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Current Signal Performance
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Turbo Signal
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Trade Date
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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
(QQQ)
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Russell 2000
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S&P 500
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After two weeks of sharp gains, stocks were reminded of the fragility of the European bailout Monday. Cautious comments from a German official provided impetus for investors to take recent trading profits sending stocks down around 2%. The weakness continued in the Tuesday morning session as IBM missed revenue targets in their Monday evening comments. Gains in financials lifted the market later in the day, however, on reports of a broader European bailout package. After hours, Intel beat expected earnings while Apple missed. The Apple miss weighed on the market Wednesday while banks reported generally decent results to lessen the hit on the more financial-oriented Dow Jones industrials. Thursday offered a wild day with markets initially selling off on news that the weekend's key European bailout summit was not likely to result in a new agreement. Stocks found support at key levels, however, and reversed higher in the afternoon to post modest gains, but a moral victory. Good earnings from Honeywell and Chipotle built on Thursday's late-day momentum to launch a gap over the 200-day EMA for the S&P 500. Stocks pulled another down then up session to close at the day's highs.
The S&P 500 (SPY) overcame a volatile week to add +1.14% for the week, clearing some key moving averages in the process. The Russell 2000 (IWM) ended flat on the week holding on to the prior week's massive gain. The Nasdaq 100 (QQQ) gave back -1.51% as the other indexes caught up a bit. The S&P 500 and Nasdaq 100 both now sit above their 50 and 200-day lines with the Russell 2000 trapped under its 200-day EMA.
The top 5 World ETF portfolio picked up +0.50% this week. The portfolio holds the top 5 ranked ETFs from October 7th.
Our Classic Model and Turbo Model both remain on Buy signals.
Stocks look to beat back the bears
As trend-followers we are always looking for signs of a change
in market tone reflecting a new attitude among investors (long-term)
and traders (short-term). We have commented many times on the Nasdaq
100's outlier behavior in recent months as Apple and Amazon refused
to let the Nasdaq 100 break down with other parts of the market.
It seemed that the odds favored the Nasdaq 100 eventually caving
in to the global economic concerns that were pushing emerging markets,
commodities, and other domestic indexes to full-fledged bear market
status. For now, it looks like the opposite is happening. The Nasdaq
100's ability to hang in there has found support by somewhat better
domestic economic reports, and good behavior by stubborn consumer
and dividend-focused stocks. This bend but don't break mentality
seen in some parts of the market has worn out the bears for now.
Let's take a look at the past four weeks of trading to see what's
been going on.
Chart 1: Broader stock market finds support and builds a
short-term bullish ladder
Examining the chart above, we see what now looks like a capitulation
day on October 4th (shown in the black box on the chart). The market
shot sharply lower only to recover just as sharply and prevent a
damaging breakdown. Then, stocks were able to consistently hold
new advances - the stairsteps we have spoken of before - thus working
back higher piece by piece. These stairs are highlighted by the
green bars. Stocks paused and wrestled for a moment with the prior
high from September 27th. Then, it pushed past that point as well.
Finally, the past few days exhibited the staying power of the new
bullish tone. The red lines highlight that every time the bears
tried to rebuild their assault, bulls stepped in to fend it off
and reverse the market back upward. If the S&P 500 can hold its
jump earlier today past 1230 (the green dashed line), the bulls
would have passed a major hurdle in their journey to rebuild investor
confidence.
Behind this move upward has been increased optimism that the U.S.
banks will not be unduly harmed by what's going on in Europe - at
least in the near-term. The move also reflects corporate earnings
that, while mixed, have not been perhaps as dire as feared. The
corporate reports have suggested slowing in global economy's, but
perhaps not another recession. Whether this is just wishful thinking
or not remains to be seen, of course. But it is these bouts of optimism
that create the sharp counter-trend rallies that make bear markets
so dangerous. We have seen this almost daily in the market's reactions
to every little utterance from European officials. Merkel and Sarkozy
having a meeting? Great! Looks like an end to the problems are near
- buy, buy, buy. German official throws cold water on hopes for
a real solution? sell, sell, sell. Thus has been the lot of stock
market participants lately. This environment has led longer-term
investors to step aside and wait for the back-and-forth to reach
a more definitive conclusion. As a result, trading volumes have
been very low and short-term traders have had a field day whipping
the market up, then down, then up again in an effort to squeeze
profit from every direction.
Perhaps an indication of just how much control traders have exerted
on this market (and how little big-money, long-term investors have
been a part of it), we find this chart striking. It's a well-known
point that a 20% move downward is considered a "bear market."
We find this to be a somewhat bizarre notion because it tells you
nothing about what to expect from there. So the market has fallen
20% from some peak point - and now what? It's just a handy description,
we suppose, for the extent of the damage. The media tends to protray
this 20% level as heralding some new dynamic. Of course, by the
time the market has declined by 20%, the "new" dynamic
is actually well along. Anyhow, that's beside the main point we
want to make here. It's shocking, but perhaps not surprising, that
the S&P 500 halted its decline EXACTLY at the point at which it
would have been declared in the press as a "bear" market.
We will let you draw your own conclusions about why and how that
happened. We just find it interesting and begging of multiple questions.
Chart 2: The S&P 500 flirts with one bear market definition
With both Classic and Turbo now in Buy mode, we continue to recommend
that subscribers work their way into the signals. This week was
constructive for bulls. But it's a land of danger until Europe truly
comes up with a viable plan, rather than simply rumors upon rumors.
A couple of days above that 1230 level on the S&P 500 will add to
the near-term bullish story.
Happy Anniversary!
 TimingCube recently passed its ten-year anniversary - a real heavy-duty
milestone in the investment newsletter publishing world where there
are lots of coming and goings, and most folks don't hang around all
that long. What began as a unique idea - trend-following the stock
market with clear, easy timing signals - built on unique products
- those newfangled securities called ETFs, we now find ourselves somewhat
in the mainstream of investment thought. The ETF industry has over
$1 Trillion in assets invested in their products. Market timing and
"tactical" asset allocation has gained many, many advocates
after the ups and downs of the past decade. We are thrilled to see
our wild-eyed notions become more mainstream, but are very sorry that
it's taken investors suffering through so much portfolio pain to come
around to shrugging off buy-and-hold as the ONLY viable investment
methodology (as most large retail brokers would have you believe).
We greatly appreciate your support, your feedback, and hope that our
products and service can continue to occupy a profitable place in
your investment world. It's a pleasure to serve you! Here's to ten
more years of very profitable investing.
Warm wishes and until next week.
The TimingCube
Staff
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