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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
(QQQ)
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Russell 2000
(IWM)
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S&P 500
(SPY)
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Classic Signal
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Trade Date
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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
(IWM)
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S&P 500
(SPY)
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Even after last week's EU Summit, stocks struggled to grasp the way forward for the Eurodebt crisis. Two ratings agencies reiterated the possibility that some nations will see their credit ratings reduced. Tech stocks pondered a reduced near-term outlook from Intel. Those news items opened stocks lower and kept them falling until late in the session when a modest rebound gained back some ground. Still, the day provided >1% declines. Of note, the European concerns sent the U.S. dollar markedly higher, damaging gold and other commodities. That strong dollar/weak gold trade pushed into Tuesday accelerating into the afternoon session as stocks gave up early gains to close marginally lower, though small-caps suffered a 2% decline. The Fed's lack of new action coming out of this week's meeting disappointed market participants looking for yet another round of Fed magic; the DJIA dropped 200 points in 90 minutes upon the release of the Fed statement. A third consecutive day of weakness filled Wednesday's session with Italian bond yields back near pre-Summit levels, investors clamoring for U.S. dollars, and the resultant damage to commodities fierce. Though stocks suffered only modest losses, precious metals fell sharply with oil plunging 5%. A respite to the week of selling came Thursday on better than expected domestic economic reports - jobless claims continued falling, the previously weak Empire Manufacturing Survey rebounded nicely, and economic bellweather FedEx delivered good earnings. Still, markets were unable to hold on to any substantial gains, limping into the finish with only fractional gains. Friday started on a positive note with tech shares outperforming on enthusiasm over the IPO of online gaming firm Zynga. By mid-day, however, the bloom was off the rose, Zynga fell below its offering price, and Eurowoe took the air out of the market. Rating agency Fitch affirmed France's AAA rating, but downgraded a host of other finance companies and placed several nations on credit watch, essentially acknowledging that there is scant hope for a broad solution to the crisis. Treasury bonds lifted higher as a result, and stocks managed to close marginally in the green on the options expiration day.
Stocks spent the week swimming upstream eventually settling for modest losses. The S&P 500 (SPY) worked lower by -3.54% with the Nasdaq 100 (QQQ) dipping -3.79%. The Russell 2000 (IWM) small-cap index dropped -3.06%. The prospect for a bullish cross for the S&P 500 noted in last week's summary fell through as all but the Russell 2000 closed back below both the 50 and 200-day EMAs.
The top 5 World ETF portfolio mirrored the slide in U.S. equities losing -3.41% this week. With the Classic Model on a Sell signal, the World approach calls for staying in cash if you follow
the "Long Only" methodology, or taking a short Nasdaq 100 (QQQ)
position if the "Long and Short" strategy is your guide. Only "Buy and Rebalance" followers should be invested in
the World portfolio at this time. Go to the Classic Model "Description"
page for a more detailed explanation of the strategy choices.
Our Turbo Model remains on a Buy signal while Classic continues to be a Sell.
Dazed and confused
The title of this week's note describes the mental state
of many investors these days. They are dazed, and becoming numb,
over the situation in Europe. We are certainly approaching double
digits in the number of times European leaders have trotted out
new ways to say they have some sort of "fix" to their
collective debt burden. Bond markets increasingly are catching on
that these pronouncements are little more than air from politicians
and bankers who seem to have little capability and (to believe some
of them) authority to strike at the heart of their woe. Stock investors'
sigh of relief (in the form of an almost 500 point rally day for
stocks) when global central banks came together as one has been
all but erased in less than two weeks. A flurry of positive economic
news from U.S. reports this week failed to spark much enthusiasm.
And several technical indicators are flashing signs of concern.
