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Turbo Model



Current Signal Performance

Turbo Signal
Trade Date
Turbo Model Returns (Long & Short Strategy)
 
Nasdaq 100
(QQQ)
Russell 2000
(IWM)
S&P 500
(SPY)
  Classic Signal  
Trade Date
Classic Model Returns (Long & Short Strategy)
World
Nasdaq 100
(QQQ)
Russell 2000
(IWM)
S&P 500
(SPY)


Market Update
After last week's strong surge, stocks fell back early Monday with failure to reach a deal in Greece taking some of the blame. Still, buyers moved in throughout the day to pare the roughly -0.5% opening losses to leave indexes only slightly in the red. A loss recouped in Tuesday's trade. Stocks played the same tune as Monday opening weakly and quickly rebounding, this time to a mostly positive finish. The S&P 500 continues wrestling with heavy-duty resistance at 1350 while Greek debtholders continue their own resistance in coming to agreement on writedowns of their bond investments. The U.S. dollar fell noticeably Tuesday, however, perhaps suggesting that currency holders believe a positive resolution is in the cards. Stocks marked time Wednesday with the Nasdaq Composite showing continued strength as Apple investors have returned to bidding up the stock. Thursday brought yet another fractional advance for stocks though this time there was a plethora of news. Jobless claims continued working their way downward. Corporate earnings continued to offer a positive tone. And the Euro nudged a little bit higher as the next round of Greek bridge loans was rumoured to be near agreement. European Finance Ministers went public with their demands Friday, giving stocks reason to pullback. The U.S. dollar erased week-to-date losses. In short, the Finance Minister demanded that the Greek Parliament actually pass the austerity measures before receiving any new money - e.g. promises of budget cuts are not enough. Still, markets traded flat after the weak open containing the pullback at less than -1% for many indexes, suggesting that buyers welcomed the opportunity to step in at lower prices - a consistent theme throughout the week.

The S&P 500 (SPY) gave up the week's gains Friday to post a flat week down -0.13%. The Nasdaq 100 (QQQ) rode Apple's coattails to a sixth straight positive week, up +0.68%. Small-cap stocks (Russell 2000 (IWM)), big winners to open February, gave back -2.03% of that gain this week.

The second week of this World portfolio cycle gave us a -0.43% dip. This portfolio is comprised of the top 5 members of our World Ranking from the January 27th ranking.

Both Classic and Turbo Models remain on Buy signals.
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Trend Timing School
Sharp rallies have been the order of the day

If the current supersharp rally in stocks feels familiar, it should. Twice over the past two years, Fed action has quelled heightened investor fears and launched torrid upward climbs for equities. These rallies have offered scant opportunities to join in. You're either in the game early - as thankfully our Classic and Turbo Models were - or you have to just hold your nose and dive in, perhaps with a dollar-cost averaging approach. Here are the three rallies:

Chart 1: 2010 kicks off with a blistering Nasdaq 100 advance

2010 kicks off with a blistering Nasdaq 100 advance
This rally led to the drop that included the "flash crash."

Chart 2: Fed's QE2 restarts the rally; one that goes for six months

Fed's QE2 restarts the rally; one that goes for six months
This rally slowly petered out, then led to the August 2011 crash.

Chart 3: Let's party like it's 2012?

let's party like it's 2012?

To recap:
  • 11 weeks and +18% in early 2010
  • 10 weeks and +24% in late 2010
  • 8 weeks and +18% to start 2012 (and we're still going!)
Clearly the ground we've covered in the past eight weeks has been seen before, and recently so. The problem has been that the in-between times are fraught with such emotional peril that investors tend to be skittish in joining the rallies. The rallies have been followed not by normal 10-15% corrections, but by all-out market mayhem. The May 2010 flash crash and last August's two-day decimation of stocks sends investors fleeing into safe assets, from which some don't emerge - they simply don't believe the "weather" has improved no matter the market's sunshine.

These sharp "mean-reversion" rallies have become the norm in recent years as investors grab what they can during all-too-brief periods of good cheer. The rallies are borne not so much out of shifting fundamentals as out of excessive fear that the sky is falling. It's because of the sharpness of these moves and the lack of consistent trend that we embrace signal-driven investing. It's why we developed our Turbo Model. We need ways to protect ourselves from the pounding these markets have been delivering (and will likely continue delivering as the global deleveraging marches interminably onward). We also need ways to profit when the skies are dark. And a model that reacts quickly when the weather changes. Turbo gives us that.
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FAQ of the Week
Question: Is employment really improving?

The FAQ of the Week has obviously more to do with economic data than our normal topics. However, the most recent employment report caused something of a ruckus as a large number of people were reported to have "dropped out" of the labor market. Our understanding is that this was an adjustment made upon inclusion of new census data. Whatever the details of that, we are not so concerned, and not qualified nor well-versed enough with the data to give adequate guidance. What we can say is that everything we see, and from a variety of sources, suggests that employment trends are improving.

For example, Chart 4 of unemployment claims looks an awful lot like the early 1980's recessionary period - a long and rough period for those of you who remember it. We also wondered about this 300k+ claims number which seems high. However, the data shows that even in the best of recent times, we just don't get much below this number.

Chart 4: Unemployment claims are consistently falling, though 300k looks like a lower boundary

Unemployment claims are consistently falling, though 300k looks like a lower boundary
Secondly, we found interesting a chart breaking apart employment trends by industries, grouping together the areas where employment is known to be very weak - e.g. government workers, finance, housing - versus other parts of the economy. Chart 5 shows good improvement in those "non-weak" areas, a good sign and one that is consistent with the surge in corporate profits we've seen over the past year.

Chart 5: Those areas not directly in the path of the
2008 economic "hurricane" are recovering well

Those areas not directly in the path of the 2008 economic "hurricane" are recovering well

Our view of employment in the U.S. is that it simply faces substantial headwinds. The rise of China, Brazil, India, et al, have taken and will continue to take jobs away from this country. That is just a structural fact which requires an extended period of adjustment. On a lesser scale, the implosion of the housing industry in the U.S. has drained away a huge source of jobs. Governments are operating with reduced revenues at all levels, with no one predicting significant improvements in their fortunes. Housing will recover - albeit very slowly. Most economists expect the economy to continue bouncing along, but again at a sluggish pace. Economic growth cures a lot of ills. The weight of what's happened over the past few years is such that "getting well" will take a very long time. We are not economists, nor employment experts. The spectacular rise of the BRIC nations, among others, is a game-changer in many ways. To expect that this enormous shift in economic power will not have major impacts on the U.S. economy and employment is fantasy. Still, there are glimmers of goodness in some areas. Hopefully, we will be able to expand and build upon those. In the meantime, maybe a happy stock market ripples its way into some job-generation. The Fed, who keeps engineering these rallies, certainly hopes so.



Warm wishes and until next week.

The TimingCube Staff
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