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Turbo Signal
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Turbo Model Returns (Long & Short Strategy)
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Nasdaq 100
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Russell 2000
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S&P 500
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Classic Signal
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Classic Model Returns (Long & Short Strategy)
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World
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Nasdaq 100
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Russell 2000
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S&P 500
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U.S. stocks opened well Monday morning on good earnings from Citicorp and another solid retail sales update. A surprisingly weak housing report quickly soured the mood, however, leading indexes to fall swiftly with index leader Nasdaq 100 taking the worst drubbing as Apple traders looked to book profits. The Nasdaq closed the day down about -0.75% while other indexes managed a flat or better finish. Tuesday saw investors rush into Apple's oversold stock as part of a broadly bullish day. Earnings continued to show well with notably good results from Coca-Cola (KO). A decent auction of Spanish debt provided relief to further support the gains. Indexes found their way to +1.5% advances in Tuesday's trade. European investors didn't buy into the U.S. rally, instead continuing their focus on the troubles facing Spanish banks. That weak attitude in Europe combined with uninspiring reports from tech heavies Intel and IBM to keep stocks modestly under pressure Wednesday resulting in a -0.5% drawdown. Thursday offered no brighter picture. Economic data and most earnings reports were viewed as mediocre leaving investors to lop off another -0.5% of value from the broad indexes. Seeking to reverse the two-day dip, bulls cheered a less fretful Europe market and good earnings from a varied group of mega-cap stocks. McDonalds (MCD), Microsoft (MSFT), and GE all showed well. However, investors continued to remove profit from Apple (AAPL) and money spent the day shifting into defensive sectors. Consumer staples, utilites, and yield-heavy REITs scored good gains though the broad markets could only managed a mixed finish.
Outside of a big Tuesday rally, the week's tone was rather blah for investors. Indexes moved sparsely in either direction with the S&P 500 (SPY) booking a +0.59% gain while the Russell 2000 (IWM) added +0.84%. The Nasdaq 100 (QQQ) gave back some of its monster gains for the second week running, falling back -0.77%.
The fourth and final week of the current World portfolio cycle pushed higher by +0.56% for the week. This portfolio is comprised of the top 5 members of our World Ranking from the March 23rd ranking. Followers of this strategy will look to rebalance Monday to the top five positions from this weekend.
Both Classic and Turbo Models are on Buy signals.
Stocks in limbo
Last week, the Nasdaq 100 registered its first losing week of the
year after a string of 14 consecutive winning weeks. As we've pointed
out over the past couple of months, a streak of this duration is
rare, but was presaged by the extended, months-long sideways trading
last summer and fall that preceded the rally. With the Nasdaq now
pulling back in normal fashion, Apple finally encountering some
profit-taking, and stocks broadly pausing, we consider what might
happen next. We've noted in recent weeks the divergent behavior
in the markets, with very clear winners and losers. Tech, consumer
discretionary (read: retailers), homebuilders, and financials have
largely been the winners, the beneficiaries of improving domestic
economic news. Anything commodity-related has been trending downward
for weeks now, a victim of broader global growth concerns. We wonder
whether these different views of the world can peacefully coexist
for all that much longer.
The first chart grouping shows the S&P 500
and Nasdaq 100taking a break
after the rally, finding support at the 50-day moving average this
week as we would expect in their first visit to that reference line.
Nothing has occurred that would raise red flags with these pullbacks,
with the exception that volume has been high on the down days and
pretty low on the recent up days - a sign that buyers are somewhat
exhausted in the near-term.
Charts 1 and 2: The S&P 500 and Nasdaq 100 pull back
normally to their 50-day moving averages
Fundamentally, this pullback has coincided with another round of
Eurodebt concerns. This time it's Spain in the penalty box, with
their bond yields climbing above 6% at times over the past few days.
The European Central Bank (ECB) and government entities have seen
this coming. Whether they have enough financial firepower left after
navigating the Greek and Italian debt fears is something that should
concern investors. On the positive side, if the ECB can successfully
negotiate this most critical debt hurdle, investors could party
with substantial energy. Doubters may be many, but the Euro has
thusfar been able to hold steady - which some would view perhaps
as a defeat given all the help pumped in by the ECB.
The pullback has also coincided with a view that U.S. corporate
profits have peaked for now and will be downshifting to a lower
level of growth. This is normal given the recovery is well along
now, and especially given that Europe appears in a recession while
Asia slows down. Whether the U.S. economy has gained enough momentum
to overcome these headwinds frames the debate for the second half
of the year. That discussion underlies the market's obsession with
Fed policy going forward and whether more of the Fed's QE drug will
be produced.
The sluggish global growth story is behind the glass-half-empty
side of the market ledger, examples of which are shown below. Both
of these high-risk indexes look much weaker than their large-cap
brethren shown above.
Charts 3 and 4: Risk-assets: small-caps and emerging markets
exhibit weakness
Over the next few weeks, large-caps will either give way to another
round of fears about Europe and slowing global growth, or small-cap
and emerging market stocks will find renewed enthusiasm that the
future looks brighter than it now appears. Right now, we've got
the pullback we have known would come - although it took far longer
than we expected. It's what happens next that we don't yet see any
clear signals on. Bouncing off the 50-day moving average and testing
the prior highs seems likely if we're looking at large-cap stocks.
Dropping back into the bear's clutches is the line along which the
commodity-related groups are dancing. The past two years have seen
this conflict generate massive volatility and a short-term victory
for the bears - but only short-term as each instance was followed
by a months-long rally. That might well be the answer one more time.
First Greece, then Italy, now Spain. Eventually, investors may come
to believe that the world's central banks are infallible and downside
risk is forever limited. But they aren't there just yet. Which group
of charts do you think wins?
Question: How do I find drawdown information for your signals?
Drawdowns are the declines from peak value that occur as the market
goes against us. Drawdowns are the bane of our existence as investors,
tempting us into selling an investment before we should, causing us
angst and panic when we don't know how deep the drop will be, and
generally challenging our dark side to make a mistake. Thus, we are
very sensitive to the magnitude of the drawdown. They can be computed
on a daily, weekly, monthly, or even annual basis. Our drawdown data
reflects changes from month-end balances, which is what most investors
look at - e.g. they review their monthly statements to gauge the health
of their accounts. To find drawdown data among other interesting historical
facts about our models go to the "Results" page of the Model you are
interested in seeing - Classic or Turbo. Click on the word "Statistics",
which we've highlighted in the picture below.
Picture 1: The "Results" page offers all the data you could
want
Clicking on "Statistics" will bring up a box with some information of
interest regarding the trading history. That information for Turbo is shown below:
Picture 2: The pop-up box showing select Turbo statistics
Read down through the table and you will see that the Turbo Model's
maximum monthly drawdown was -13.52%. While this was unpleasant, it
pales in comparison to what the broader stock market has delivered
at times over the past thirteen years covered by our statistical data.
Warm wishes and until next week.
The TimingCube
Staff
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