Before one gets too carried away with the cloudy skies, however,
we note that some indicators are perplexing in their lack
of concern. For one, the VIX - presumably an indicator of fear/concern
in the market as witnessed by purchase of put option protection,
has been trending downward (relaxing as it were) and sits right
on the edge of tipping over to a rather benign (bullish) read. High
yield bonds, a risk asset that can serve as a reflection of institutional
concern re: the economy, have recovered all their ground lost in
the selloff of recent months and are holding steady while stocks
stumble their way out of 2011. Dividend-focused ETFs and defensive
market sectors have also recovered much of the ground ceded in the
selloff with some even at highs for the year (look at HDV for an
example, or even at MCD). Thus, there are pockets of cheer other
than in the pure safe zones like the U.S. dollar and treasury bonds.
Of course, the big news this week was the fall from grace of precious
metals - a 10%+ purge that caused some to declare the years-long
bull market in these assets to be done, kaput, fini. Maybe gold
isn't such a "safe haven" after all? Driving that fall
was a breakout move in the U.S. dollar, presumed to reflect heightened
fears over Europe's banks - fed in part by bank giant Crédit Agricole's
announcement of a serious retrenchment in activity (e.g. pulling
out of numerous countries and dramatically cutting back participation
in global financing arenas). The metals most precious weren't the
only victims. Crude oil took a 5% hit Wednesday along with other
industrial metals, typically a sign of global slowdown. The crowd
worrying about a global recession thus had their forecasts further
validated by market action this week. The benchmark Shanghai stock
index violating what little support it had found and swooning for
the sixth straight week.
Technically, the 200-day moving average looks to have stopped the
S&P 500s rally in its tracks. A barometer of market breadth
- percent of stocks above the 200-day reference line - fell below
a key bull-bear dividing line. Accumulation-distribution indicators
have been trending down for a month now. And it all looks so much
like a market that is ready to resume the next phase of its downtrend.
We reviewed sentiment indicators for signs that participants are
heavily bearish, maybe suggesting an excessive level of fear. None
was found - the sentiment readings being neutral.
Chart 1 below offers an interesting point about high yield bond
mutual funds. They often lag by one week the drop in stocks. Thus,
this next week will see if they confirm this week's decline in stocks.
To read the chart: the green line is the high yield bond fund, the
red line is the S&P 500. The dotted lines are the point of breakdown
for stocks. The circles highlight the breakdown point and the lag
in the high yield funds - the green line rolls over one week after
the red line three out of four times. The box surrounds the current
situation - stocks appear to be rolling over again; high yield has
not yet followed. Will they?
Chart 1 - Roll over in high yield lags stocks by one week?
We obviously have no idea what happens next. Dazed by the wild volatility
of the past few months delivering a market going nowhere, trend-followers
have a severe headache. Glassy-eyed by the nonstop inability of
politicians on two continents to accomplish anything productive.
Concerned that a recession in Europe is begetting a sharp slowdown
in China and could derail what little rays of economic sunshine
our domestic economy has offered in recent weeks. And confused that
some market sectors look rather unperturbed by the whole scene.
Just as our signals offer an intermediate term Sell signal (from
Classic) which meshes with the ongoing bear market alongside a shorter-term
Buy signal from Turbo, we wouldn't bet heavily either way right
now. As they say here in Texas, this market is fixin' to get ready
to break one way or the other. Given the chop-chop of the past few
months, we anticipate that break could be heavy when it comes. After
months of frustration, will the bulls finally be able to power through
to higher ground? Or will the market confirm the technician's bear
market pawprints? 2012 will certainly bring a different look (oh,
and there's that little election thing also).
Question: How do I find detailed trade results?
We do our best to provide all the information our subscribers would
need to understand how our Models perform. Some subscribers like to
manipulate the data, create metrics and ratios, and see how the Models
have performed during various types of markets. To find the trade
history, go to the "Results" tab at the top of the website - there is
one each for the Classic and Turbo Models. Scroll down to near the
very bottom of the page to a section called "Signal Returns". There
you will see a "Download File" button. Click that button and you will
be asked to download an Excel file. This file will contain trade-by-trade
detail for you to play with, analyse, and learn the ins and outs of
our Model results. As always, if your perusal of this data leads to
some questions, drop a note to us at support@timingcube.com and we
will try our best to give you an answer that enlightens.
Warm wishes and until next week.
The TimingCube
Staff
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Classic Model
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