volatility

Market volatility, as measured by the VIX, has been rising. However it is not at a high level yet.

A measurement above 20 in the VIX is considered by many as a warning sign. (Note the October 2014 levels when the S&P 500’s long term trend begins.)

What this means to me, is that IF the trend in equities and bonds reverse, it will be a surprise to most of the market. Highly leveraged investors may quickly shift out of equities which could result in a deep selloff.

 

vix

 

Final Thoughts

Will the reversal in equities and bonds occur? I don’t know. In fact it may have occurred by the time you read this.

What I do know is that the amount of leverage being used in the market today is at a record high. Markets can move very quickly in this environment.

While I am not a proponent of anticipating future trends (unfortunately I haven’t found a magic crystal ball that predicts the future yet), watching for breaks in the trends is important.

More and more automated trading systems and algorithms use these trendlines to create buy and sell programs. The automated buy/sell programs can be swift and aggressive. As a result, those who ignore the trends are typically left reacting to the aftermath.

 

That all for now. Thanks for reading,

John

 

 

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Front page/featured Image source: Wikimedia Commons/Jonund

 

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Global Asset Allocation Strategy: March 2015 Update http://www.johnrothe.com/global-asset-allocation-strategy-march-2015-update/ http://www.johnrothe.com/global-asset-allocation-strategy-march-2015-update/#comments Tue, 03 Mar 2015 16:35:16 +0000 http://www.johnrothe.com/?p=5360 This month's update to my global asset allocation strategy -- Investors are starting to shift away from US Treasury bonds and back into the global equity markets.

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Each month I post an update to my global asset allocation strategy. This strategy is a relative strength, ETF based model that allows us to better gauge how global investors are feeling about the strength (or weakness) in the global economy and markets.

If you are not familiar with the strategy, here is a quick overview: “A Better Global Asset Allocation Strategy?

Strategy Performance In 2015

After a phenomenal January, the model gave back some of its gains as the market began to shift from a defensive posture to a more aggressive (and positive) outlook for equities.

January 2015

january global asset allocation

data provided by ETFreplay.com

February 2015

February 2015 global asset allocation strategy

 

March’s Global Asset Allocation Strategy Model

The shift back into equities continues – this month the strategy has shifted further away from safe haven holdings like US Treasury Bonds, and allocated a larger amount back into global equity markets.

global investment strategy march 2015

Looser monetary policies in Europe have helped some European markets. Sweden, Germany, Belgium Switzerland and the Netherlands have all started to show positive relative strength within the strategy.

europe spx tlt

Meanwhile, the move out of US Treasuries is indicating that equity markets may be in for a nice Spring surprise as investors are becoming more aggressive:

etf inflows february global strategy model

source: ETF.com

 

I will be keeping a close eye on this trend to see if it continues. The one risk I see to the continuation of this trend is the lack of positive relative strength within emerging market countries.

Typically, aggressive moves away from US Treasury Bonds are accompanied with a stronger move from more aggressive emerging economies.

Instead, the strategy is moving into stable, European countries —  a sign that there is still some risk aversion among global investors.

 

 

***Please note: I and/or my clients are long  “TLT”, “SPY”, “QQQ”, “EWD”, “EWG”, “EWJ”, “EWK”, “EWL”, “EWN”

Questions? Thoughts?

 

Feel free to leave a comment below or you can reach out to me privately here.

Thanks,

John Rothe

CEO & Chief Investment Officer

Riverbend Investment Management

 

Note: All performance data is presented as backtested data. IMPORTANT INFORMATION ABOUT PERFORMANCE REPORTING and models can be read here: Disclosures

 

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Front page/featured Image source: Wikimedia Commons/Aotearoa

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Riverbend Folios Are Here! http://www.johnrothe.com/riverbend-folios/ http://www.johnrothe.com/riverbend-folios/#comments Wed, 18 Feb 2015 12:45:03 +0000 http://www.johnrothe.com/?p=5356 Have you noticed the markets are getting a bit more “bumpy”? Is it time to get your investment accounts organized before the markets take a major hit? Riverbend Folios Are Here! (click here to learn more) I want to share with you an exciting new launch: Riverbend Folios, actively managed portfolios […]

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folios

Have you noticed the markets are getting a bit more “bumpy”? Is it time to get your investment accounts organized before the markets take a major hit?

Riverbend Folios Are Here! (click here to learn more)

I want to share with you an exciting new launch: Riverbend Folios, actively managed portfolios designed for active markets.

Riverbend Folios is an online platform that allows you to create a custom blend of our proprietary investment strategies.

Our actively managed strategies have been guiding clients since 2006, and can benefit investors during volatile markets using:

  • Actively managed portfolios;
  • Long/short strategies to hedge portfolios during extreme market cycles;
  • Broad diversification strategies utilizing ETFs; and
  • Unlike mutual funds, Riverbend Folios have no cash limits/restrictions – the entire portfolio can allocate to 100 percent cash as necessary.

