20% long, 80% cash
Global allocation of long positions
MSCI EAFE Index 20%
MCCI Emerging Markets Index 30%
Russell 3000 Index - U.S. 50%
Top U.S. Sectors
U.S. Biotechnology 3.0
U.S. Health Care 3.0
U.S. Telecommunications 3.0
U.S. Semiconductor 3.0
Precious Metals 2.5
U.S. Oil Equipment, Services & Distribution 2.5
U.S. Consumer Goods 2.0
U.S. Pharmaceuticals 2.0
Composite Internet 2.0
U.S. Oil & Gas 2.0
Top Intl. ETFs
MSCI Malaysia Index Fund 2
Strategy 3
Money Market 50%
U.S. Long Bonds 50%
Strategy 4
U.S. Long Bonds 25%
Agriculture 25%
Precious Metals 25%
U.S. Small Caps 25%
Pessimism continues to tilt my timing model towards more long exposure. I'm only 20% long right now, but this could change quickly depending on what happens this week. Also, Emerging Markets have made huge relative strength gains in my models recently. Of my long positions, 30% will be allocated to Emerging.
Technically, we're seeing signs of a classic bottom - see chart below. The positive momentum divergence illustrated here is one of the few useful technical indicators in forecasting bottoms. When downward momentum wanes as the market reaches lows for the cycle, AND sentiment is signaling extreme pessimism, bottoms usually form. Obviously it makes sense to wait until you see signs that a reversal is underway. Use whatever trigger you'd like, but it makes sense to keep tight stops in place in case you're wrong.
2 comments:
Tom,
Have you ever seen such discrepancy between relative strength charts and an underlying equity chart? Here's one:
http://stockcharts.com/h-sc/ui?s=KRE:$bkx&p=W&yr=3&mn=0&dy=0&id=p77136387688.
One would think that regional banks etf is on fire; but when looked at, alone, not very impressive. Is this just an emphasis that the central banks are well into a death spiral, or is it worth also considering that some regional banks are going to lead a recovery?
Your mention of emerging mkts climbing in rank is another example, though not as dramatic as regional banks vs the larger banking index./jasper
I'm not familiar with the differences in holdings between KBW and the Phila bank index, but I assume the later is composed of heavier weightings towards the rotten eggs.
Fundamentally I have no idea how banks stocks will shake out. You would think the regionals would perform better on a relative strength basis, but as the government assumes more of a ownership role in the big banks, the regionals will find themselves competing with Uncle Sam.
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