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)
|
|
After a month-long descent, stocks rebounded strongly this week despite a poor showing Monday. Indeed, the main indexes started on a disappointing note as all of last Friday's gains were erased during the week's first session, with the Nasdaq Composite shedding 1.6%. The tech-heavy index retreated further Tuesday after the Chicago PMI index fell more than expected in August and the release of the Fed's last meeting showed that the Central Bank's members judged that the economic outlook had softened more than they anticipated. Stocks reversed course in a big way the next day, with the Nasdaq Composite and the S&P 500 both gaining 3%. The rally was triggered by positive economic news out of China and Australia and an ISM index of manufacturing activity that came in above estimates. The day's large gains were in part the result of short-covering as many investors holding short positions were caught off-guard and forced to cover those positions by buying back shares, therefore adding fuel to the rally. With pending home sales and weekly jobless claims data better-than-expected, stocks were able to move higher again Thursday, albeit on reduced trade. They did so again Friday after the Labor Department said that private payrolls increased by 67,000 last month, significantly more than the 44,000 that had been expected. With better economic news released this week, the mood among market participants has clearly improved. That said, the nascent rally is only three days old and it remains to be seen whether it has legs and can carry on or will simply fizzle like previous rally attempts in June and July. Please note that U.S. markets will be closed Monday, September 6 for Labor Day.
The Nasdaq 100 (QQQQ), Russell 2000 (IWM) and S&P 500 (SPY) respectively gained 4.40%, 4.35% and 3.77% over the five-day span. All three ETFs are now located above both their 50-day and 200-day exponential moving averages (EMAs).
For its part, our World portfolio posted a 3.60% gain this week. The portfolio consists of the 5 top-ranked world ETFs as of August 13, 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 or no trend?
A market is called range-bound when it remains within a relatively
well defined channel, going nowhere, except up and down within
that range for prolonged periods of time. A range-bound market
is not necessarily bad because it is not always trendless. The
definition of a trend is in the eye of the beholder. If you
plot a minute chart of just about any stock index you will spot
numerous trends, some lasting no more than an hour. As we discuss
frequently in these pages, the trends we concern ourselves with
are the major ones which last not hours but months, and deliver
substantial price movements. There have been some very nice
range-bound markets exhibiting strong lasting trends, such as
the strong up-channels of the nineties. What investors do not
like are sideways (horizontal) range-bound markets that are
relatively narrow. In such markets no meaningful trends develop
and trend followers are left in much the same boat as active
traders and Buy and Hold investors: with not much to show for
their efforts.
It does not take a rocket scientist to figure out that we have
been stuck in such a trendless, range-bound, sideways market
for nearly four months. The graph below clearly shows the narrow
channel the S&P 500
has been in lately, with a low at 1020 and a high near 1130.
From an imaginary median line at 1075, the up and down swings
have been limited to just about plus/minus 5%. Not much room
for profitable trading indeed. In retrospect the tops and bottoms
look obvious, as does the neat horizontal channel. The trouble
is that the channel lines can only be drawn after the fact,
and no one can reliably and consistently call the tops and bottoms.
As Trend Timers we never want to miss a trend. When our Model
detects what looks to be the beginning of a new trend we jump
on board, as we have now done twice since entering this channel.
With the current Cash
signal our Model is back to a neutral position, waiting for
a more promising trend to develop. No one knows how long this
trendless channel will last, and we need to remind ourselves
not to be over excited every time the market shows some sign
of departure from the mid-range line it has been lingering around
for quite some time now.
Chart 1: The recent trendless pattern
This trendless channel is frustrating all investors alike but
Trend Timers, who normally thrive on the big moves, can become
demoralized and abandon the system, or get tempted to trade
faster in an attempt to exploit the smaller ups and downs within
the trading range. The big danger with such an approach is to
get whipsawed into numerous trades, many of them losses, however
small. Even active traders need some evidence that a trend has
started before they can take a position. This usually means
at least a 3-5% move occurs before the trigger can be pulled,
and by the time they give back the same 3-5% at the next reversal,
there is not much profit left, if any. This is typically what
has relegated many aggressive traders to the bottom of performance
rankings for the last six months or so.
The big question on everyone's lips is "how long will this trendless
market last?" The current one is by no mean the longest one,
and we could see several more months before the market finally
decides to move resolutely up or down. What keeps us excited,
and patient, is the knowledge that such sideways action always
represents a consolidation phase which more often than not precedes
the next big move. We don't know if the next big move will be
up or down, or when it will come, but in the meantime we focus
on the self-discipline to stay with the signal and make absolutely
sure we don't miss out when it finally comes.
Question:
What is the "Alternate E-mail address" for?
In case you did not notice it, the "My Profile"
page on the Web site provides for both a "Primary E-mail"
and an "Alternate E-mail" address. While only
the "Primary E-mail" is mandatory when you
subscribe, we highly recommend you use both. The two addresses
were intended to give you more flexible and reliable access
to the signals. Many of us have both a home and a work e-mail
address which we could use, not just for convenience but to
increase the chances of receiving a signal when it comes.
Alas, in this day of raging spam, many e-mails do not reach
their destinations due to various overzealous countermeasures
along the way. For details on how to increase your chances of
receiving our e-mails, and to find out how to perform an end-to-end
delivery test, read Why
am I not receiving your emails?. Sometimes, despite all
the precautions, e-mails will be filtered by your e-mail service
provider and you may have no control over it. The best way to
protect against such occurrences is to set-up an "Alternate
E-mail" address with another provider. It is highly
unlikely that two service providers start blocking the same
type of e-mail at the same time, the redundancy greatly increases
the likelihood of proper signal reception on your end.
Warm wishes and until next week.
The TimingCube
Staff
|
|