“Coddiwomple” is not a word many people are familiar; it means to travel in a purposeful manner towards a vague destination. I can’t think of a single word that better describes investing in financial markets, writes Landon Whaley Tuesday.

Markets are headed toward vague destinations, we don’t know where they’re headed. Despite this reality, if we want to be successful investors, you and I must remain purposeful in the way we approach markets as they move towards their vague destination.

With that in mind, this week I’d like to coddiwomple through how to position yourself for opportunities given what U.S. economic and financial market data are currently telling us…

“An animal will jump at every sound, a leaf in the wind, a falling cone. A disciplined man will move only when it is necessary … the moment before it is necessary.” I know The Ronin was about a samurai, but with insight like that, I’m sure he would’ve made one hell of a global macro trader!

Last week’s falling cone was the U.S. midterm elections and the narrative spew that came afterwards. From this standpoint, last week was no anomaly as every week has a plethora of leaves in the wind and falling cones that could make you jump into a narrative-driven investment decision. My job here is to make you a disciplined person, helping you move only when necessary … the moment before it’s necessary.

To that end, let’s step out of the fray, remain data-dependent and discuss the very clear signal that markets and economic data are sending us.

The following U.S. economic data sets are all slowing from cycle highs and confirming an FG4-in-Q4 environment: ISM, ISM New Orders, Durable Goods, Retail Sales, Capital Goods Orders, Case-Shiller Home Price Growth, Existing Home Sales, Pending Home Sales, all Fed Regional Surveys, Markit PMI and the NFIB Small Business Optimism Index.

Last week’s release of the October ISM readings showed a slowing in manufacturing from 59.8 in September (Q3) to 57.7 in October (Q4) and a similar slowdown in services from the 61.6 record high in September to 60.3 in October.

I know, I know, Wall Street and the guys playing economists and gurus on TV are saying these are still “healthy” levels. Levels in economic data do matter, but it’s the rate of change of that data that matters most.

In rate of change terms, things are slowing here in the U.S., and this latest ISM data suggests a Q4 annual growth rate of +2.5%, which is a “healthy” slowdown from Q3’s annual growth rate of +3.0%.

But it’s not just the hard economic data indicating a Fundamental Gravity #4 environment; real-time markets are singing the same tune. The growthy U.S. sectors have been behaving in classic FG4 manner since October 1: tech (-7.7%), consumer discretionary (-5.9%), industrials (-8.4%) and semiconductors (-10.5%), to name just a few.

On the flipside, our U.S. Shift Work sectors have also behaved as we would expect them to in an FG4 environment: consumer staples (+5.4%), utilities (+4.6%) and REITs (+0.80%). Even everyone’s most hated market, long-dated U.S. treasuries, has outperformed, on a relative basis, declining just -2.2%.

Keep in mind that these performance statistics take into account the eight-day bounce in equities and risk assets since October 29. The bottom line is that markets and preliminary Q4 data are both confirming the FG4 environment, mid-term elections be damned!

Don’t let leaves in the wind and falling cones convince you to jump into buying the dip. In Fundamental Gravity #4 environments, the disciplined person quits buying the dips, reduces long exposure (concentrating any long exposure in utilites, REITs and staples) and, most importantly, he or she sells the rips in semiconductors, industrials, financials and crude-oil related equities.

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Watch Landon Whaley’s 3 Ideas for Investing and the meaning of coddiwomple in a short video here.
Recorded: MoneyShow Dallas Oct. 5, 2018.
Duration: 6:42.

Watch Landon Whaley discuss When Markets Cycle  in a short video here.
Landon Whaley: We have a generation of investors and asset managers who know only one market. The reality is markets and economies cycle and catch people off guard.
Recorded: MoneyShow Dallas Oct. 5, 2018.
Duration: 5:51.

Landon Whaley interviews Adrian Manz: How I approach stocks here.
Recorded: MoneyShow Dallas Oct. 5, 2018.
Duration: 7:48.

Landon Whaley interviews trader Jackie Ann Patterson: How I got started trading and how I approach it with my Truth about ETF Rotation here.
Recorded: MoneyShow Dallas Oct. 5, 2018.
Duration: 6:14.

Landon Whaley interviews John Carter: How I started trading here.
Recorded: MoneyShow Dallas Oct. 5, 2018.
Duration: 5:37.