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%

Returns for week ending 7/15/11

Returns for the past week:
Model portfolio: -2.6%
Actual managed account: -2.5%

Value of $10,000 invested in model portfolio at inception in 2003: $286,816

Returns for week ending 7/8/11

Returns for the past week:
Model portfolio: +2.1%
Actual managed account: +1.6%

Value of $10,000 invested in model portfolio at inception in 2003: $294,593

The gap between the actual managed account's returns and the model portfolio's hypothetical returns is mainly due to tracking error. Because the hypothetical returns are based on Friday's closing prices, while the actual managed account executed its trades early Monday morning after the market had already made some gains, the actual managed account was able to capture about 75% of the hypothetical gains this week.

The Window of Opportunity (WOO) is still open. This remains an opportune time to put capital to work in the model portfolio if you haven't already done so. History shows that last week's BUY signal ushers in a short period where the probability of significant gains is high, while the risk of a significant periodic loss is lower than usual.

Returns for week ending 7/1/11

Returns for the past week:
Model portfolio: +1.2%
Actual managed account: +0.4%

Value of $10,000 invested in model portfolio at inception in 2003: $277,131

Note: The model portfolio and my managed accounts were holding a high amount of cash going into this week, while awaiting a fresh DecisionPoint BUY signal. This explains the lower-than-market returns shown above.

The DecisionPoint timing model threw a fresh BUY signal on Friday, indicating favorable market conditions for holding stocks. The model portfolio's target allocation for a new BUY period is 100% invested. History shows that a DecisionPoint BUY signal marks an opportune time to put capital to work and invest in the model portfolio ...providing an improved return vs. risk. While a BUY signal is no guarantee of gains, it DOES historically indicate a reduced risk of a significant periodic loss before the model portoflio goes on to make a new equity high water mark.

In my managed accounts, I will now be ahering closely to the target allocations.

Returns for week ending 6/24/11

Returns for the past week:
Model portfolio: +0.9%
Actual managed account: +0.4%

Value of $10,000 invested in model portfolio at inception in 2003: $273,728

Note: It's time to be prepared. History shows that, on average, the stock market provides just one or two opportunities each year to buy stocks at relatively depressed prices. These Windows Of Opportunity (WOO) give the astute investor an opportunity to put capital to work in the best stocks just as a new intermediate term rally begins, and then ride the wave as institutional investors ("Big Money") pour THEIR funds into the same stocks, driving up the price further.

The model's internal metrics are suggesting we are nearing one of these times. It pays to be patient. ...and then seize the WOO!

Fortunately we don't need to guess when the time is right. Our model will provide the necessary BUY signal.

Click chart to enlarge

The above chart shows the model portfolio's return for each of the "BUY-NEUTRAL-SELL" signal periods since inception. The Strategic Growth Model takes its BUY-NEUTRAL-SELL timing signals from the DecisionPoint Thrust/Trend Model.

The most recent BUY period ended the week of 6/10/11. The model portfolio returned +28% for the 39 weeks of the BUY period, triggered 39 weeks earlier. This is equal to a 37% annualized rate of return.

The hypothetical returns reflect the performance of the new, improved Strategic Growth Model portfolio as described here a few weeks ago. Actual performance will vary.

The chart shows that the model portfolio declined -15% from its recent peak to the end of the BUY period. This is within the range we've seen for interim losses during the final phase of previous BUY periods. As noted here, the end of a BUY period is the riskiest point in the cycle as far as incurring an interim loss. For this reason, I've advised here that I'm holding more cash in my actual managed accounts than the model portfolio. This has proven to help protect capital that will be put to use during the next BUY period.

Since 4/29 peak, returns:
Model porfolio: -14.8%
Actual managed account: -8.2%

Now that the market has pulled back significantly and is well off its recent highs, the risk vs. return is much improved for investing fresh capital. Upon receiving the next BUY signal from the DecisionPoint Thrust / Trend Model, I intend to invest according to the target allocations shown.

