The major stock market indexes finished mixed last week. The Dow Jones Industrial Average gained 0.9%, the S&P 500 Index rose 1.7%, the NASDAQ Composite climbed 4.0%, and the Russell 2000 small-capitalization index lost 0.6%. The 10-year Treasury bond yield fell 3 basis points, as Treasury bonds gained ground for the week. Last week, spot gold closed at $1,798.70, up $23.32 per ounce, or 1.3%.


Last week marked the first appearance of the “golden cross” pattern (when the 50-day moving average of daily prices crosses above the 200-day moving average) since the market decline in February and March. While the sale signaled by the “death cross” pattern back at the end of March did not have impressive results, the indicator’s buy signals have been better signals: About 65% of them have yielded profitable trades with an average gain of 26.3% since 1928. The greatest downside move since 1950 after such a signal was just 10.1%.

Certainly, the NASDAQ’s golden cross back in mid-May has yielded spectacular results so far—as did the similarly timed S&P 500 daily price break above the 200-day moving average component of the cross, mentioned here at that time, which presaged further gains.

However, while market breadth was positive back in mid-May, today it is lagging the performance of the indexes. The broader market returns are being dwarfed by the elites of the Technology sector, which include the FANG stocks (Facebook, Amazon, Netflix, and Google [Alphabet]). Often the result of such divergence can be a midcourse correction for the index as a whole.

Market sentiment has also been undercutting this recent strength. Except for one measure (small-investor bullishness), most measures of sentiment are nearing or at extreme levels. As sentiment is a contrarian measure (high readings suggest coming market weakness), this is not a good state for the market in the short term.

For example, one measure of investor enthusiasm is the put-call ratio. (A “put” is a bet on a decline, and a “call” is a bet on a market advance.) When the amount of put option buying exceeds call buying by a wide margin, stocks tend to rise. However, when calls significantly outnumber puts (as is the case now), a decline often occurs.

As the following chart demonstrates, an extreme amount of put buying (a high put-call ratio) has led to gains of almost 20% over the next month. However, the S&P 500 has lost almost 10% of its value over that same period when investors were buying lots of calls and the put-call ratio was extremely low (as is the case now).

As one can see in the S&P 500 graph at the beginning of this article, the market has been buffeted by a number of crosscurrents over the last week and a half. This week is no different. Stocks rose over 2% early Monday (7/13), only to fall to a daily loss of 2% by the day’s end. While a reversal day like this is usually bullish in the very short term (during the next day or two), it tends to have bearish implications in the long term, suggesting a market top. In fact, the last time such a reversal occurred near a new market high was at the top of the tech bubble in the spring of 2000!

It seems coronavirus news, both positive (e.g., vaccine advances) and negative (e.g., rising number of cases), is whipsawing the market not just daily but intraday as well. We seem to swing from optimism to pessimism over the course of each hourly news cycle. Still, the unprecedented liquidity being poured into the market by the Federal Reserve, like water from a fire hose, means there is loads of cash looking for a place to go.

Earnings-reporting season starts this week and lasts over the next six weeks or so. One would expect that earnings news might be a tailwind for the market over that period. However, as we have pointed out previously, the effect of earnings on stocks is most often dependent on the analyst sentiment leading up to the commencement of that season.

When analysts have adjusted earnings downward on average over the four weeks before the beginning of earnings-reporting season, stocks have profited over the next six weeks 71% of the time since 2009. But when they have adjusted earnings estimates upward over the preceding four weeks, stocks have fallen 62% of the time. Entering the current period, analysts have had the fifth-largest upgrade since 2009. The last time the upgrade was as large, the first quarter of 2010, the S&P 500 finished the six-week period down 8.9%.

If losses are to occur, seasonality suggests they will be in the latter half of the earnings season, as July tends to be a bullish month for stocks. In fact, July now tops December as the best month for stock gains over the last 100 years (although it falls to the still-positive fourth position for the last 20-year period).

