Week of 7-19-2008

Timing Model = 0.5
60% long, 40% cash

Global allocation of long positions
MSCI EAFE Index 30%
MCCI Emerging Markets Index 20%
Russell 3000 Index - U.S. 50%

Top U.S. Sectors
U.S. Biotechnology 4.5
U.S. Oil Equipment, Services & Distribution 4.0
Precious Metals 3.5
U.S. Oil & Gas 3.0
U.S. Health Care 2.5
Small Cap Growth 2.5
U.S. Leisure Goods 2.0

Top Intl. ETFs
MSCI Canada Index Fund 2
S&P Latin America 40 Index Fund 2
MSCI Brazil Index Fund 2
MSCI Mexico Index Fund 1
FTSE/Xinhua China 25 Index Fund 1

Strategy 3
Money Market 33.3%
Agriculture 33.3%
Precious Metals 33.3%
U.S. Long Bonds 0.0%
Energy 0.0%Industrial Materials 0.0%
Emerging Markets 0.0%
U.S. REITs 0.0%
U.S. Small Cap 0.0%
U.S. Large Cap 0.0%
Intl Real Estate 0.0%
EAFE 0.0%

Week of 7-12-2008

Timing Model = -0.5
40% long, 60% cash

Global allocation of long positions
MSCI EAFE Index 30%
MCCI Emerging Markets Index 20%
Russell 3000 Index - U.S. 50%

Top U.S. Sectors
U.S. Biotechnology 5.0
U.S. Oil Equipment, Services & Distribution 5.0
U.S. Oil & Gas 4.0
U.S. Health Care 3.0
Precious Metals 3.0
U.S. Basic Materials 2.5

Top Intl. ETFs
MSCI Canada Index Fund 3
S&P Latin America 40 Index Fund 2
MSCI Brazil Index Fund 2

Strategy 3
U.S. Long Bonds 20.0%
Money Market 20.0%
Agriculture 20.0%
Energy 20.0%
Precious Metals 20.0%
Industrial Materials 0.0%
Emerging Markets 0.0%
U.S. REITs 0.0%
U.S. Small Cap 0.0%
U.S. Large Cap 0.0%
Intl Real Estate 0.0%
EAFE 0.0%

My timing model continues to suggest increasing less risk in equities - now at 40% long, 60% cash. I don't see a lot of sector rotation lately. Biotech is on a tear and Healthcare has been stuck in a 6% range for the past 4 months, but energy, precious metals, and basic materials are still momentum leaders.

Oscillator funfest

If you're a counter-trend trader, you're probably scanning for a long set-up somewhere in equities. The S&P 500 chart above shows three popular oscillators and illustrates the aftermath of oversold conditions during the past three years. As you can see, buying at oversold junctures during the bull market was a profitable tactic. As we moved into the '07-'08 bear market, gains were usually short-lived. Even so, an oversold condition that is reversing usually signals risk is minimal, at least for the short term.

All three oscillators are currently locked and loaded for buy signals.

Week of 7-06-2008

Timing Model = -1.0
30% long, 70% cash

Global allocation of long positions
MSCI EAFE Index 30%
MCCI Emerging Markets Index 20%
Russell 3000 Index - U.S. 50%

Top U.S. Sectors
U.S. Biotechnology 5.5
U.S. Oil Equipment, Services & Distribution 5.0
U.S. Oil & Gas 4.0
U.S. Health Care 3.5
U.S. Utilities 3.0
Precious Metals 3.0
U.S. Technology 2.5
U.S. Consumer Services 2.0

Top Intl. ETFs
MSCI Canada Index Fund 3
S&P Latin America 40 Index Fund 2
MSCI Brazil Index Fund 2
MSCI Mexico Index Fund 1

Strategy 3
U.S. Long Bonds 20.0%
Money Market 20.0%
Agriculture 20.0%
Energy 20.0%
Precious Metals 20.0%
Industrial Materials 0.0%
Emerging Markets 0.0%
U.S. REITs 0.0%
U.S. Small Cap 0.0%
U.S. Large Cap 0.0%
Intl Real Estate 0.0%
EAFE 0.0%

Week of 6-29-2008

Timing Model = -1.5
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 5.5
U.S. Oil Equipment, Services & Distribution 5.0
U.S. Oil & Gas 3.5
Precious Metals 3.0
U.S. Utilities 3.0
Small Cap Growth 2.0
U.S. Basic Materials 2.0
U.S. Health Care 2.0

Top Intl. ETFs
S&P Latin America 40 Index Fund 3
MSCI Canada Index Fund 3
MSCI Brazil Index Fund 3
MSCI Emerging Markets Index Fund 1

Strategy 3
U.S. Long Bonds 16.7%
Money Market 16.7%
Agriculture 16.7%
Industrial Materials 16.7%
Energy 16.7%
Precious Metals 16.7%
Emerging Markets 0.0%
U.S. REITs 0.0%
U.S. Small Cap 0.0%
U.S. Large Cap 0.0%
Intl Real Estate 0.0%
EAFE 0.0%

A patient model

My gut reaction to periods like this is usually a lot more bullish than my model suggest. We're six weeks into steadily falling prices and sentiment is growing more pessimistic every day. but my model is patient.

