A few weeks ago we wrote the following:

Our "base case" is that 2016 is likely to be marked by a higher level of volatility and overall lower average market returns than we have seen in recent years. We also feel the probabilities of currently unknown events shaping market behavior are higher than it has been in the past. Our underlying rationale for our "base case" has to do with two major themes: divergent monetary policy (The U.S. Fed raising rates while other central banks are still easing) and the China wildcard.

The S&P 500 and the Dow Jones Industrial Average just closed out their worst month since markets freaked out last August. The Nasdaq Composite had its worst month since May 2010.

The Dow was down 5.5% for the month.

Since January 1 the German DAX is down 8.8%, the Shanghai Composite is down 22.6%, the Japanese Nikkei is down 7.9%.

It was a very tough month for stockholders.

Clearly divergent monetary policy is influencing the market. The U.S. Fed tightened in December. The Bank of Japan eased today. That is what caused the Friday rally. But we are not confident it will be enough to continuing bolstering stocks.

China's economic growth rate is clearly slowing. It may be that the U.S. is slowing too. We are still not forecasting disaster or "hard-landings" for either economy. But we are monitoring the slowdown.

We also need to recognize that stocks were overvalued at the end of 2015. A correction was ripe to happen.

We need to understand that earnings growth is rapidly decelerating in many industries.

Some individual stocks have just been pummeled. One of my favorite companies is Textainer Corp (TGH). It is down over 23% in January. Even Amazon (AMZN) is down over 13%.

The rally today was huge, but could easily be part of a "bear market rally". We are not likely to know for sure for another few weeks.

Our current base case for U.S. equities is that the path of least resistance is likely to be lower. Rallies appear to be opportunities to sell stocks, raise cash, and/or short stocks.

The most likely outcome for the S&P 500 is a completion of this topping pattern which is called a "Head and Shoulders Top". If this pattern plays out this index will revisit its recent low in the 1860-1850 range. If that support does not hold this pattern suggests that the S&P 500 could eventually go as low as 1576-1604.

We shall see.

All the best,

 

GOVINDA, PAUL, MARIAH, JEFF, & PHILLIP
THE INVESTMENT POLICY COMMITTEE
5T Wealth Management, LLC
(707) 603-2672 Office
(707) 486-7333 Cell

Paul@5TWealth.com

Disclosure and Disclaimer - Updated last on JANUARY 6, 2016 by Paul Krsek:
ELLUMINATION is the proprietary newsletter written for clients, friends, and affiliates of 5T WEALTH MANAGEMENT .

SINCE 1998 Paul Krsek HAS BEEN the sole author of ELLUMINATION. While the views and representations found in the newsletter generally reflect the attitudes and opinions of the 5T WEALTH MANAGEMENT members and staff, Krsek wrote without editing was therefore is solely responsible for the content and opinions contained in ELLUMINATION.

AS OF JANUARY 2016 ELLUMINATION IS NOW A COLLABORATIVE EFFORT OF THE INVESTMENT POLICY COMMITTEE OF 5T WEALTH MANAGEMENT, LLC. THAT COMMITTEE IS CURRENTLY COMPRISED OF GOVINDA QUISH, PAUL KRSEK, MARIAH QUISH, JEFFREY ROUSH AND PHILLIP LAMPE.

ELLUMINATION does not represent the opinions of Fidelity, Fidelity Institutional Brokerage Group, NFS or anyone employed by Fidelity in any capacity. Neither Fidelity, Fidelity Institutional Brokerage Group, nor NFS, nor anyone employed by Fidelity in any capacity has participated in the creation of ELLUMINATION and they are not responsible for the contents or distribution of ELLUMINATION.

ELLUMINATION is written to provide general information to clients, friends, and affiliates. The contents of ELLUMINATION are not to be taken as individual investment advice. No investment decisions should be made based on the opinions or information offered in ELLUMINATION.

5T WEALTH MANAGEMENT does not represent that the information in ELLUMINATION is accurate or complete and it should not be relied upon as such. Opinions expressed herein are subject to change or modification without notice.

The investment portfolio models or management services mentioned in ELLUMINATION may or may not be available in some states, and they may not be suitable for all types of investors.

5T WEALTH MANAGEMENT manages accounts with various histories and investment objectives. Various accounts may be managed differently from time to time.

ELLUMINATION makes frequent reference to the model portfolios called Mendocino, Cape Lookout and Dividend Diamonds as well as our Fund of Funds Portfolio. During 2005 Paul Krsek was appointed Chief Investment Officer of 5T WEALTH MANAGEMENT, and as such was responsible to make all trading and management decisions for all client accounts which are being managed according to a specific portfolio model. A description of each of our models can be found on our website at http://www.5twealth.com/prd_port_signup.cfm.

During 2016 Govinda Quish will take over as Chief Investment Officer. Krsek & Quish are currenlty collaborating, along with the other members of the Investment Policy Committee on strategy and portfolio construction.

Not all accounts managed by 5T WEALTH MANAGEMENT are "modeled" accounts. We strongly urge our clients to understand which model, if any, are being used to manage their accounts.

From time to time 5T WEALTH MANAGEMENT receives requests from clients to purchase securities that are not included in the model portfolio to which they are assigned. Effective May 24, 2006, 5T WEALTH MANAGEMENT has encouraged clients to hold such securities in a separate account for the client. Because 5T WEALTH MANAGEMENT is a "fee only" registered investment advisor" it charges its normal management fee for monitoring such securities in the separate accounts in which they are held.

5T WEALTH MANAGEMENT makes every effort to exclude securities that are 'requested by the client' from the modeled portfolio accounts.

The investment objectives of various accounts and models may be substantially different from one another. Therefore topics or investments mentioned in E-Ellumination may or may not apply to specific managed accounts and/or models.

Trades or adjustments to accounts mentioned in ELLUMINATION may or may not happen in every account managed by portfolio managers at 5T WEALTH MANAGEMENT.

If you are not satisfied with the investment results in your account it is your responsibility to inform Krsek or Quish to discuss possible changes that can be made to the account to accommodate and satisfy your needs.

The assets held in managed accounts at 5T WEALTH MANAGEMENT may include stocks, bonds, cash, commodities, foreign exchange or mutual funds or exchange traded funds (ETF's), money market accounts or limited partnerships that represent the same. They are subject to market fluctuation and the potential for losses. The assets are not insured. The value and income produced by these investment products may fluctuate, so that an investor may get back less than they initially invested.

The portfolio managers at 5T WEALTH MANAGEMENT do not guarantee results.

Past performance should not be considered an indicator of potential future performance. If you do not consider yourself suitable, either emotionally or financially, to experience volatility and/or losses in financial markets, you should not invest.

From time to time the authors of Ellumination list the simple annual returns of the model accounts he tracks for this newsletter. These accounts are "models" and do not represent the actual results accruing to individual accounts. Simple annual return does not represent "time weighted return" as reported individually to clients. 5T Wealth Management, LLC no longer provides composite performance reporting for "model" groups. Individual clients should request performance reporting on their specific accounts. 5T uses EMoney Advisor to prepare those reports.

This document is for information purposes only and it should not be regarded as an offer to sell or as a solicitation of an offer to buy any securities or other instruments mentioned in it.

Comment