New Leadership is the Markets’ Tell

CAMS Weekly View from the Corner – Week ending 11/6/2020

November 9, 2020

In the game of high stakes poker participants are well known for observing their opponents Tells – the subtle and sometimes not so subtle cues whereby the opponent telegraphs the true strength of the hand they are holding.  Is it a bluff or is it truly a strong hand.

Like the poker table, collective market participants give their Tells via the conclusive price action they leave in the wake of their market operations.  Through this we can determine their collective opinion based on you-name-it issue or event.  Importantly, their opinion results in consequences.  This is different than your everyday opinion whereby if it flies or does not fly there is little consequence – hey, it was just an opinion.

Rather, the opinion expressed by collective participants is backed by money with a win/lose reality behind them.  With this said, collective market opinion carries weight as they have direct consequence to their expressed views via their market operations.

The New High

Market participants sending “x” investment to a new high is a statement of strength with expectations of good things to come relative to the investment achieving this milestone.  Many people have a sense of fear of the “new high” label because they mistakenly view it as though it means it is expensive.  Not so.

“Expensive” can only be assigned through studies of said investment from various valuation measures to get a sense of what you are really paying for it.  The new high does not give us that information.

What it does give us is a message from collective participants’ forward view of the investment.

When an area – can be a sector, a sub-industry or much broader the globe via country performances – achieves the new high breakout it offers they are in leadership roles via market performances.  This is important information in that it can offer the investor, assessing the markets’ Tells, who the notable winners will be going forward.

Post Election

When a much anticipated historic event with broad consequences occurs the markets quickly begin to leave a trail of information as to how they are assessing the forward view.

For our part, we become hyper-vigilant both domestically and globally to see what if anything is happening. 

One quick Tell is who if anyone is achieving changing behavior.  In 2020, the new high label is a sign of notable changing behavior because the year has been anything but a list of new highs in a broad view – meaning major indices and countries not down at the individual stock level.

Via the markets early assessment and using the new high view as a messenger of collective participants’ opinions it appears China specifically is their initial winner.  China is then joined by the likes of other Pacific Rim nations such as South Korea, Taiwan and Japan. 

The All Time New High

The aforementioned new high label is often used when an investment achieves a new high for the previous twelve months. 

In the case of large size Chinese companies they attained this label coupled with the strongest performance for the week.  The aforementioned Pac Rim nations mentioned depicted notable strength and some form of new high but placed together – performance for the week coupled with new high behavior – China stands out.

The all time new high is the most powerful message collective participants can send.  We do not have a winner in this regard yet but the countries mentioned are strong contenders for that label.

The coming weeks/months will be very informative as to how market participants view the post election policies and who will be the strongest from a global perspective.

Identifying leadership, via market opinions, is the ultimate Tell as to who the next notable winning investment area will be as viewed through the lens of history – one, two and even years later.

Through a global view, China and the few other Pac Rim nations are offering initial global leadership post election.

I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis

Footnote:

H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP).  This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”.  A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.

This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.