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...

Click to enlarge chart



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.

comment re: DecisionPoint timing model

DecisionPoint recently commented on their market timing model and its performance over various time frames. Also commented on what the recent "whipsaw" signals might mean re: current market conditions. I chose DecisionPoint to provide my market timing model because of its long term track record and its consistent, math driven approach. Enjoy.

"2010 TIMER DIGEST RANKINGS FOR DECISION POINT

#16 Intermediate-Term Stocks (52-Weeks) (TD Index 105.07 Vs. SPX 112.78)
#6 Intermediate-Term Stocks (3 Years) (TD Index 152.31 Vs. SPX 85.65)
#7 Intermediate-Term Stocks (5 Years) (TD Index 156.44 Vs. SPX 100.75)
#10 Intermediate-Term Stocks (10 Years) (TD Index 135.84 Vs. SPX 95.26)

#26 Long-Term Timer (2 Years) Stocks (TD Index 91.9 Vs. SPX 139.23)
#8 Long-Term Timer (3 Years) Stocks (TD Index 124.30 Vs. SPX 85.65)
#4 Long-Term Timer (5 Years) Stocks (TD Index 146.21 Vs. SPX 100.75)
#4 Long-Term Timer (10 Years) Stocks (TD Index 177.64 Vs. SPX 95.26)

As you can see, 2010 was an unusually bad year for our intermediate-term (52-week) and long-term (2-year) timing. But if you look at the longer periods shown, you can see we have a very good record that is consistent over time. As usual, past performance does not guarantee future results.

As for politics dominating the market, just remember "it's always somethin'." Our models are focused solely on price, and nothing else. Whatever is going on in the world is reflected in prices. Our timing models aim at a specific time frame and respond to price movement in a predetermined way. The models are not always correct, but they usually stick with the longer-term trend and limit losses/drawdowns.

Recently we have begun to experience whipsaw signals, which I believe are associated with long-term topping activity. I recommend that you read the documentation on the models so that you have an understanding of why a signal changes. This would allow you to use discretion as to how you should respond to any signal."

Returns for week ending 7/29/11

Returns for the past week:
Model portfolio: -8.1%
Actual managed account: -7.6%

NOTE: The DecisionPoint timing model switched to a NEUTRAL signal on Friday.
While the model portfolio moves to a 50% invested / 50% cash allocation, I intend to move my managed accounts to ALL cash until another Window of Opportunity (WOO) opens up giving us an improved return vs. risk scenario.

The model portfolio's return was -8.6% for the 4-week BUY period just ended. Most of that loss came last week, the final week of the BUY period. This loss nearly equals the maximum interim loss of -8.8% for any of the 16 previous BUY periods since the model's inception. (see chart)

In addition to the very short 4-week duration of the most recent BUY signal, there are other signs that the Market may be in the process of putting in a long term top. This would lead the Market into a correction or possibly even a bear market. This is no time to be a BUY-and-HOLD (BUY-and-HOPE) investor.

Returns for week ending 7/22/11

Returns for the past week:
Model portfolio: -1.0%
Actual managed account: -1.1%