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), Russell 2000 (IWM) and S&P 500 (SPY) respectively gained 2.98%, 2.34% and 0.91% over the five-day span. All three ETFs remain located above both their 50-day and 200-day exponential moving averages (EMAs).
For its part, our World portfolio posted a 1.08% gain this week. The portfolio consists of the 5 top-ranked world ETFs as of September 10, 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.
As
we just celebrated the sad anniversary of 9/11, let us review
the impact of catastrophic events on the stock market. History
is littered with such events, natural or man-made, but also
with the failures and missed opportunities of people too frightened
about the future to live their lives to the fullest.
As investors it is not unusual to try to imagine a range of
possible scenarios, most of them bad, and try to anticipate
their impact on the markets and our holdings. Catastrophobia
(don't bother looking it up in the dictionary, we just thought
it sounded cute) is a somewhat cyclical obsession.
Conspiracy theorists routinely claim that the government warnings
and the ensuing media response is orchestrated to keep the masses
busy worrying about some external threat instead of their own
day to day realities. Cynics assert that the reason for the
catastrophe hype is that fear sells, that the news media are
all over it to boost ratings, and that advertisers exploit it
to sell you everything from financial newsletters, insurance,
gold coins and guns. And yes, with this editorial we are to
some extent guilty of worsening the fear monger statistics.
But we mean well!
Regardless of why this is currently a hot topic, the only certainty
is that sooner or later the next tragedy will hit. Whether it
is an earth quake, an epidemic, a political assassination, or
the much predicted terror strike, we know it will be horrific.
Markets have a long history of dealing with crisis of all sorts,
and typically they respond extremely well. So what is the impact
on our investments likely to be? Study of past incidents shows
that most events trigger an immediate irrational market response,
typically a panic sell-off. Then, over surprisingly short periods,
investors realize that they and the rest of the world will survive
and overcome the devastation, and the markets recover to resume
the predominant trend that existed before the event took place.
Let us review a couple of examples.
Probably not too many subscribers can remember that far back,
but the early sixties were as tense a period as the world had
seen in almost twenty years. In 1963, the United States had
just recently seen the end of the Cuban missile crisis when
the U.S. involvement in the war in South-East Asia started to
seriously heat-up due in large part to the coup in South Vietnam.
On November 22, 1963 the assassination of President John F.
Kennedy sent shock waves throughout the world and the stock
market plunging. However, as devastating and far reaching as
the tragedy was, by the end of the year the markets had recovered
all of their losses, and were up over 20% a year later.
Still fresh in everyone's memories, the unprecedented terrorist
strikes of September 11, 2001 had a massive impact in terms
of lost lives and financial assets, and a long-lasting disruptive
effect by signaling the beginning of a new type of global armed
conflict. Considering the enormity of the events, the markets
reacted in a predictable and one might even say orderly fashion.
Ironically, the fact that the most visible blow took place in
New York City, not far from Wall Street, may have helped by
forcing the markets closed for almost a week - action that may
well be repeated in the future regardless of where the next
event occurs. After the markets re-opened on September 17th,
a measured sell-off reached its peak (about -16%) within five
trading days, and was entirely erased within one month of the
event to the day. Since our Model already had us in a Sell
mode when the attacks happened, TimingCube
subscribers fared well with the recovery rally triggering a
very profitable Buy
signal on October 3rd.
The first key observation about catastrophes is that by definition
they cannot be accurately predicted. Maybe this is why Nostradamus,
the world's most famous prophet of disasters, is not exactly
renowned as a great stock market prognosticator.
The second valuable reflection is that such calamities tend
to have a short-lived effect on the stock market. They can cause
a temporary plunge but they do not change the underlying market
trend. Yes, there is no telling how deep the initial sell-off
might be. If it exceeds 9% (or 15%) from our entry point, as
measured by the Nasdaq Composite, our Cash signal
will act as a safety valve, if we are in a Buy
mode at the time. If we are in Sell
mode the brunt of the initial market response would favor our
short position.
In summary, catastrophic events are inevitable but they are
not predictable and they are unlikely to have a lasting effect
on the markets. The enduring damage (both financial and emotional)
of constantly expecting a disaster and being paralyzed on the
side-line far outweighs the risk of being invested when it finally
happens. Thus, the best course of action for us Trend Timers
is to ignore fear and remember that the trend is our friend.
We frequently get this question from curious subscribers wanting
to know past positions for the World ETF Ranking.
This information can be found on the "Results"
page, just below the "Yearly returns" section.
Just click the "Historical Rankings" button
to get all the rankings of every period back to 12/15/2000.
The table does not list the actual trades, but it lists the
Top 5 positions (and all the other ones as well) for every 4-week
rebalance period. It lets you reconstruct the results of our
sample portfolio. Some like to "cut and paste" this information
into a spreadsheet to analyze. Daily and weekly historical price
data can be obtained from Yahoo! Finance (it is their ticker
symbols we use to designate the ETFs), or any other data provider.
Others like to study which ETFs led the pack at what times,
how frequently and for how long. Yet others like to identify
the weak markets at the bottom of the rankings, or the ones
making large moves, up or down, from week to week. All the information
is there for you to analyze.
Warm wishes and until next week.
The TimingCube
Staff
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