Riverbend Folios are ideal for growth investors who are looking for a proactive investment strategy during active market cycles.

BONUS: Open an account now and you will get FREE access to our account aggregation tools. Organize ALL your investment accounts (even those not managed through Riverbend) into one secure online portal — including all of your brokerage and mutual fund accounts, 401k, 529 plans, annuities, etc.

Resolve to be financially organized in 2015!

Click Here To Learn More About Riverbend Folios and Start Getting Financially Organized For 2015 

Thanks!

John Rothe
CEO & Chief Investment Officer
Riverbend Investment Management

PS: Don’t let procrastination stop you from getting financially fit and organized for 2015! To learn more, here is the direct link:

http://folios.riverbendinvestments.com

 

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Markets Are At An Interesting Crossroad http://www.johnrothe.com/markets-interesting-crossroad/ http://www.johnrothe.com/markets-interesting-crossroad/#comments Fri, 13 Feb 2015 16:36:26 +0000 http://www.johnrothe.com/?p=5331 The US stock market has been stuck in a sideways trading range since early December. Now we are at a point where the next few trading sessions may decide the fate of the next few months. Some of the patterns that I have been watching during this time frame are […]

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The US stock market has been stuck in a sideways trading range since early December. Now we are at a point where the next few trading sessions may decide the fate of the next few months.

Some of the patterns that I have been watching during this time frame are starting to shift. If this shift in investor behavior continues, there may be an opportunity for investors to take early advantage of an emerging (and new) trading pattern.

US Equities

Money looks like it is on the verge of flowing more aggressively back into equities:

spx daily

 

The weekly chart shows that the MACD is nearing a crossover point. A possible entry for longer-term growth investors.

spx weekly

 

For those not familiar with MACD:

From Investopedia:

DEFINITION OF ‘MOVING AVERAGE CONVERGENCE DIVERGENCE – MACD’

A trend-following momentum indicator that shows the relationship between two moving averages of prices. The MACD is calculated by subtracting the 26-day exponential moving average (EMA) from the 12-day EMA. A nine-day EMA of the MACD, called the “signal line”, is then plotted on top of the MACD, functioning as a trigger for buy and sell signals.


Moving Average Convergence Divergence (MACD)

 

In addition, higher beta stocks are starting to break out of their sideways trading pattern:

qqq

 

Apple has already broken out of its sideways trend:
aapl

 

 

Notice since early December, the S&P 500 Index and Apple have had a strong correlation:

appl spx correlation

 

US Treasury Bonds

US Treasury Bonds are beginning to look weaker, as investors are allocating away from safe-haven asset classes back into higher beta sectors:

 

US Bonds

Bonds Fib

 

A continued breakdown in bonds, combined with a breakout in equities from the sideways trading pattern that has been present all year, is an indication that investors are becoming more bullish on the economy again.

 

Is Bad News The New Good News?

Continued lower oil prices have been having a positive impact on consumer confidence:

consumer confid

Unfortunately, this has NOT translated into a more active consumer – which is what investors have been hoping for.

Retail-Sales-ex-Gasoline

 

To leveraged traders this could be interpreted as a positive sign that the Fed will not be as aggressive as previously thought. The Fed does not want to risk raising interest rates too quickly on a constantly fragile economy.

We will need to keep an eye on this shift in the markets to see if the pattern continues, or if leveraged investors take this as an opportunity to reduce exposure in their portfolios.

NYSE-margin-debt-SPX-growth-since-1995

 

The high amount of leverage that is currently present in the market is a potential ticking time bomb. However, markets can remain over-leveraged for long periods of time.

We are already seeing that market swings are becoming more frequent and larger in 2015.

For growth investors with a longer time frame, an active, tactical approach to asset allocation is still recommended.

Questions? Thoughts?

 

Feel free to leave a comment below or you can reach out to me privately here.

Thanks,

John Rothe

CEO & Chief Investment Officer

Riverbend Investment Management

 

 

 

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Global Portfolio Strategy: February 2015 Update http://www.johnrothe.com/global-portfolio-strategy-february-2015-update/ http://www.johnrothe.com/global-portfolio-strategy-february-2015-update/#comments Thu, 05 Feb 2015 13:07:10 +0000 http://www.johnrothe.com/?p=5318 Each month I post an update to my global asset allocation strategy.

The Global Portfolio Strategy is a relative strength, ETF based model that allows us to better gauge how global investors are feeling about the strength (or weakness) in the global economy and markets.

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Each month I post an update to my global asset allocation strategy. This strategy is a relative strength, ETF based model that allows us to better gauge how global investors are feeling about the strength (or weakness) in the global economy and markets.

