April saw a bounce back from the weakness seen in equity markets in Q1 2018, with FTSE 100 for once leading the way with a 6.84% total return. This plus lesser positive returns from the smaller indices was sufficient to turn the market timing indicators positive again for all the indices that I follow this for in the UK. This leaves them all some 2 to 3% above their trailing 10 month simple average and as such they are giving a buy signal again.
Regular readers will however know that I do not follow the buy and sell signals from these religiously as they tend to be volatile and can sometimes lead you to be selling and buying in quick succession as they flip and flop, as they have done recently, when you get a periodic shake-out in the market. As mentioned here regularly and originally when I looked at some research based on this, these indicators are improved and therefore best used in conjunction with economic indicators that tend to signal a downturn in the US economy and this tends to keep one invested for much longer to benefit from positive trends and compounding. Now strangely the best of these was seen to be the US Unemployment rate, which is currently close to record lows, despite this generally being perceived as a lagging indicator. In addition to this I am also monitoring ISM indices which measure business confidence in the manufacturing and service sectors and can also be a leading indicator of business downturns.
The other thing I have added more recently to the list of things I am monitoring is the the shape of the US yield curve ( a graph of the yield on US Treasuries from 2 to 30 years) with a particular focus on the spread between the 2 year and the 10 year bonds. I've done this as these yields have been in the news recently as the Fed has started to tighten and indicated up to 3 more rate increases this year. This has led to the ten year yield popping above 3% recently which provides a bit more competition for equities. The thing to watch out for is if the yield curve inverts (the shorter term 2 year yield exceeding the 10 year yield) as this has also been an advanced warning of around 9 to 18 months of trouble ahead in the US economy. I know this sound esoteric but I picked this up years ago (hat tip to John Mauldin) and you can read some recent academic research about this in the file attached at the end of this post.
Meanwhile in the Compound Income Scores Portfolio (CISP) there was also a recovery but to a lesser extent than the FTSE All Share given it bias towards Mid and Smaller Cap stocks. Thus year to date the performance is nothing to write home about being roughly flat against the index, so I won't write about it this month after last months bumper third anniversary update. If you are interested in checking out the numbers etc. you can find them elsewhere on the site here under the portfolio heading or the link above. Meanwhile I'll try and raise the enthusiasm to do another post next week with an update on any trades coming out of this month re-screening as it looks like there are at least 2 or 3 potential sales.
Cheers for now and here's to hoping that now we are in May that the weather here in the UK might also follow the markets lead and pick up too. Lets hope that the market recovery in April, like the brief spell of warmer weather, wasn't a false dawn too!