Week of 8-30-2009

Timing Model = 0.5

60% long, 40% cash

Global allocation of long positions

MSCI EAFE Index 30%

MCCI Emerging Markets Index 40%

Russell 3000 Index - U.S. 30%

Top U.S. Sectors

Composite Internet 2.0

Precious Metals 2.0

U.S. Banks 1.5

U.S. Real Estate 1.5

U.S. Financials 1.0

U.S. Technology 1.0

U.S. Biotechnology 1.0

U.S. Basic Materials 1.0

U.S. Pharmaceuticals 1.0

Top Intl. ETFs

MSCI South Korea Index Fund 3

MSCI Pacific ex-Japan Index Fund 3

MSCI Spain Index Fund 2

MSCI Sweden Index Fund 2

MSCI Australia Index Fund 2

MSCI Austria Index Fund 2

MSCI All Country Asia ex Japan Index Fundb2

MSCI South Africa Index Fund 2

Strategy 3

Money Markets 9%

Emerging Markets 9%

Precious Metals 9%

Industrial Materials 9%

EAFE 9%

U.S. Large Cap 9%

International Real Estate 9%

U.S. REITs 9%

U.S. Small Caps 9%

Energy 9%

Agriculture 9%

Strategy 4

Money Markets 20%

International Real Estate 20%

Industrial Materials 20%

Precious Metals 20%

Emerging Markets 20%

Not much change in my models from last week. The trend is up, sentiment is overly optimistic, and there's not much to mention on sector rotation. This is as defensive as I get when the trend is solidly up as it currently is.

Any bad news could be a catalyst for a sell off, but I wouldn't make any big bets against this market.

Week of 8-23-2009

Timing Model = 0.5

60% long, 40% cash

Global allocation of long positions

MSCI EAFE Index 30%

MCCI Emerging Markets Index 40%

Russell 3000 Index - U.S. 30%

Top U.S. Sectors

Precious Metals 2.5

U.S. Basic Materials 2.0

U.S. Oil Equipment, Services & Distribution 2.0

U.S. Banks 1.5

U.S. Real Estate 1.5

U.S. Biotechnology 1.5

Top Intl. ETFs

MSCI Spain Index Fund 3

MSCI Sweden Index Fund 2

MSCI Australia Index Fund 2

MSCI Austria Index Fund 2

FTSE/Xinhua China 25 Index Fund 2

MSCI All Country Asia ex Japan Index Fund 2

MSCI South Korea Index Fund 2

MSCI Emerging Markets Index Fund 2

Strategy 3

Money Markets 9%

Emerging Markets 9%

Precious Metals 9%

Industrial Materials 9%

EAFE 9%

U.S. Large Cap 9%

International Real Estate 9%

U.S. REITs 9%

U.S. Small Caps 9%

Energy 9%

Agriculture 9%

Strategy 4

Money Markets 20%

International Real Estate 20%

Industrial Materials 20%

Precious Metals 20%

EAFE 20%

Sentiment once again led to a timing model downtick, this time to .5, signaling 60% long. We're also seeing EAFE/Emerging Markets momentum reversal, which could be signaling a flight to safer equities.

This market looks so ripe for fall right now. The trend is undoubtably up, but sentiment and momentum indicators are not only stretched, but retreating from their highest levels this cycle. That behavior normally signals a swift downturn in prices.

We'll, I guess we'll see what happens. I'm going to following my timing model.

Week of 8-16-2009

Timing Model = 1.0

70% long, 30% cash

Global allocation of long positions

MSCI EAFE Index 30%

MCCI Emerging Markets Index 40%

Russell 3000 Index - U.S. 30%

Top U.S. Sectors

Precious Metals 2.5

U.S. Real Estate 2.0

U.S. Basic Materials 1.5

U.S. Technology 1.5

U.S. Banks 1.5

Composite Internet 1.5

Top Intl. ETFs

MSCI Spain Index Fund 3

MSCI Pacific ex-Japan Index Fund 3

MSCI Sweden Index Fund 3

MSCI Australia Index Fund 2

FTSE EPRA/NAREIT Asia Index Fund 2

MSCI Austria Index Fund 2

MSCI Mexico Index Fund 2

FTSE/Xinhua China 25 Index Fund 2

MSCI Hong Kong Index Fund 2

MSCI All Country Asia ex Japan Index Fund 2

FTSE China (HK Listed) Index Fund 2

Strategy 3

Money Markets 9%

Emerging Markets 9%

Precious Metals 9%

Industrial Materials 9%

EAFE 9%

U.S. Large Cap 9%

International Real Estate 9%

U.S. REITs 9%

U.S. Small Caps 9%

Energy 9%

Agriculture 9%

Strategy 4

Money Markets 20%

Emerging Markets 20%

Precious Metals 20%

Industrial Materials 20%

International Real Estate 20%

My timing model lost a full point this week and is now signaling 70% exposure to equities. Stock prices appear to be rolling over, but the market is a good distance from signaling a trend change in my model. I'm not convince we're going to see a huge sell off, but I also believe prices are stretched and upside potential is limited.