By design, my model's sentiment indicators gradually counter trend indicators at market bottoms. A pure trend-following system would always be wrong at tops and bottoms, only to suggest shifts in long/short positions after prices have made significant moves.

As you can see in the screenshot of my model, all four trend indicators are currently at a -1. The sentiment indicators are only slightly bullish, most at a +.5. I score each sentiment indicator slightly different, but the basic principle is:

• If sentiment is exhibiting excessive pessimism but falling, score it mildly bullish
  
• If sentiment is at historical extremes, score it bullish


• If sentiment is excessively pessimistic, but has reversed, begining to show greater optimism, score it as extremely bullish

In my model, trend and sentiment counterbalance each other - yin yang if you will. Usually the sentiment indicators only start to exert bullish weight when the market is growing closer to a market top or bottom. If sentiment reverses, their weighting increases dramatically.

Note the week ending 3/28, where the sentiment indicators went into hyperdrive, overpowering the unanimously bearish trend indicators to push the model to a 70% equity allocation. If you recall that period, most pundits were waiting for the other shoe to drop. Models that include a strong sentiment components can very often get your long/cash allocation right at important turning points.

Below is a chart of my timing model's equity allocation for 2008 vs. the S&P 500.

Week of 6-21-2008

Timing Model = -1.5
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. Oil Equipment, Services & Distribution 5.0
U.S. Oil & Gas 4.0
U.S. Biotechnology 3.5
U.S. Basic Materials 3.0
Precious Metals 2.5
Mid Cap Growth 2.5
Small Cap Growth 2.5
U.S. Utilities 2.0

Top Intl. ETFs
S&P Latin America 40 Index Fund 3
MSCI Canada Index Fund 3
MSCI Brazil Index Fund 3
MSCI Emerging Markets Index Fund 1
FTSE/Xinhua China 25 Index Fund 1
MSCI Hong Kong Index Fund 1
MSCI Mexico Index Fund 1
MSCI Austria Index Fund 1

Strategy 3
Money Market 20.0%
Agriculture 20.0%
Industrial Materials 20.0%
Energy 20.0%
Precious Metals 20.0%
Emerging Markets 0.0%
U.S. REITs 0.0%
U.S. Small Cap 0.0%
U.S. Long Bonds 0.0%
U.S. Large Cap 0.0%
Intl Real Estate 0.0%
EAFE 0.0%

The sentiment models continue to cycle down ever closer to levels of extreme pessimism. If we don't see a good pop to the upside this week, we should see the all 4 sentment models adding points to my timing model by next week.

Week of 6-15-2008

Timing Model = -2.0

10% long, 90% 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. Oil Equipment, Services & Distribution 4.5

U.S. Oil & Gas 3.5

Precious Metals 3.5

U.S. Basic Materials 2.5

U.S. Biotechnology 2.0

U.S. Utilities 1.5

U.S. Health Care 1.5

Top Intl. ETFs

S&P Latin America 40 Index Fund 2

MSCI Canada Index Fund 2

MSCI Brazil Index Fund 1

MSCI Emerging Markets Index Fund 1

FTSE/Xinhua China 25 Index Fund 1

MSCI Hong Kong Index Fund 1

MSCI Taiwan Index Fund 1

MSCI Mexico Index Fund 1

Strategy 3

Money Market 25.0%

Agriculture 25.0%

Industrial Materials 25.0%

Energy 25.0%

Emerging Markets 0.0%

Precious Metals 0.0%

U.S. REITs 0.0%

U.S. Small Cap 0.0%

U.S. Long Bonds 0.0%

U.S. Large Cap 0.0%

Intl Real Estate 0.0%

EAFE 0.0%

Sentiment is neutral but getting to closer to signaling mild over-pessimism. The intermediate term trend is still a bit mixed as the Value Line Composite struggles to keep above its 75 day moving average. Strategy 3 allocations reflect the asset classes everyone has been discussing for many months now: Energy, Industrial Materials, and Agricultural commodities.

Where will the S&P 500 be 12 months from now?

