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)
|
|
 The Nasdaq
100 (QQQQ), S&P 500 (SPY) and Russell 2000 (IWM) respectively
lost 0.63%, 1.20% and 2.97% over the five-day span. All three
ETFs are again located below both their 50-day and 200-day
exponential moving averages (EMAs).
For its
part, our World portfolio posted a 1.41%
loss this week. The portfolio consists of the 5 top-ranked
world ETFs as of June 18, which marked the beginning of the
current 4-week holding period. The World portfolio is being
rebalanced today, as the current 4-week holding period is
now over. 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.
Here at TimingCube
we look for the intermediate trend of the market. An "intermediate"
trend is one lasting a few weeks, perhaps a few months, maybe
even as long as a year. As we search for the market to tell
us its intermediate intentions, sometimes the market does not
speak clearly. It is confused, uncertain, and undecided. Such
is the market we have experienced over the past several weeks.
Our Chart 1 below outlines the tremendous recent
volatility of the market.
Chart 1: Beware the shark's teeth!
Recent trends have lasted all of a week, or perhaps two. Investors
have been whipsawed and would certainly be forgiven for scratching
their heads in dismay, anxiety, and/or confusion (all the while
buying more bonds it would appear). No sooner did we live through
thirteen consecutive market days (that's almost three weeks
in the market folks!!) of nothing but down for the Nasdaq Composite
, then we awoke July 7th to sunshine, the proverbial
"oversold" rally, and a week plus of nothing but goodness.
These have been treacherous times for anyone looking to play
intermediate trends. Thus, our Cash
signal from June 29th.
A Cash signal is
perhaps never very satisfying. But we figure it's better than
tempting the same market fates that we know can go off the rails
and destroy our nestegg. Thus, we protect our capital and wait
for better days with more clarity and direction from the market.
We patiently wait for our next chance to profit.
Stepping back from the past few weeks puts the market's action
in a broader (and much more benign?) context. Stocks have largely
been treading water for nine months now with many indexes trading
in a range since October. This despite continuing solid earnings
growth, once again demonstrating that stocks and earnings are
not always closely related.
Chart 2: Emerging markets leading the way to nowhere
Emerging markets are where the action is economically and a
leading index for stocks. They have been the first to move,
leading most stock market shifts since the rally began. However,
Chart 2 above confirms that they have lead
nowhere, range-bound, albeit in a fairly wide range.
What will break us out of this sideways stupor? A comparison
of recovery rallies from the past few decades suggests that
our current situation is the norm, not the exception. Recovery
rallies are typically strong out of the gate only to languish
as growth rates slow back to more normal levels and stocks digest
the heady first months of a new economic recovery. With only
one exception over the past 50 years, recovery rallies reach
their initial peak 50-70 weeks in, flattening out for several
months thereafter. Thus, our nine-month churning in stocks is
very typical behavior.
Chart 3: 50 years of recovery rallies
Though flat is typical in this type of environment, stocks do
not tread water forever. While late June's selloff led many
to call the end of the cyclical bull market, early July's behavior
has shown that the bulls are not dead yet. The question is whether
there are enough bulls still out there to drive stocks higher;
and what it will take for them to commit substantial capital
to stocks. The next opportunity is the current earnings season.
Stocks have quickly run back up to their 50-day moving average,
a point of rally failure since April's market peak. Will stocks
be overcome by selling at this point once more?
As always, no one knows how investors will read the earnings
tea leaves, nor what might set off an enthusiastic, even if
temporary, embrace of stocks, and lead some money to leave the
sidelines and the safety of Treasury bonds for riskier assets.
We await their collective decision and the opportunity to emerge
from the whipsaw of recent weeks.
While U.S. stocks have churned generally downward in dramatic
fits and starts over the course of the year, some might read
a chart of international indexes as having bottomed and looking
to plot a significant move higher. Our simple chart below shows
that much of this apparent gain is really just a result of the
U.S. dollar having pulled back from its torrid rally over the
November-June period.
Chart 4: International large-cap stocks generally mirroring
the U.S. Dollar's movement
We do regard emerging market stocks as serving to some degree
as the proverbial canary in the coalmine. Their economies are
growing at rapid rates and their stocks are not expensive by
any traditional measure. Thus, we might expect investors to
view them as a more compelling place to put some money rather
than the slower, dicier recoveries in Europe and the U.S. Some
riskier areas of the market have attracted buyers, notably anything
with a high yield and stock indexes in Singapore and Malaysia.
Some of this is helped by the pull back in U.S. dollar, but
certainly not all. It's too early to declare international stocks
in a clear uptrend. But there are signs that levels of cautious
optimism might be returning, especially in fast-growing Asian
economies.
Warm wishes and until next week.
The TimingCube
Staff
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