Returns for week ending 8/12/11



Returns for the past week:

Model portfolio: +0.71%

Actual managed account: 0.0%



NOTE: The DecisionPoint timing model threw a NEUTRAL signal on 7/29. While the model portfolio has moved to a 50% invested / 50% cash allocation, I have moved my actual managed accounts to 100% cash until the return vs. risk profile is improved. This accounts for the difference between model (hypothetical) and actual returns.

Where are we? Comparing 3 secular bear markets...

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Another interesting commentary and chart from Doug Short, implying that our current secular bear market may have a ways yet to run...



Doug Short, "It's time again for the weekend update of our "Real" Mega-Bears, an inflation-adjusted overlay of three secular bear markets. It aligns the current S&P 500 from the top of the Tech Bubble in March 2000, the Dow in of 1929, and the Nikkei 225 from its 1989 bubble high.



The chart below is consistent with my preference for real (inflation-adjusted) analysis of long-term market behavior. The nominal all-time high in the index occurred in October 2007, but when we adjust for inflation, the "real" all-time high for the S&P 500 occurred in March 2000."

What does a 4% down day mean re: Market Condition

Interesting commentary from Doug Short, saying that the -4%+ down day last Thursday indicates that the bear market has resumed.

Doug Short, "My tentative conclusion is that, at least since the onset of the 21st Century, declines in excess of 4% happen in cyclical bear market declines. The one outlier during this time frame was a 4.28% decline on April 20 2009, about six weeks after the 2009 low. So, if you're looking for a glimmer of hope, there is one 21st Century precedent for 4% plus down day in a cyclical bull market. But the overall perspective is not encouraging. "

Note that in the 2000-03 bear market, A couple of the 4% decline days punctuated the market trend's important reversal points, providing a leading indicator of trade-able counter-trend rallies lasting multiple weeks. This is quite different from the 2008-09 bear market, where the 4% decline days were mostly followed by more selling, perpetuating the waterfall decline without a pause for a counter-trend rally. I believe the difference between the two bear markets was that the first was due to a normal business cycle recession whereas the last was due to a financial crisis.



click chart to enlarge

Returns for week ending 8/5/11

Returns for the past week:
Model portfolio: -4.6%
Actual managed account: -0.7%

NOTE: As noted here last week, the DecisionPoint timing model threw a NEUTRAL signal on 7/29. This proved to be a timely signal, enabling our portfolio to neatly side step last week's waterfall decline.

While the model portfolio shifted to a 50% invested / 50% cash allocation on Monday, as noted here, I moved my managed accounts to 100% cash until the risk vs. reward improves. That accounts for the variance between model returns and actual returns shown above.

Investor sentiment is currently extremely negative (extreme FEAR), pushing stocks to lower prices where return vs. risk is vastly improved. It is useful to think of investor sentiment as a pendulum, swinging from one etreme to another over a period of weeks and months. Once FEAR measures begin to show that FEAR is dissipating, I intend to invest up to 50% of my funds in the model portfolio stocks while awaiting a fresh BUY signal from the DecisionPoint timing model.