 

The Strategy Had A Very Good January

Despite the weakness we saw in the US equity markets during the month of January, our global strategy performed better than expected:

jan performance portfolio

data provided by ETFreplay.com

As I have mentioned in past posts, this strategy has been very conservative over the past few months. As relative strength in global markets weaken, the strategy shifts into US Treasury Bonds (ETF: “TLT”).  The concept is that as investors become nervous, they shift assets into safe haven asset classes – such as US Treasury Bonds.

Inflows into the iShares Long Term Treasury ETF (“TLT”) rose in January due to increasing market volatility which caused investors to reallocate their portfolios from equities to bonds:

tlt inflows 2015

source: ETF.com

February’s Allocation

My global asset allocation strategy is rebalanced at the start of each month and is based on relative strength and moving averages.

For February, the model remains overweight in US Treasury Bonds and only adds the iShares MSCI Hong Kong Index ETF (“EWH”) to the portfolio:

feb portfolio

 

Perhaps investors are hoping lower oil prices will reduce export costs and are starting to look towards Asian markets for opportunities.

Either way it is clear that investors are still being cautious due to the rise in market volatility.

 

***Please note: I and/or my clients are long “EWH”, “TLT”, “SPY”, “QQQ” as of 2/5/15.

Questions? Thoughts?

 

Feel free to leave a comment below or you can reach out to me privately here.

Thanks,

John Rothe

CEO & Chief Investment Officer

Riverbend Investment Management

 

Note: All performance data is presented as backtested data. IMPORTANT INFORMATION ABOUT PERFORMANCE REPORTING and models can be read here: Disclosures

 

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Market Flashing A “Secret” Buy Sign? Really? http://www.johnrothe.com/market-flashing-secret-buy-sign-really/ http://www.johnrothe.com/market-flashing-secret-buy-sign-really/#comments Mon, 02 Feb 2015 20:06:42 +0000 http://www.johnrothe.com/?p=5303 Short term traders seem not too sure on what the next move in the market will be. A recent interview on CNBC highlights the disagreement and “hedging” among traders: The VIX pattern seems to indicate a wait and see approach by traders. Not much conviction until we see a breakout: […]

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Short term traders seem not too sure on what the next move in the market will be.

A recent interview on CNBC highlights the disagreement and “hedging” among traders:

The VIX pattern seems to indicate a wait and see approach by traders. Not much conviction until we see a breakout:

vix

In the meantime the flight for safety continues. As a result US Treasury Bond prices continue to rise:

US bonds

 

The uncertainty due to lower oil prices, a potential Greek default, and continued mix economic data, seems to be keeping many traders on the sidelines.

spx

Keep an eye on the 200 day moving average. There is still a ton of leverage in the US equities market. This is most likely the area where traders will step in –or start removing leverage from their portfolios.

Questions? Thoughts?

 

Feel free to leave a comment below or you can reach out to me privately here.

Thanks,

John Rothe

CEO & Chief Investment Officer

Riverbend Investment Management

 

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Sector Overview: Relative Strength And Trends http://www.johnrothe.com/sector-overview-relative-strength-trends/ http://www.johnrothe.com/sector-overview-relative-strength-trends/#comments Wed, 14 Jan 2015 22:52:59 +0000 http://www.johnrothe.com/?p=5264 A quick look at the sector strength and trends of the various S&P 500 components. What's looks bad and what looks good.

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is the stock market going to crash 2015

The Bad:

Financials 

financials

4

 

Financials are breaking down.

Perhaps some are starting to worry about what the impact of “longer” term, low oil prices will have on overly leveraged hedge funds…

 

 

 

Energy:

energy

3

 

No surprises here. Energy is still getting crushed.

Notice the recent MACD crossover. This could be the start of a much larger decline in this sector.

 

 

 
Materials:

materials

8

 

A pickup in hiring as shown in the December jobs report may not last long. Investors seem to not be impressed with recent job trends and the amount of workers leaving the workforce.

Historically, the material sector is a weak performer in January, as well.

 

 

 The…Still Holding On

Consumer Discretionary:

consumer disc

 

 

1

We are starting to see a breakdown of the multi-month upward trend, while we are still seeing negative relative strength vs the S&P 500 Index.

Consumers don’t seem to be positively responding to lower gas prices when purchasing non-staple items.

 

 

 

Consumer Staples

staples

2

The consumer staples sector continues to rise as hopes of low gas prices will translate into more spending money — especially among blue collar workers.

 

 

 

 

Industrials:

INDUSTRIALS

 

6

Industrials are looking weaker.

Watch to see if current support levels hold. If not, it might be a sign that the market wants another round of QE from the Fed.

