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 Russell 2000 (IWM), S&P 500 (SPY) and Nasdaq 100
(QQQQ) respectively gained 2.09%, 1.68% and 1.51% 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 1.26% 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. The World portfolio is being rebalanced
today, as the current 4-week holding period is now over.
Our current Buy
signal remains in effect.
Investors
spent September soaking in a blissful scenario of Fed-backed
comfort. The notion that the Federal Reserve could step into
markets in a broader way to support asset prices and further
work to repair the fragile psyches of investors combined with
slight improvements in economic data to give stock investors
the courage to press the Buy
button. The result was a dramatic reversal from the deflation-induced
fears of August. Such emotion-driven investing does not offer
a sturdy foundation for a true rally in stocks. But we're getting
there brick by brick perhaps.
With the S&P 500
once again holding support at 1040 back in August and having
passed a couple of milestones on its move higher in September,
stock investors are now expecting a revisit of the April highs,
at a minimum. The larger question is whether the tide will turn
forcing a reallocation into stocks from the money mountain that
has flowed into bonds over the past two years. If so, stocks
could mount a sustainable advance and get back on track for
an extended rally in keeping with the election year investment
cycle proponents (see September 24, 2010 Weekly Update).
Keep your fingers crossed bulls!
The bears have not gone into permanent hibernation, for sure.
Far from it. A recent downgrade of Irish debt reminded investors
that Euro-debt worries are still lingering. Indeed, the big
arrow in the bear's quiver remains that governments and central
banks will ultimately be impotent to reverse the sickness afflicting
risk investments, namely the tremendous deleveraging that bears
argue must continue to take place. The govt/central bank printing
press drains the life out of currencies and piles on debts to
buy time while consumers and businesses regain their footing
- a footing the bears claim never gets traction.
Thusfar, it appears there is at least a bottoming in the bad
news and maybe a turn upward, albeit modest. A stock-positive
scenario might be: another round of solid corporate earnings
in October, this time with a bit of good words on sales growth,
combined with getting the elections behind us, allowing stock
investors to take a deep breath and bond investors to tire of
putting more and more money in low yielding places. Dividend
stocks could gain some favor with the ripples widening from
there.
But enough storytelling. Here's a nice chart of how steady has
the rise been in bonds - using the broad credit market ETF.
We've contrasted that very stead trend, driven by ever-lower
interest rates, with stocks and, perhaps the best all-around
asset class of the bunch since November 2008, high yield bonds.
Note again how high yield bonds track stocks quite well with
much less volatility. Using our signal on high yield bond ETFs
is not a bad idea, by the way (to try it out go to our Ticker
Tool accessible from our "Results"
page and input some high yield bond mutual funds and ETFs).
Chart 1: Comparing Bonds, High Yield Bonds (in red), and Stocks (in green)
We will give a qualified 'yes' to that question. The good part
of the 'yes' answer is that we do have a very good track record
when it comes to timing oil, industrial commodities, even agricultural
commodities (try out DBO, DBB, DBA
as ETFs to cover those areas). You will want to apply our model
in "Long Only" mode to get the best
results, meaning that you go to, or stay, in cash when our model
issues a Sell signal.
As for gold? That's a different animal all together. Sometimes
it tracks commodities, sometimes not. Putting GLD
or even the gold mining ETF, GDX, into our Ticker Tool accessible from our
"Results"
page doesn't yield good performance. Perhaps that indicates
an asset very uncorrelated to stocks both up and down? Probably
not, as gold often moves with stocks only to then become a defensive
asset again. Either way, our model is not a good fit for your
gold timing needs.
On a commodity-related note, there have recently been a couple
of new commodity ETFs that are more equal-weighted and/or dynamic
than the existing bunch, which tends to be quite oil-heavy.
The ETF symbol GCC
offers an equal-weighted commodity exposure, though the result
is an ag-heavy mix. http://www.greenhavenfunds.com/
The ETF symbol USCI
provides a unique rules-based approach to investing in commodities.
The rules cause a regular rebalancing that takes into account
the relationship between the spot (today's) price of the commodity
and its futures price. The intent being to somewhat avoid some
of the pitfalls that have sunk other specific commodity ETFs.
For a broader discussion of these troubles and the methods behind
USCI, read this article:
http://etfdb.com/2010/closer-look-at-the-third-generation-commodity-etf/
Neither of these newer ETFs have much track record, of course.
Therefore, we cannot say how well they will respond to our Model
signals. For now, we can say with good confidence that our Model
has a good record with timing energy, industrial metals, and
agricultural commodities despite the fact that commodities are
often put forth as an asset class uncorrelated to stocks and
therefore part of a broadly diversified portfolio. To our way
of thinking, diversification is nice. But avoiding the bear
markets is the real key to strong, lasting wealthbuilding.
Warm wishes and until next week.
The TimingCube
Staff
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