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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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Stocks shot higher Monday with oversold tech stocks providing the leadership. Greek concerns were moderated when French banks expressed willingness to rolling over 50% of their existing Greek debt exposure. Stocks ended the day up around 1% with the Nasdaq 100 gaining over 1.5%. The momentum carried over into the Tuesday session with another 1%+ lift. A good earnings report from Nike enthused consumer stocks with most other sectors following the move higher, although volume was lacking. Stocks added a third straight day of gains Wednesday. More Greek relief rally buoyed by a Bank of America settlement of mortgage securities lawsuits provided support. Relief over Greek debt pushed up the Euro, brought down the U.S. dollar, and gave some help to commodity prices, in turn driving up recently lagging energy and resource stocks. With the end of the Fed's QE2 program at hand now, U.S. Treasury bonds continued a week-long selloff. A hefty beat of expectations by the Chicago Manufacturing Index put more wind at the bulls' back Thursday. Indexes pushed strongly higher for a fourth straight day, lifting more than 1% yet to finish the month of June on a very bullish tone. Friday brought the broader U.S. ISM report, which echoed the bullish Chicago note from the day before. Stocks added another 1%+ to their big weekly gains Friday to complete the best week for stocks in a very long time and essentially negate all the Greek debt/soft economic patch selloff in June - an incredible about-face for investors.
Please note that U.S. markets will be closed Monday July 4 in observance of the Independence Day holiday.
The Nasdaq 100 (QQQ) managed to post a massive 6.49% gain for the week. The Russell 2000 (IWM) rose 5.61%, while the S&P 500 (SPY) ended the week up 5.19%. All three indexes crossed above their 50-day moving averages this week, a line they've sat under since the end of May.
Our World portfolio enjoyed the euphoria of the market, gaining 5.76% this week as the Euro concerns faded away. Since we have an active Classic Model Cash signal, the World approach calls for staying in cash if you follow the "Long Only" or "Long and Short" strategy. Only if you follow the "Buy and Rebalance" strategy should you remain invested in the top 5 ETFs from our world ranking. Please go to the Classic Model "Description" page for details.
Our Classic Model Cash signal remains in force while our Turbo Model issues a Buy signal as of this evening.
How
we view cash
This week, stocks have made a noticeable rally off the support we
showed a couple of weeks ago. The support held as we hoped it would,
and stocks have rewarded those who heeded our advice to step in
and add to your position at that point. This week's rally, nominally
attributed to improvement in the Greek debt situation with a secondary
push from slightly better economic results, initially carried the
feel of end-of-quarter window dressing. Window dressing is a common
term for stockbrokers' presumed penchant for adjusting their portfolios
just ahead of the issuance of monthly or quarterly client statements.
The idea being that clients don't pay much attention to their accounts
outside of these statements and, therefore, view whatever positions
show on these statements as being an accurate reflection of the
investments they owned through the period. Perhaps a stronger influence
behind any presumed window dressing comes from stockbrokers not
wanting to show a lot of cash on the statement. Cash is often viewed
as money that is "not working" and therefore paying a
broker to hold substantial cash can be viewed by clients as a negative
position - meaning that the client is paying for an asset that's
earning virtually nothing thereby losing money by holding cash (or
maybe breaking even). June's final week rally probably has nothing
to do with window dressing, and maybe there is no such thing. One
can't help but marvel at the market's fourth consecutive rally on
a month-ending week (e.g. happened in March, April, May, and now
June); rallies that have kept stocks surprisingly supported in the
face of a wide array of doom-delivering scenarios.
Given that our Classic Model currently sits in Cash, we obviously
view cash as an acceptable investment choice. It's a question of
opportunity cost. There are rare times when investors have a relatively
clear view of the path ahead. One such clear scenario: earnings
are clearly growing and doing so at an accelerating pace; the economy
is on sound footing to support future growth; and the odds are in
favor of taking more risk. During those times, being on a Buy signal
and diving headlong into that signal works wonders. As time wears
on, the enthusiasm (and perhaps the available funds) of investors
diminishes and complacency becomes the order of the day. A low reading
of the volatility indicator (symbol: VIX) provides a possible view
into how complacent investors are feeling. Another is the relative
number of bulls and bears from the Investors Intelligence and/or
American Association of Individual Investors (AAII) surveys. These
contrarian indicators suggest that if almost everyone is bullish,
there is relatively little new money available to buy stocks; the
money is already in the market.