 

 

 

 

The Good

Health Care:

xlv

5

Generally viewed as a defensive sector during declining markets, money seems to be flowing back into healthcare after missing out on the year-end rally of 2014.

 

 

 

 

 

Technology:

tech

7

 

Watch the technology sector closely here. A breakdown in this sector indicates that momentum traders are reducing leverage and moving to the sidelines.

Note the continued negative divergence that has been in place since December.

 

 

Utilities:

xlu

9

Utilities continue to rise as interest rates are still falling. Typically utility companies carry a large amount of debt.

Hopes of a more dovish Fed in 2015 (than what is anticipated) are keeping utility companies’ stock prices on the rise.

 

 

Note: I/my clients may be long XLU, XLV, XLK, XLP

Questions? Thoughts?

 

Feel free to leave a comment below or you can reach out to me privately here.

Thanks,

John Rothe

CEO & Chief Investment Officer

Riverbend Investment Management

 

 

 

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Top Image: http://www.freeimages.com/profile/fcl1971

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Global Asset Allocation Strategy 2015 http://www.johnrothe.com/global-asset-allocation-strategy-2015/ http://www.johnrothe.com/global-asset-allocation-strategy-2015/#comments Thu, 08 Jan 2015 16:52:14 +0000 http://www.johnrothe.com/?p=5248 A 2015 update to my global asset allocation strategy. So far, the model remains conservatively invested. Is this a sign that the risk appetite of global investors is dwindling -- or something else?

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john rothe investment blogHappy New Year! – Thank you for all your support over the past year and I hope you have a safe and happy 2015.

 

Now to the markets…

My global asset allocation model has been very conservative over the past quarter. January looks to be no different.

Last month the strategy performed as such:

2014 December global asset allocation strategy

Backtested data calculated using ETFreplay

The strategy, which is based on relative strength and moving averages, kept half the portfolio in US Treasury bonds. (“TLT”). This allowed the strategy to avoid some of the global market volatility we saw in December, however it means it also wasn’t able to fully take advantage of the year end rally in the US equity markets.

2014 Performance of Strategy

The global asset allocation strategy underperformed the S&P 500 index for 2014. The model stayed conservatively invested during periods of higher volatility, which caused it to miss some of the market “spikes” we saw during the same timeframe.

2014 relative stregth performance2014 global allocation stats

Whether this is a sign that the appetite for global risk is drying up and US investors have their heads in the sand — or if the US is entering a period of global outperformance — has yet to be seen.

What is clear is global investors are still moving assets into the US Treasury market; either as a flight to safety, an opportunity for a more dovish Fed in 2015, or a combination of both.

 

January 2015 Allocation

2015 global asset allocation strategy

January’s allocation remains conservative. The model is now holding 80% of the portfolio in US Treasuries, while the rest is invested in US equities.

Again if this is a flight to safety, or a hope for a more dovish Fed in 2015, is yet to be seen.

Volatility is increasing and may be a major theme for 2015…

 

Note: I/my clients may be long TLT, SPY, QQQ.

Questions? Thoughts?

 

Feel free to leave a comment below or you can reach out to me privately here.

Thanks,

John Rothe

CEO & Chief Investment Officer

Riverbend Investment Management

 

 

 

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Global Asset Allocation Strategy: December 2014 http://www.johnrothe.com/global-asset-allocation-strategy-december-2014/ http://www.johnrothe.com/global-asset-allocation-strategy-december-2014/#comments Wed, 10 Dec 2014 15:07:10 +0000 http://www.johnrothe.com/?p=5230 Each month, I post an update to my global asset allocation strategy. This strategy is a relative strength based research model I use to view the flow of funds within the global equity markets.

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global asset allocation strategy etf

Each month, I post an update to my global asset allocation strategy. This strategy is a relative strength based research model I use to view the flow of funds within the global equity markets.

Last month’s holdings and performance:

relative strength global equity

 

December’s model holdings:

global asset allocation strategy december 2014

 

I am finding the increased weightings in US Treasuries (“TLT”) interesting. While the US equity markets continue to trade at record levels, the appetite for risk in global markets is diminishing.

Perhaps global investors are thinking that the Fed will remain fairly dovish during 2015 and are increasing their allocations to US markets.

Or, perhaps investors are worried what the Fed will do in 2015 and have already begun to reduce their exposure in overseas markets.

As we near year end, the S&P 500 Index continues to outperform its global counterparts:

global markets

 

One final thought: 2015’s theme could very well focus on the disconnect between US and international markets, which will increase volatility as traders try to take advantage of changing valuations.

 Note: I/my clients may be long TLT, SPY, QQQ, EWH, EWS and/or EWN

Questions? Thoughts?

 

Feel free to leave a comment below or you can reach out to me privately here.

Thanks,

John Rothe

CEO & Chief Investment Officer

Riverbend Investment Management

 

 

 

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