The Thundering Quant Bulls

APRIL 21, 2016

Yesterday, April 20, the S&P500 reached a critical stock market technical level of 2100. This is the level around which the index had peaked in November 2015.

Why is this level important for stock market investors?

Many of the quantitative funds use price levels as a key input in their systematic investment models. An upside move in the S&P500 above 2100, that holds for a week or a few days can trigger stock Buy signal at these funds. Recently, JP Morgan estimated that such buying can exceed $100 billion, as quantitative funds that base their decisions on price trends are systematically invested into the stock market as it crosses a key resistance threshold.

Well, in a $24 trillion US stock market, what is a mere $100 billion. As it turns out, at key levels this stock buying power of $100 billion can trigger new stock market highs and confirm a rising market trend that over the last nine weeks has already added $3 trillion to US equities.

We use quantitative models in our Prudent Biotech Portfolio, and Prices are a very significant input into the model. As we had written in our earlier commentaries, which can be viewed here on our blog and on Seeking Alpha website, we believe the overall market, and particularly biotechnology, will firm up and rise during the months of March and April. We anticipate this rally to run into Summer.

So if you’re an investor already holding positions in the Biotechnology or other sectors of the stock market, this potential $100 billion buying power is good news. If you’re on the sidelines, and intending to invest, this should be a reassuring piece of news.

We believe in a highly disciplined approach to the stock market utilizing a market portfolio, as opposed to single-stock investments, to diversify the risk.  If you're interested in learning more about our approach, please click here. If you would like to receive a free Monthly Stock Pick from our portfolio or a high-rated pick when the portfolio is entirely in Cash, then please sign-up in the box on the Top-Right.

Good Luck Investing!

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