Current
Signal Performance as of
Signal
Type |
Trade
Date |
Return
since issued |
|
|
|
World |
U.S. |
|
Nasdaq
100
(QQQQ)
|
Russell
2000
(IWM)
|
S&P
500
(SPY)
|
|
Stocks
continued their losing streak this holiday-shortened week.
If large cap issues showed some stability Monday, tech stocks
and small caps closed lower during a volatile session largely
driven by ups and downs in oil prices. Following another record
in the price of crude, stocks gapped down at the open Tuesday,
with the Nasdaq Composite dropping as much as 1.6% intraday
before turning around to close 0.5% higher. The market's positive
reversal was triggered by a sales report from General Motors
that turned out to be less disappointing than expected, with
"only" an 18% decline in June sales where analysts
were calling for a 25% drop. A positive reading for the ISM
manufacturing index also helped. The index came in at 50.2,
above views and showing its first increase in several months.
Stock gains did not last for long however, as markets retreated
in earnest Wednesday as another surge in oil prices took its
toll, causing the S&P 500 to lose 1.8% on the day. Thursday's
abbreviated session ahead of the Fourth of July holiday saw
the major averages move up and down to finally close near
the unchanged mark. On the economic front, the June employment
report showed that 62,000 jobs were lost last month, close
to estimates and that the unemployment rate remained steady
at 5.5%. The day was also marked by yet another record for
oil prices, with the cost of a barrel topping $145.
For the
week, the Nasdaq 100 (QQQQ), Russell 2000 (IWM) and S&P 500 (SPY)
respectively lost 2.23%, 4.59% and 0.96%. All 3 ETFs are still
located below both their 50-day and 200-day exponential moving
averages (EMAs).
For its
part, our World portfolio posted a 4.18%
loss this week. The portfolio consists of the 5 top-ranked
world ETFs as of June 20, which marked the beginning of the
current 4-week holding period. Please note that since we now
have an active Cash
signal, the World approach calls for selling
your holdings 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, as
the strategy calls for staying invested at all times. Please
go to the "Our
Service" page for all the details.
Our current
Cash signal remains
in effect.
Trend
following
Trend following being the heart and soul of our investment system,
you would think that we would write about it more frequently.
Even for those of you who have been with us for some time, the
recent past has been frustrating, to say the least, for trend
followers as well as most every other ilk of stock investor.
This has been text book market topping action. One day or week
or month the market makes you feel all warm and cozy, and the
next it makes you panic. This is a perfect time to review the
principles of trend following and to stress why it is more crucial
now than ever.
Anyone looking at a graph of stock markets can readily see that
they do not bounce around in random fashion but display clear
organization and patterns. Stock market prices move in trends.
These trends can be up, down or sideways (trendless), and they
can be of short or long duration, from mere hours to years.
Looking at the last ten years on Chart 1 below
clearly reveals the long-term uptrends and downtrends corresponding
to the major cyclical bull and bear markets. There are also
longer duration trends called secular or generational bull and
bear market cycles which last between ten and twenty years.
Within the cyclical market moves are shorter trends too. There
are pullbacks, generally defined as declines of up 10% from
an intermediate top, and corrections for anything between 10%
and 20%. As long term trend followers know, profits are made
by exploiting major trends, be they up or down, by riding them
for all they are worth, until they reverse.
Chart 1: Long-term trends 1998-2007
There are really four distinct phases in a stock market cycle:
the bull market rise, the topping out, the bear market decline,
and the bottoming. Profits are made during the two trending
phases.
A trend following system will never beat buy and hold during
a bull rise. In theory it can only match buy and hold if no
superfluous Sell signals
are issued in between, but in practice it will never be invested
at the bottom and sold at the top (and neither will any of the
buy and holders).
Then, as depicted in Chart 2 below, there are
times when the previous dominant trend is clearly broken, as
was the most recent uptrend, but when the Model has not unequivocally
signaled the inverse trend. From a technical standpoint, it
looks like the bull market which started at the October 2002
lows has come to an end, and the highs established in October
2007 will most likely stand as the beginning of a new bear market.
In fact, a number of indicators such as broken trend lines and
support zones, declines of 20% or more on many indexes have
already announced the bear market era. So why has our Model
not signaled it with a Sell
signal? There can be conflicting trends and there can be absence
of trends. Occasionally, as currently, the next intermediate
market move could just as well be up as down. It is for those
occasions that our Model incorporates a Cash
signal.
Chart 2: Markets have been topping since early 2007
Another built-in characteristic of trend following systems is
that not every detected trend change will live to develop into
a large and profitable trend. Many simply peter out or reverse
course prematurely. We take what the markets give. We don't
like it, but history has told us to be tenacious and patient.
Our strategy is not to optimize the short term market swings,
but to participate in all meaningful moves, be they up or down.
Where the trend following approach really does make the real
difference is during major downtrends. This is when buy and
hold investors lose their shirts (if they are foolish and stubborn
enough to hang on through the fall) and their wealth building
program is set back years, and possibly decades. The trend follower
will, as minimum, keep her/his capital intact with a Long
Only strategy that shifts them to cash during the downturn,
or leap ahead by benefiting from the Long and Short
strategy.
Question:
Where on the new site is that feature I liked?
With the enhanced and simplified version of the web site we
released a couple of weeks ago, some of the pages such as the
old "Resources" page have been eliminated
and information has been relocated elsewhere. All the information
and results available before are preserved on the new site,
but they may be in a different spot. To help you find some of
the most requested features, we offer the following pointers:
Glossary.
The Glossary used to be accessible from the "Resources"
page which is now gone, but you can still find the "Glossary"
link in the footer of every page
Index results.
Now that the "Results" page uses
the ETFs for calculation, results for specific indexes, stocks
or other ETFs can still be obtained with the "Performance
with individual security" function at the bottom of the
"Results" page. Simply enter your
ticker symbol and click "Go"
TimingCube
Charts.
The TimingCube
Charts which overlay our signals graphically to the graph of
your selected ETF, index, or stock can also be accessed through
the "Performance
with individual security" function on the "Results"
page
TimingCube
Wealth Calculator.
Ditto (via "Performance
with individual security" function)
Mutual Funds information and results.
Although ETFs have become the investment vehicle of choice,
all the information about which mutual funds are available to
implement our system and what results they would have achieved
has been preserved. It can be found through the link titled
"mutual funds can be used to implement our strategies"
in the last paragraph of the Strategies section
of the "Our Services" page
Warm wishes and until next week.
The TimingCube
Staff
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