Our Political Seasonality Index is similarly suggesting a strong July with only a slight pause between the 20th and the 24th. Bolstering that history is the fact that after a quarter with a 15%-plus return (like the one we just finished) stocks have gained ground 100% of the time over the next quarter since the end of WWII. (Our Political Seasonality Index is available post-login in our Solution Selector under the Domestic Tactical Equity category.)


The Federal Reserve has continued its largest purchase of bonds and ETFs in history, causing its balance sheet to grow. As a result, interest rates have stopped falling and bond prices have flatlined since the beginning of April. In this regard, the economy’s continued improvement (despite the media’s references to an ongoing COVID-related slowdown) is not helpful.

Last week, the ISM Manufacturing and Service sector reports were released. Lo and behold, the ISM Manufacturing and Service Composite has returned to its pre-February expansionary mode. In fact, it reached its highest reading since February 2019!

Our popular Government Income Tactical (GIT) and QFC Fixed Income Tactical (QFIT) strategies have had low exposure to government bonds the last few weeks. QFIT did benefit due to its exposure to high-yield bonds, which finished the week higher.


Gold continues to prosper, gaining ground for the fifth straight week. It was the top-performing commodity in the first six months of the year with a 17%-plus gain. In addition, it broke above a key resistance price point at $1,800 per ounce last Tuesday (7/7) for the first time since 2011, helped by the uncertainty surrounding the pandemic, low interest rates, expansionary government policies, and a falling U.S. dollar.

As the subadvisor of The Gold Bullion Strategy Fund (QGLDX), Flexible Plan celebrated the seventh anniversary of the Fund last week. The Fund is the first-ever, and still only, mutual fund designed to track the daily price changes in gold bullion in the United States. It is arguably a better alternative taxwise to gold ownership or ETFs, since it’s taxed as a regular mutual fund, not a collectible or commodity fund, and there are no K-1s. Furthermore, its portfolio structure of up to 25% gold bullion futures and 75% short-term bonds and bond ETFs allows the possibility of it being the most cost-effective gold play. For more information (including the latest prospectus), go to

The indicators

The short-term trend indicators we monitor for stocks remain mixed. The very short-term-oriented QFC S&P Pattern Recognitionstrategy’s equity exposure remains at 0%, perhaps cautious in the face of overbought and very optimistic market sentiments by many.

Our intermediate-term tactical strategies remain uniformly positive, although to various degrees. The Volatility Adjusted NASDAQ (VAN) strategy has a 120% exposure to the NASDAQ, the Systematic Advantage (SA) strategy is 118.75% exposed to the S&P 500, our Classic strategy is in a fully invested position, and our Self-adjusting Trend Following (STF) strategy changed to 200% invested. VAN, SA, and STF can all employ leverage—hence the investment positions may at times be more than 100%.

Among the Flexible Plan Market Regime indicators, our Growth and Inflation measure shows that we are now in a Stagflation economic environment stage (meaning a positive monthly change in the inflation rate and negative monthly GDP reading).

Stagflation is the next-to-worst regime stage for stocks both in terms of return and drawdown. It is the best regime stage for gold on both measures, as well. It is normally a period of middle-of-the-road returns for bonds with low volatility. Since 1972, the economy has been in a Stagflation stage only 9% of the time.

Our Volatility composite (gold, bond, and stock market) is still showing a High and Falling reading, which favors gold over bonds and then stocks, although all have positive returns in this regime stage.

All of us here at Flexible Plan wish you and your family health and safety in these trying times,


Jerry C. Wagner is Founder and President of Flexible Plan Investments, Ltd. Formerly a tax and securities attorney, Mr. Wagner recognized early on that technology and hedge fund techniques could be applied to help individuals successfully invest, while managing their downside risk. After spending time pioneering new techniques in market analysis, designing quantitative methodologies, and managing investment portfolios, Mr. Wagner founded Flexible Plan Investments in February 1981.

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