Weekly Note - March 17, 2021

All major stock markets around the world have strong Macro resilience, indicating that their longer-term price trends are positive.  I expect 2021 to be a year of good stock returns.  The following comments focus on where the different sleeves are in their Micro MRI cycles.  Recall that the Micro MRI indicates the short bursts of resilience lasting 5 to 15 weeks. For a reminder of how I describe the MRI conditions: https://focused15investing.com/language.

The different model portfolios have different positions in their Micro MRI cycles based on their dominant sleeves.  The positions are:

I provide more detailed notes about each below, but a key point is that while the Onyx mix portfolios have not performed as well as the DJIA-focused portfolios so far this year, the Onyx sleeve will soon get its burst of resilience and make up some of this deficit. In 2020, the reverse was true - the Onyx mixes did better than the DJIA-focused portfolios.  While one could switch to a DJIA-focused portfolio at this time (because it is a Plant season for these portfolios), I expect the Onyx mixes to move higher in the next few weeks.  I do not believe the Onyx mixes are broken – they are simply pausing after a strong 2020. 

Detailed Notes (Optional Reading)

1. The DJIA-focused model portfolio’s such as Diamond 70-30 (MAIN) (sg131) and Sapphire (MAIN) 70-30 (sg188): These portfolios are primarily invested in DJIA-linked ETFs. The DJIA is mid-level and moving higher in its Micro MRI cycle. It is at the 46th percentile. I expect the Micro MRI for the DJIA to be providing resilience well into May. Since it is at the mid-level of its cycle, this week will be its last in the current “Plant” season.
2. Portfolios incorporating the Onyx sleeve of four low volatility ETFs: This sleeve had a very good year in 2020, but has not produced strong returns this year through last Friday. Thus, the Onyx mix model portfolios look weak compared to the DJIA-focused portfolios. But the Onyx sleeve is just now at the lower end of its Micro MRI cycle. It is at the 12th percentile and started moving higher this last week. From this perspective, the Onyx sleeve should start to have better performance. If you are using one of the Onyx mixes (e.g. sg218, sg118) and are happy with the long-term performance profile of the portfolio, it is appropriate to stay with it. It is likely to produce higher returns over the next few weeks.
3. 2020 Recovery (sg20.2). This add-in sleeve is at the 36th percentile of its Micro cycle. From this perspective, it is likely to produce good returns over the next several weeks, most likely into May. I will wait until this sleeve is higher in its Micro cycle to update it for 2021 (tentatively called “2021 Themes”).
4. Emerald (sg30.2). This add-in sleeve is at the 13th percentile and moving lower. Given its low position, I expect it to turn and start moving higher over the next few weeks. The current target weights of this sleeve are defensive and we have avoided some of the recent losses. But I believe the target weights will be more aggressive over the coming weeks and that the returns will be higher.

  

Comment of the Day - US 10-year Treasury Yield – Will be less resilient over the next 5 to 15 weeks

As of last Friday (2/26/2021), the Micro Market Resilience Index^© for the US 10-year Treasury Yield was very high in its normal cycle.  Projections of the Micro MRI for the 10-year yield suggest that we are probably seeing the strongest resilience of this series at this time.  Thus, the strong move higher last week was not surprising. 

The projections also suggest that yields will have less resilience over the next several weeks.  The Micro MRI indicates a short cycle of resilience lasting 10 to 20 weeks. When the index is in the upleg of its cycle, the series - the 10-year yield in this case - is more resilient and is less likely to decline, all else equal.

The Micro MRI for the 10-year yield is just now completing its upleg.  Based on projections of the MRI from 1962 to 2010, the upleg will be completed March 12 (plus or minus a few weeks). 

When the upleg is completed, the Micro MRI will shift to its downleg.  After that inflection point, yields may decline, not move higher, or move higher much more slowly – based on current economic conditions.  But they are not likely to continue to move higher at the recent pace. 

$IEF $DIA  $UST