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Decades ago one of my Georgia Tech professors was making a point about managing a business, when he related the following anecdote after a class mate described himself as a “pragmatist”.

A certain school system was searching for a replacement for its retiring superintendent. A member of the board lobbied for a well-known and popular candidate already employed by the school system, which had an outstanding record as a pragmatic problem solver. Another candidate with a strong resume’ as a management professional was eventually passed over, but was then hired by a competing school system known to be having serious problems. My professor then asked the class whom they would have hired. After some discussion, the class served up the answer the professor said should be obvious.

Management Science teaches POC, which translates as the three management functions: Plan, Organize and Control. The professor went on to say that the pragmatist encountered few difficulties early on in his tenure, as his predecessor had planned well, and had retired with his school system in very good shape. However, as time passed the pragmatist began to be over run with problems to solve, because he was a particularly poor planner.

The passed over candidate encountered immediate, and serious, difficulties early on at the competing school system, as his predecessor had left under pressure from his board for poor performance. However, as time passed the professionally trained manager was able to implement his plans for the system’s future, re-organize his staff and teachers with very talented and dedicated people. And, he brought the initial chaos under control with procedures designed to gain and maintain management control system wide. The professor finished by saying that pragmatists will always have plenty of problems to solve, but professionally trained managers are responsible for planning, organizing and controlling organizations in a manner, which minimizes problems.

So what is the point of sharing this classroom anecdote?  Alexander and I are charged with the fiduciary responsibility of maintaining, and growing, your wealth with as little risks as possible. As part of our responsibility we must plan ahead for financial developments of the negative kind, which may adversely affect your portfolio. Over the past many weeks we have been mentioning the possibility that 2020 may be a year of increasing volatility, and the attendant risks and opportunities inherent in an environment of rising market volatility. Well 2020 is upon us, and so far the environment is one not of volatility, but complacency on an epic scale.

Weeks on end of a creeping bull trend and (marginal) new all-time highs has seemed to inoculate investors from even the suggestion that financial risks still exist. In fact, this re-enforcement of the bull belief system is understandable after the completion of a decade without a recession, and the longest equity bull run on record. After a decade of this record setting bull trend is the stock market finally ready to put on a demonstration the late Paul Desmond’s observation that “low volatility begets high volatility, and high volatility begets low volatility”? The current complacency of professional investors would seem to suggest extraordinary vigilance will likely be a prudent plan in 2020.

We are not in the predicting business, as we prefer to leave that most difficult of arts to those, which claim to have that talent. However, we expect our proprietary market tools to perform successfully during a continuing bull trend with attendant low volatility, if the stock market serves up that kind of environment in 2020. Or, even better performance would be likely, if the market turns bearish with a vengeance, as there will likely be opportunities to buy at discounts to value, as a newly minted bear would destroy the wealth of buy and hold investors. You see we believe in planning and organizing in advance, so we can be in control before the market serves up its next big move, bull or bear!

TATY   —   A REPRESENATIVE OF A FAMILY OF STRATEGIC SUPPLY AND DEMAND INDICATORS

TATY is shown above in yellow with the S&P-500 overlaid in red and blue candle chart format.

TATY finished the week at 149 down a bit more from last week in spite of the price touching new all-time highs. The negative divergences (down sloping orange lines on the TATY chart) mentioned over the last several updates remains in place, which suggests the bid under that market remains strong enough for the price to attempt assaults on new all-time highs, even as demand continues to wane. However, with TATY just now entering the red zone surrounding the 140 level, the bid under the price may still have enough residual strength to drive the price toward another all-time high, but do not count on it, before a decline strong enough to re-invigorate demand arrives.

As long as TATY continues to make BOTTOMS in, or near, the red zone, then the price is likely to continue attempts to assault new all-time highs. A decline in the TATY indicator strong enough to paint numbers into the caution zone surrounding the 115 level would likely be an early warning that supply was beginning to overtake demand. Such an event would likely take weeks to develop, and would cause Alexander and I to consider having to make defensive adjustments to portfolios. A TATY decline in the neighborhood of the red zone, which is followed by a SAMMY tactical buy signal would be investigated as a possible buying opportunity, subject to objective confirming evidence.

SAMMY   —   A REPRESENATIVE OF A FAMILY OF TACTICAL SUPPLY AND DEMAND INDICATORS

SAMMY is shown in the second chart above alone, and below with the SPXL 3X leveraged S&P-500 ETF overlaid. The SPXL three times leveraged S&P-500 ETF is for reference only.

SAMMY excels at identifying resurging demand after sellers have exhausted their propensity to sell. However, during sustained rallies SAMMY is of little value. It is shown in this update for information only.

THE BOTTOM LINE

The new year 2020 has arrived with evidence that professional investors are very complacent about the prospects for the continuation of the record setting bull market in stocks. Complacency has resulted in disappointing results in the past, and may again given the longevity of the recovery post-2009. However, complacency is a very blunt market tool, which requires confirmation from other more accurate indicators to confirm danger to investor wealth may be on the rise.

We have several new accounts mostly in cash coming over to us. We shall get these accounts invested as low risks opportunities are identified by our proprietary indicators. Recent declines have been shallow and intra-day fleeting, which makes putting excess cash to work in a low risks circumstance very challenging. However, with the advent of this new year there have also been some increasing signs that volatility may be on the increase, and may become a more significant factor as the positive seasonal from roughly Halloween to Easter begins to wane, as the calendar marches toward Easter?

Alexander and I wish all of you a very Happy and Prosperous New Year!

 

DISCLAIMER: Optimist Capital LLC, does not guarantee the accuracy and completeness of this report, nor is any liability assumed for any loss that may result from reliance by any person upon such information. The information and opinions contained herein are subject to change without notice and are for general information only. The data used for this report is from sources deemed to be reliable, but is not guaranteed for accuracy. Past performance is not a guide or guarantee of future performance. Optimist Capital LLC, and any third-party data providers, shall not have any liability for any loss sustained by anyone who relied on this publication’s contents, which is provided “as is.” Optimist Capital LLC disclaim any and all express or implied warranties, including, but not limited to, any warranties of merchantability, suitability or fitness for a particular purpose or use. Our data and opinions may not be updated as views or information change. Using any graph, chart, formula or other device to assist in deciding which securities to trade or when to trade them presents many difficulties and their effectiveness has significant limitations, including that prior patterns may not repeat themselves continuously or on any particular occasion. In addition, market participants using such devices can impact the market in a way that changes the effectiveness of such device. The information contained in this report may not be published, broadcast, re-written, or otherwise distributed without prior written consent from Optimist Capital LLC.

ByOptimist Capital

Optimist Capital Institutional Wealth Management for All

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