Emerging is losing relative strength vs. EAFE and U.S. stocks, but is still the leader. Real Estate and Banks are sector and asset class leaders over the intermediate term, but I'm not sure how long that's going to last.

Week of 8-9-2009

Timing Model = 2.0

90% long, 10% cash

Global allocation of long positions

MSCI EAFE Index 30%

MCCI Emerging Markets Index 45%

Russell 3000 Index - U.S. 25%

Top U.S. Sectors

U.S. Real Estate 3.0

U.S. Basic Materials 2.0

Precious Metals PMPIX 2.0

U.S. Oil Equipment, Services & Distribution 2.0

U.S. Banks 1.5

U.S. Financials 1.5

Top Intl. ETFs

MSCI Singapore Index Fund 2

MSCI Australia Index Fund 2

MSCI Brazil Index Fund 2

S&P Latin America 40 Index Fund 2

MSCI Spain Index Fund 2

FTSE/Xinhua China 25 Index Fund 2

MSCI Hong Kong Index Fund 2

MSCI All Country Asia ex Japan Index Fund 2

Strategy 3

Money Markets 9%

Emerging Markets 9%

Precious Metals 9%

Industrial Materials 9%

EAFE 9%

U.S. Large Cap 9%

International Real Estate 9%

U.S. REITs 9%

U.S. Small Caps 9%

Energy 9%

Agriculture 9%

Strategy 4

Money Markets 20%

Emerging Markets 20%

Precious Metals 20%

Industrial Materials 20%

U.S. REITs 20%

Sentiment has put enough pressure on my timing model to move it down a tick to +2.0, signaling 90% long. The technology sectors have fallen completely out of my top rankings and the latest momentum in Real Estate and Financials have made them leaders. Surprisingly Precious Metals are still a top ranked sector and asset class.

The equity markets still look ripe for a correction. The chart below illustrates a multi-month momentum divergence, and as I noted in an earlier post, divergences like this have a pretty good track record of forecasting market weakness. The next few weeks should be interesting.

Week of 8-2-2009

Timing Model = 2.5

100% long, 0% cash

Global allocation of long positions

MSCI EAFE Index 25%

MCCI Emerging Markets Index 50%

Russell 3000 Index - U.S. 25%

Top U.S. Sectors

Composite Internet 3.0

U.S. Semiconductor 2.5

U.S. Basic Materials 2.5

U.S. Real Estate 2.0

U.S. Technology 1.5

U.S. Banks 1.5

Precious Metals 1.5

Top Intl. ETFs

MSCI Turkey Invest Mkt Index 3

MSCI Thailand Invest Mkt Index 3

MSCI Hong Kong Index Fund 3

MSCI Singapore Index Fund 3

MSCI Brazil Index Fund 2

MSCI Austria Index Fund 2

iShares MSCI Chile Investable Mkt Idx 2

MSCI South Africa Index Fund 2

MSCI Taiwan Index Fund 2

MSCI Sweden Index Fund 2

MSCI South Korea Index Fund 2

Strategy 3

Money Markets 9%

Emerging Markets 9%

Precious Metals 9%

Industrial Materials 9%

EAFE 9%

U.S. Large Cap 9%

International Real Estate 9%

U.S. REITs 9%

U.S. Small Caps 9%

Energy 9%

Agriculture 9%

Strategy 4

Money Markets 20%

Emerging Markets 20%

Precious Metals 20%

Industrial Materials 20%

EAFE 20%

My timing model fell from 3.5 to 2.5 this week due to increasing levels of over optimism. Sentiment change still wasn't enough to reduce equity exposure, so I'm still 100% long.

The hedge(s) I mentioned on a previous post are still in place, barely missed hitting their stops on Friday. I still believe the market will see lower prices over the coming weeks, but I'll be sticking to my model.

The technology sectors still lead domestically, while emerging markets dominate globally. There's a lot of frothiness in this market, but that isn't to say we can't mover higher. I just think the odds are in favor of taking a breather.