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The Word from Main Street

Market Update for the Week of October 15th, 2018

As most of you are aware, we are in the midst of a stock market pullback. Also, as we have reiterated, US Equities (stocks) still rank first place in the DALI (Dynamic Asset Level Investing) ranking, followed by International Equities. Recall that, in our opinion, the DALI ranking is one of the most important technical indicators we track so we believe this is still a pro in favor of U.S. and International Equity exposure right now. Even with the market pullback, U.S. and International Equities remain firmly entrenched in the top two spots so we continue to tactically overweight those two asset classes. Domestic Equities leads with 318 buy signals, followed by International Equities with 258 buy signals (source: Dorsey Wright & Associates). 

From a trend standpoint, the Percent Positive Trend for all stocks traded on the New York Stock Exchange is at 54%, meaning that so just over half of the stocks in this universe are still trading in a positive trend. A strong, healthy market often occurs when this indicator is above 50%.

The Money Market Percentile Rank (MMPR) is another key indicator we regularly follow that tells us where Money Market, as a group, falls compared to all other types of investment groups. Essentially, MMPR works by counting how many groups are below the Money Market group on a percentage basis, ranging from 0 to 100%. 100% would mean that Money Market is ranked above all groups, while a reading of 50% would indicate that Money Market is ranked above half of the groups in the investment universe. Obviously, the more groups that move below the Money Market percentage, the higher the MMPR level climbs, indicating the more turbulence in the marketplace. During this recent bout of market volatility, the MMPR did not move to any abnormal/defensive levels. The current reading is 21.28% (source: Dorsey Wright & Associates) which means that Money Market is only ranked above 21.28% of fund groups. This is up from 12% in late September, but still historically low and well below defensive levels. During the 2015-2016 correction, we saw the reading get north of 75%. It's also important to note that most groups scoring below Money Market are not U.S. Equity-related, as they are primarily Fixed Income, International Equity, or Alternative groups. See the accompanying chart below.

As of October 12th, 2018, according to Dorsey Wright & Associates, the S&P Index is -140% oversold, the most oversold the index has been since October 10th, 2008. One important thing to note here, however, is that we were in a very different market environment than ten years ago. Looking back, we were just one month out of the largest bankruptcy in history, in the middle of a recession, and U.S. Equities ranked in the bottom of DALI, with asset classes like Fixed Income, Currencies, and Cash leading the way. This certainly is not where we are today. The economy is running on all cylinders and earnings season is expected to be very strong. However, while we are holding strong with current portfolio allocations, we are monitoring the situation carefully with our disciplined money management approach and will let you know if anything changes.

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Past performance is no guarantee of future results. All investing involves risk including the loss of principal.

Technical analysis is based on the study of historical price movements and past trend patterns. There is no assurance that these movements or trends can or will be duplicated in the future. Dorsey, Wright & Associates developed the indicators described above. They have been prepared without regard to any particular investor's investment objectives, financial situation and needs. Accordingly, investors should not act on any recommendation (express or implied) or information in this report without obtaining specific advice from their financial advisors and should not rely on information herein as the primary basis for their investment decisions.

Any statements nonfactual in nature constitute only current opinions and interpretations of their indicators, which are subject to change without notice. There may be instances when fundamental, technical and quantitative opinions may not be in concert. Any opinions expressed or implied herein are not necessarily the same as those of Wells Fargo Advisors or its affiliates. Any market prices are only indications of market values and are subject to change. The material has been prepared or is distributed solely for informal purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Data and opinions are current as of 10/15/18. Additional information is available on request.

Dorsey Wright’s “DALI" employs relative strength-based analysis to rank macro asset classes based on developing leadership trends within the global capital markets. The objective guidance within DALI provides the tools necessary to properly allocate portfolio across all major asset classes in an effort to emphasize strength wherever it exists. U.S. Equities, International Equities, Commodities, Global Currencies, Fixed Income and Cash are evaluated daily to identify dynamic developments across investment genres, as well as within them. This tool provides the tactical precision that allows investors to adapt as the market leadership changes.

Wells Fargo Advisors Financial Network did not assist in the preparation of this report, and its accuracy and completeness are not guaranteed. The opinions expressed in this report are those of Main Street Wealth Advisors and are not necessarily those of Dorsey, Wright & Associates, LLC, Wells Fargo Advisors Financial Network or its affiliates. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Additional information is available upon request.

Investment products and services are offered through Wells Fargo Advisors Financial Network, LLC (WFAFN), Member SIPC. Main Street Wealth Advisors is a separate entity from WFAFN.

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