Extremes of complacency or clear economic paths are few and far
between, however. Most of the investor's road is paved with potholes
of uncertainty; it's just a matter of degree. The past quarter has
been filled with uncertainty, which is what ultimately sent our
Classic Model to the safe haven of Cash. Being on a Buy signal expecting
the market to go up seemed, to Classic's way of thinking, to be
a high risk venture. But being on a Sell looked no more appealing.
For each time the market had taken a downturn in 2011, it had come
rolling right back up as if the rationale for the downturn was a
complete farce. Thus, taking a short position was not a clear path
either. Our Classic Model ultimately chose to wait until a clear
trend developed (it's still waiting, of course).
Being in cash while the market thrashes around is a good place to
be, not a bad one. We might miss out on a brief opportunity here
or there, but we're also not at risk of some major negative. If
Greece were to have voted against this week's austerity program,
markets could have come unglued, fallen below the support we recently
highlighted, and ratcheted up the uncertainty factor to near-panic
levels. As it happened, Greek finances live to pay for another round
(of working capital) and the EU buys more time to figure out the
next card to play. Stocks breathed a collective sigh of relief that
at least one uncertainty was pushed further away, then quickly shifted
to remembering that the Fed is no longer buying any new U.S. Treasury
bonds - thus sending 10-year and shorter interest rates significantly
higher. Stocks have thusfar shrugged the higher rates off as just
an unwinding of the recent safe-haven trade.
The earnings season beginning next week will remind investors that
one of the worst natural disasters in history occurred less than
four months ago. Some of that economic damage (as well as the rebuilding
opportunity) will show up in company earnings and their outlook.
But when's the last time you heard much about that major event?
It's been all Greece all the time here lately. Perhaps companies
will remind investors that profits are doing quite well and the
outlook is actually pretty decent. Stocks will add to this week's
bounce and maybe even achieve escape velocity to start a new uptrend
and blast to new highs. The uptrend always starts with short-covering
and/or value investors drooling over bargains. Then, it takes some
new conviction among an ever-broadening set of investors to pour
money into the rally. Whether earnings will deliver that conviction
we will soon find out. In the meantime, cash has not been all that
bad a choice - you haven't missed much: 10 days of straight down
followed by a very volatile week of back-and-forth action, and this
week's relief rally roughly back up to the point of our Classic
Cash signal. Thus, pretty much a net zero move.
Stepping back from the month of June, one could argue that the potential
Eurodebt contagion and "soft patch" scenario in the global
economy drove stocks down for the first three weeks of the month
leading to a relief rally in the final week as Europe averted the
near-term crisis and domestic economic data turned up modestly.
That sort of turn-on-a-dime market has all the makings of pain for
intermediate term trend followers, which is why IBD and many other
trend timers sat out most of the month of June. We now try and figure
out what to make of this week's rally. Still healing the wounds
from the head-fake on the last day of May where a 1%+ gain led to
a 2% drop the first day of June and a subsequently bigger slide,
it's understandable that folks of our ilk are cautiously eyeing
this week's rally. After all, July is TimingCube's best month historically.
Will cash continue to be the best investment for those seeking an
intermediate trend? Our Classic Model watches and waits for the
sign.
Question:
Does the Turbo Model have a Cash signal?
Unlike its sibling model, Classic, the Turbo Model only knows two
directions - Buy or Sell, long or short. The downside to such a
definitive position is that Turbo is either right or wrong, every
day, every signal. There is no sitting on the sidelines until the
trend shows itself. Investors who are not typically active traders
can be frustrated by wrong, losing signals. However, with a trading
model like Turbo, one needs to understand that it's like hitting
a baseball. We know we won't get a hit every time. The objective
is to be right far more than wrong so that gains can compound over
time. With a nearly 70% accuracy rate, Turbo has thusfar proven
to be an able navigator of the market's choppy seas. The other key
to a successful trading system/model is to cut losses before they
get too large. Turbo has a history of managing this aspect quite
well also, limiting losses to under 5% over 96% of the time. This
conserves our capital for the next trade, the next signal, because
we know that eventually a big winner comes along to zoom our account
to a new level. In fact, there has been at least one Turbo Model
trade delivering >10% in ten of the past twelve years (2005 and
2007 being the odd exceptions). So, the odds are very high we get
a shot at a big winner on a pretty regular basis. Given the choppy
market thusfar in 2011, our 10%+ winner is still out there waiting
for us. And we are all looking forward to that!
Warm wishes and until next week.
The TimingCube
Staff
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