Take the poll in the side bar --->

Week of 6-8-2008

Timing Model = -1.0
30% long, 70% cash

Global allocation of long positions
MSCI EAFE Index 30%
MCCI Emerging Markets Index 30%
Russell 3000 Index - U.S. 40%

Top U.S. Sectors
U.S. Oil Equipment, Services & Distribution 4.5
U.S. Oil & Gas 2.5
U.S. Basic Materials 2.5
Precious Metals 2.5
U.S. Biotechnology 1.5
U.S. Health Care 1.5

Top Intl. ETFs
MSCI Brazil Index Fund 3
S&P Latin America 40 Index Fund 2
MSCI Canada Index Fund 2
MSCI Austria Index Fund 1
MSCI Emerging Markets Index Fund 1
FTSE/Xinhua China 25 Index Fund 1
MSCI Hong Kong Index Fund 1

Strategy 3
Money Market 16.7%
Agriculture 16.7%
Industrial Materials 16.7%
Energy 16.7%
Emerging Markets 16.7%
Precious Metals 16.7%
U.S. REITs 0.0%
U.S. Small Cap 0.0%
U.S. Long Bonds 0.0%
U.S. Large Cap 0.0%
Intl Real Estate 0.0%
EAFE 0.0%

When trend following gets hard

The S&P 500 intermediate term trend has gotten a bit muddy lately. We're still below the 200 day moving average, but the index hasn't been significantly below it's 50 day ma since mid April. The S&P500 also hasn't seen a new high for almost three weeks.

Both moving averages are on a path to intersect sometime in early July.

Basically, the big trend is down (last summer to present), the intermediate trend is up (mid March to present), and the short term trend is down (mid May to present). The question is; is the intermediate trend changing, or has the recent pull back only a pause in the uptrend?

Week of 6-1-2008

Timing Model = -0.5
40% long, 60% cash

Global allocation of long positions
MSCI EAFE Index 30%
MCCI Emerging Markets Index 30%
Russell 3000 Index - U.S. 40%

Top U.S. Sectors
Mid Cap Growth 3.5
U.S. Oil Equipment, Services & Distribution 3.5
Precious Metals 2.5
U.S. Oil & Gas 2.5
U.S. Biotechnology 2.0
U.S. Semiconductor 2.0
U.S. Technology 2.0
U.S. Basic Materials 1.5

Top Intl. ETFs
S&P Latin America 40 Index Fund 3
MSCI Brazil Index Fund 3
MSCI Canada Index Fund 2
MSCI Austria Index Fund 1
MSCI Emerging Markets Index Fund 1
MSCI Taiwan Index Fund 1
FTSE/Xinhua China 25 Index Fund 1
MSCI Mexico Index Fund 1
MSCI Hong Kong Index Fund 1

Strategy 3
Money Market 11.1%
Agriculture 11.1%
Industrial Materials 11.1%
Energy 11.1%
Emerging Markets 11.1%
EAFE 11.1%
Precious Metals 11.1%
U.S. REITs 11.1%
U.S. Small Cap 11.1%
U.S. Long Bonds 0.0%
U.S. Large Cap 0.0%
Intl Real Estate 0.0%

Week of 5-25-2008

Timing Model = -1.5
20% long, 80% cash

Global allocation of long positions
MSCI EAFE Index 30%
MCCI Emerging Markets Index 30%
Russell 3000 Index - U.S. 40%

Top U.S. Sectors
U.S. Oil Equipment, Services & Distribution 5.0
U.S. Oil & Gas 3.5
U.S. Biotechnology 3.0
U.S. Semiconductor 2.5
U.S. Technology 2.5
Precious Metals 2.5

Top Intl. ETFs
S&P Latin America 40 Index Fund 3
MSCI Brazil Index Fund 3
MSCI Canada Index Fund 3
MSCI Austria Index Fund 2
MSCI Emerging Markets Index Fund 2

Strategy 3
Money Market 12.5%
Agriculture 12.5%
U.S. Long Bonds 12.5%
Industrial Materials 12.5%
Energy 12.5%
Emerging Markets 12.5%
EAFE 12.5%
Precious Metals 12.5%
U.S. REITs 0.0%
U.S. Large Cap 0.0%
U.S. Small Cap 0.0%
Intl Real Estate 0.0%

I Like U.S. T-Bonds

I Like U.S. T-Bonds...as a short/intermediate term trade. There's excessive levels of pessimism towards U.S. long bonds right now, even though they've been able to maintain their current uptrend. I'm taking a small position in GVPIX tomorrow.

