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)
|
|
It has
been a horrendous week for the world stock markets, one for
the history books. Continuing their descent, stocks suffered
massive losses as fear and panic became rampant worldwide. Despite
a wide range of measures announced by governments and central
banks aimed at restoring confidence, investors just kept selling
relentlessly. On Wednesday, the Federal Reserve and other central
banks slashed worldwide interest rates by 50 basis points, taking
the fed funds rate down to 1.5% in the U.S. Typically, such
spectacular action should have helped turn the market around,
but not this time... Desperate investors just kept dropping
their shares, only wanting to get out. The S&P 500
has now fallen for 8
days in a row, closing the week at 900, a level it last saw in April
2003. In fact, prior to the 2000-2002 bear market, the 900 mark on the
S&P 500 was first hit in July 1997, meaning that an investor who bought
the index back then and remained in the market for the next 11 years
until today has no profits to show for it. So much for buy-and-hold
investing!
In what turned out to be Wall Street's worst week ever, the Nasdaq 100
(QQQQ), Russell 2000 (IWM) and S&P 500 (SPY) respectively lost 13.43%,
16.35% and 19.79%. All 3 ETFs remain located well below both their
50-day and 200-day exponential moving averages (EMAs).
For its part, our World portfolio posted a
16.28% loss this week.
The portfolio consists of the 5 top-ranked world ETFs as of
September 12, 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.
Safe
havens
It is hard to believe that one year has passed since the stock
market set the last bull market highs. For most of that time
the decline appeared manageable, staying just within the -20%
which marks the beginning of a bear market, and many pundits
were already calling for a bottom. Then, prodded by the worsening
global financial crisis, the bear market came roaring, viciously
dropping most world indexes to levels not seen in well over
five years. Over the last year, investors have lost nearly $10
trillion in shareholder wealth in the U.S. stock market alone.
Uncertainty and fear has clearly given way to widespread panic.
Our weekly Market Updates serve as a running
chronicle of the stock market and the forces and events that
move it. There is an over-abundance of news and opinions about
the state of the global financial system, why it is doing what
it is doing, who is at fault, how bad it is likely to get, what
it will take to fix it and how long it will take. We have heard
more than one pundit wondering if this is going to turn into
the next Great Depression. It seems like there is a major government
intervention in the markets every other day and a running price
tag of well over $1 trillion in just the last couple of weeks.
So far nothing has restored the mutual trust required between
banking partners for the global credit freeze to subside. We
will take our top financial authorities for their word when
Federal Reserve Chairman Ben Bernanke and U.S. Treasury Secretary
Henry Paulson have predicted that the global financial market
crisis is likely to negatively affect the economy well into
next year and that more bank failures are to be expected.
Luckily for us trend timers, we are keeping our powder dry on
the sidelines and have no need to panic. We try to be grateful
for our current Cash
position in the light of 20%, 30% or even 50% losses experienced
by many investments and investment newsletters since early September.
Yes, some of us are tearing our hair out (what little is left
of it by now) thinking of what might have been if our Cash
signal had been a Sell.
It is frustrating, and we will no doubt review the market conditions
and indicators which had our model detecting conflicting forces
resulting in a Cash
signal during one of the steepest plunges in stock market history.
But this is a topic for later. For now, in the middle of the
storm, survival is paramount, and finding safe havens for our
hard earned assets is more critical than ever.
We will in this Trend Timing School article depart from what
is the norm and, for once, the stock market will not be our
primary topic. Just so we do not create unnecessary confusion,
let us confirm that the TimingCube
system remains entirely focused on the stock market and that
we will continue implementing our Buy/Cash/Sell
trend following signals with the portion of our portfolio we
dedicate to the stock market and this strategy.
Another exceptional departure from our traditional approach
is that unlike our timing signals, the recommendations in this
article are not mechanically driven by technical indicators.
Be forewarned that the assessment of various asset classes involved
a lot of fundamental analysis and ultimately required us to
make value judgments and forecasts, which we normally stay away
from like the plague.
Looking at Chart 1 below for a view of the
winners and losers over the last year, it is plain to see that
stocks lost. And conversely, the bear funds (not pictured on
the chart) which short the stock market are the winners for
anyone with the foresight to buy them 12 months ago.
Chart 1: One year winners and losers
There were mostly losers it turns out, with real estate dropping
dramatically, many industry sectors followed suit. Commodities
and oil in particular, despite the massive corrections they
underwent in recent months, remain a top 1-year investment,
second only to bear funds. While commodities and energy should
be good investments in the long run, the risk of a global economic
slow down has the potential of reducing demand enough to further
deflate prices.
The U.S. dollar represented on the graph by the green line has
experienced a surprise resurgence over the last few months to
end the year as one of the few assets with gains. This reinforces
our current cash position in U.S. dollars as one of the best
places to be right now. Bonds, as represented on the chart by
TLT
(the iShares Lehman 20+ Year Treasury Bond fund) have done even
better (12%) with dropping interest rates. Next up is gold,
which has also been knocked off the highs it set earlier this
year, but still managed to gain nearly 20%.
So what are the next 12 months likely to look like? Bonds are
bullish, but it is generally expected that interest rates are
at or near the lowest they will go. This means that interest
rates will start heading higher at some point, and when that
happens, look out below for bonds! We also believe that the
dollar rally, which is not based on any shift in fundamentals,
is not likely to go much further. We agree with a growing number
of economists who believe that our enormous and exploding national
debt coupled with unprecedented spending to buy back bad debt
and nationalize financial institutions will cause massive inflation
down the road.
A little over a year ago in an editorial titled "Honest
money", in what now turns out to have been a great call,
we recommended investing in gold. Gold, despite having been
knocked down from the highs it set earlier this year as the
U.S. Dollar rallied impressively, we believe the current financial
crisis and the actions taken by Governments around the world
to prevent a total collapse of the financial system, only ensure
that both gold and the U.S. dollar will resume their mega trends
(down for the dollar and up for gold).
Question:
Can the TimingCube
system be used for assets other than stocks?
No. The TimingCube
service is entirely focused on the stock market and the trends
tracked by our model and timed by our Buy/Cash/Sell
signals are the trends of the broad stock market. Our World
approach ranks ETFs of major markets around the world, but they
all are equity markets.
In contrast, our sister publication ETFTide
encompasses not only ETFs which track broad stock market indexes
but also industry sectors, as well as other major asset classes
such as bonds, commodities, and currencies. The ETFTide
system stays fully invested at all times with a portfolio consisting
of the strongest ETFs which, during stock market weakness, tend
to be in defensive positions. Currently, ETFTide
has its portfolio heavily loaded with commodities, bonds and
currencies which have been faring much better than the stock
market.
Warm wishes and until next week.
The TimingCube
Staff
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