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Current Signal Performance
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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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After the prior week's historic levels of volatility, investors hoped for calmer proceedings this week. The week kicked off with solid gains. Google's buy of Motorola Mobility and Transocean's purchase of Norway's Aker provided a merger/acquisition bump that pushed stocks higher throughout the session. Tuesday saw a gap down at the open. German and French GDP readings were found substantially lacking with growth almost nonexistant. A Sarkozy/Merkel press conference in the afternoon did little to inspire confidence, instead reinforcing the market's perception of sluggish progress toward resolving Europe's unity pangs. Good results from retailer Target offset a sour report from computer-maker Dell to generate mixed results Wednesday. Dell generated cascading pressure among tech stocks pushing the Nasdaq Composite to a negative finish, while the other major indexes closed flat. Bears rampaged anew Thursday on a huge miss in the Philadelphia regional economic outlook report and a barrage of other economic reportage that offered no bright spots. The Dow Jones Industrials were off 500+ points, yet again, at their worst. The 10-year U.S. Treasury yield fell below 2%, a record low, on the flight to safety. Gold prices continued their surge. The final day of the week provided little respite to weary bulls. A pitiful report from Hewlett-Packard did not help and that stock found itself marked down by 20% on the day. JP Morgan lowered its economic growth forecast substantially from 2.5% to a meager 1% further fueling fears of another recession and pushing wary investors to the sidelines for the weekend. Indexes finished very near their lows for the week.
Stocks added a fourth week to their losing streak with the S&P 500 (SPY) dropping another 4.64%, the Nasdaq 100 (QQQ) falling 6.61%, and the small-cap Russell 2000 (IWM) 6.46%. The S&P 500 has declined about 16% in this four week stretch.
The World portfolio offered only modest improvement dipping 3.79%. With 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 remains on a Cash signal while our Turbo Model sits on Buy.
Mind the gap
The title of our weekly this week is a familiar phrase to
anyone who has spent time in London (and perhaps other locales as
well). The term refers to being careful of the distance between
the subway train and the platform, that care being important to
avoid the whoosh of passing trains as well as to note the step across
the void into the train. The markets have certainly delivered more
than our fair share of whooshes this month, rising and falling by
hundreds of points on a fairly regular basis. The memories of 2008's
market turmoil has been brought back in full. That memory has perhaps
accelerated the fear level investors feel as Europe wrestles with
many of the same financial crisis demons the U.S. encountered in
2008. Europe, in its newly unified financial guise, has less infrastructure
to deal with such a crisis. Thus, the pain has been more protracted
and the path much bumpier - a situation that seems likely to continue
for a good while longer. Plenty of danger to "mind" as
we march forward with our signals.
Our Classic Model has successfully minded the gap. Though some subscribers
might have wished for a Sell signal from our Classic Model, viewing
this month's Cash signal as perhaps a profit opportunity lost, that's
a "hindsight is 20/20" view. Markets have chopped back
and forth for months now, whipsawing trend following models such
as ours. Who knew the August run higher, then back down again was
going to be the THE move that broke the range? Taking a short position
at the bottom of the range (which is where our Classic Cash signal
was issued) was a very high-risk proposition - betting that the
multi-month range would break. Of course, our Classic Model doesn't
assess such odds, preferring to listen to its own unemotional indicators.
But a bet that the two-year old cyclical bull market was coming
to an end would have been a bit cheeky for a cautious fellow like
Classic. So, Cash we have; and it has protected our capital from
three 400-500+ point plunges on the Dow Jones, which has been comforting
for some subscribers, we expect.
Chart 1: Classic's Cash, while generating no profit, has
protected us from the market's recent upheaval.
Gaps also come into play in a different way for our Turbo Model
lately. We issue signal changes after the close of U.S. markets,
recommending that orders be placed at the following day's market
open. Of course, with European markets being the epicenter of much
of the angst driving markets these days, gaps up or down at the
open have become commonplace. This worked in Turbo's favor earlier
this week when the market gapped down at the open by some 2% Thursday
morning, thus giving us a bit more gain on the exit from Turbo's
Sell input as well as a bit lower price on our new Buy signal. Market
watchers might have even waited past the open to see if market's
continued their early morning freefall - which, in this case, would
have offered even better pricing for the change in signal. The gap
down hurt Turbo's performance on an earlier signal.
Chart 2: Market opening price gaps have a substantial impact
on signal performance of late.
Our Models run on market closing prices and does not incorporate
any overnight pricing changes. Lately, those overnight changes have
been significant. Our backtesting, however, has consistently concluded
that trading the signal at the opening price offers better performance
that, say, trading at the market close on the day of the signal.
The long-term benefit of our Turbo Model is going to be in getting
the directional call right rather calling the rare 1-2% gaps at
the market open correctly. After being on the wrong side of market
during the initial market plunge Turbo has righted itself for a
few winning trades over the past week. We reiterate that it is during
these highly volatile bear market periods that Turbo offers the
best performance, per our Model history. We have no reason to believe
this time will be any different, and hope you will profit alongside
Turbo in the coming weeks and months.
Question: Why so many Turbo signals?
We have had a number of questions (and some disbelief) at the frequency
of signals from our Turbo Model. However, any review of Turbo's historical
trading record and signal pattern would reveal that such a high level
of activity is actually rather common. Turbo is happy to ride a market
trend for long periods of time, such as the move from September 2010
as the market ground higher and Turbo rode it all the way up. However,
Turbo becomes a trading machine when volatility spikes as it has this
month. With markets whipping back and forth, Turbo seeks to squeeze
profit from that heightened level of volatility, happy to agnostically
view up and down days as opportunities to add to our winnings. We
would encourage Turbo signal followers to become familiar with its
historical track record, note the duration of the signals, and understand
what the model is offering to you. While we have had Turbo signals
last over a full year, 70% of Turbo's signals last less than one week.
Turbo really does try to have its cake and eat it too - being both
a trend-following as well as mean-reversion model, all in one. That
has been a recipe for great success as shown by the historical track
record. We can only hope that Turbo continues to have the right recipe
and delivers some tasty returns during this wild market as well.
Warm wishes and until next week.
The TimingCube Staff
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