Returns for week ending 6/17/11

Returns for the past week:
Model portfolio: -0.5%
Actual managed account: -0.4%

Value of $10,000 invested in model portfolio at inception in 2003: $271,359

Returns for week ending 6/10/11

Returns for the past week:
Model portfolio: -1.7%
Actual managed account: -1.0%

Value of $10,000 invested in model portfolio at inception in 2003: $272,596


The DecisionPoint.com Thrust / Trend Model is now on a NEUTRAL signal as of today. The TTM drives the model portfolio's target allocations. Upon receiving a NEUTRAL signal, the model portfolio halves its position size from $10,000 to $5,000, raising 50% cash while we wait for a fresh TTM BUY signal.

Since the model portfolio currently holds only 4 stocks (above) the model portfolio allocation is now at 80% cash / 20% stocks. As mentioned before, I continue to hold an even greater percentage of cash in my managed accounts while awaiting a fresh BUY signal. This has helped to preserve capital while we seek a better return vs. risk opportunity to put our capital to work.

Returns for week ending 6/3/11

Returns for the past week:
"New" model portfolio: -1.6%
Actual managed account: -0.5%

Value of $10,000 invested in model portfolio at inception in 2003: $277,344

I continue to hold significantly more cash in my actual managed accounts than in the model portfolio shown here as we await a fresh T/TM BUY signal. This accounts for the difference in performance between the model portfolio and the actual managed account.

Returns for week ending 5/27/11

Returns for the past week:
"New" model portfolio: -1.3%
Actual managed account: -0.6%

Value of $10,000 invested in model portfolio at inception in 2003: $281,711

Note: In my managed accounts I continue to hold more cash than the model portfolio. I expect to continue with a higher cash balance for the duration of this intermediate cycle. e.g. until the Thrust / Trend Model throws a "fresh" BUY cycle.

Returns for week ending 5/20/11

Returns for the past week:
"New" model portfolio: -1.5%
Actual managed account: -0.5%

Value of $10,000 invested in model portfolio at inception in 2003: $285,277

Click below for next week's holdings.

Returns for week ending 5/13/11

Returns for the past week:
Model portfolio: -3.2%
Managed account (actual): -1.9%

Value of $10,000 invested in model portfolio at inception in 2003: $289,727

Note: In my managed accounts I continue to hold more cash than the model portfolio. I expect to continue with a higher cash balance for the duration of this intermediate cycle. e.g. until the Thrust / Trend Model throws a "fresh" BUY cycle.

Returns for week ending 5/6/11

Returns for the past week:
"New" model portfolio: -6.03%
Actual managed account: -3.65%

Value of $10,000 invested in model portfolio at inception in 2003: $299,129

Note: "Actual" return varies from the model's return because I'm maintaining a higher cash position (approximately 50%) until the Thrust / Trend Model (TTM) gives us a fresh "BUY" signal.

As I mentioned last week, I'm doing this because of risk vs. reward. While the "new and improved" model has better returns than before, it also has higher weekly volatility, as we've seen just this past week. Because of this, it's now much more important to time the investment of fresh funds during times where we have a fresh BUY signal from the TTM.

As I noted last week, the market trend has become quite extended above its trend line since the current BUY signal was triggered in September, 2010. The risk of a "normal" market sell-off giving us a significant interim loss in our portfolio is much greater now than if the TTM had just thrown us a fresh BUY signal. In my judgement, this is not a good point in the intermediate term cycle to increase our risk exposure.

Changes to the Strategic Growth Model, continued

This chart shows the Strategic Growth Model portfolio returns for each of the Thrust / Trend Model (TTM) signal periods since the model's inception in 2003, including the four interim losses that exceed -4%. It's an interesting visualization of the data shown in the earlier table.

This picture clearly shows the benefits of putting 100% of funds to work in the best stocks at the right time, and avoiding stocks all together when it's NOT the right time.

It also clearly shows that the model portfolio's biggest interim losses tend to come when market's up trend has been extended for several weeks beyond a fresh BUY signal.