Week of 5-18-2008

Timing Model = .5
60% long, 40% cash

Global allocation of long positions
MSCI EAFE Index 30%
MCCI Emerging Markets Index 30%
Russell 3000 Index - U.S. 40%

Top U.S. Sectors
U.S. Oil Equipment, Services & Distribution 5.0
U.S. Oil & Gas 4.0
Precious Metals 2.5
U.S. Semiconductor 2.0
U.S. Leisure Goods 2.0
Mid Cap Growth 2.0
U.S. Real Estate 2.0

Top Intl. ETFs
S&P Latin America 40 Index Fund 3
MSCI Brazil Index Fund 3
MSCI Taiwan Index Fund 3
MSCI Canada Index Fund 2
MSCI Austria Index Fund 2
FTSE/Xinhua China 25 Index Fund 1
MSCI Emerging Markets Index Fund 1
MSCI Sweden Index Fund 1
MSCI Mexico Index Fund 1
MSCI South Africa Index Fund 1
MSCI Hong Kong Index Fund 1

Strategy 3
Money Market 11.1%
Agriculture 11.1%
U.S. Long Bonds 11.1%
Industrial Materials 11.1%
Energy 11.1%
Emerging Markets 11.1%
U.S. REITs 11.1%
EAFE 11.1%
Precious Metals 11.1%
U.S. Large Cap 0.0%
U.S. Small Cap 0.0%
Intl Real Estate 0.0%

High Times

Simple question: Do commodities take a break until we can adjust to the altitude? The pace has been relentless since 2002.

I think I see the fat lady coming

My Tactical Asset Allocation portfolio is only 50% long right now, but I'm taking a speculative position in UCPIX today because of the mounting negatives. I'm going to use a pretty tight mental exit - the S&P 500 200 day moving average. Granted, if this much followed moving average is breached we're likely to see good follow through, but I'm up to the challenge.

The market negatives are:

• short term NASDAQ sentiment is OB
• intermediate term sentiment is becoming excessively over optimistic
• OB MACD during a presumed bear market
• NYSE relative volume has been low for the past several weeks
• option expiration week seasonality bias towards short term losses
• we're at the beginning of "sell in May" seasonality
• anything else?

Week of 5-11-2008

Timing Model = 0
50% long, 50% cash

Global allocation of long positions
MSCI EAFE Index 30%
MCCI Emerging Markets Index 30%
Russell 3000 Index - U.S. 40%

Top U.S. Sectors
U.S. Oil Equipment, Services & Distribution 5.0
U.S. Oil & Gas 4.5
U.S. Biotechnology 3.5
U.S. Basic Materials 2.5
Precious Metals 2.5

Top Intl. ETFs
S&P Latin America 40 Index Fund 3
MSCI Brazil Index Fund 3
MSCI Taiwan Index Fund 1
FTSE/Xinhua China 25 Index Fund 1
MSCI Canada Index Fund 1
MSCI Emerging Markets Index Fund 1
MSCI Sweden Index Fund 1
MSCI Spain Index Fund 1
MSCI Singapore Index Fund 1
MSCI Austria Index Fund 1
MSCI Mexico Index Fund 1
MSCI Belgium Index Fund 1
MSCI South Africa Index Fund 1
MSCI Netherlands Index Fund 1
MSCI France Index Fund 1

Strategy 3
Money Market 16.7%
Agriculture 16.7%
U.S. Long Bonds 16.7%
Industrial Materials 16.7%
Energy 16.7%
Emerging Markets 16.7%
U.S. REITs 0.0%
EAFE 0.0%
Precious Metals 0.0%
U.S. Large Cap 0.0%
U.S. Small Cap 0.0%
Intl Real Estate 0.0%

Volume

Isn't the 10 day moving average 18.06% below the 200 day moving average or are my math skills totally in the toilet? I put in pink and green bands to correspond roughly to what Goefert used as break points. I don't have on this chart is the slope of the S&P 500, but I believe it's 200 day ma started to decend beginning in mid January.

Week of 5-4-2008

Timing Model = .5
60% long, 40% cash

Global allocation of long positions
MSCI EAFE Index 30%
MCCI Emerging Markets Index 30%
Russell 3000 Index - U.S. 40%

Top U.S. Sectors
U.S. Oil Equipment, Services & Distribution 5.0
U.S. Oil & Gas 4.5
Precious Metals 4.0
U.S. Basic Materials 3.0
U.S. Biotechnology 2.5
U.S. Leisure Goods 2.0
Mid Cap Growth 2.0
U.S. Health Care 2.0

Top Intl. ETFs
S&P Latin America 40 Index Fund 3
MSCI Brazil Index Fund 3
MSCI Taiwan Index Fund 2
FTSE/Xinhua China 25 Index Fund 2
MSCI Canada Index Fund 1
MSCI Emerging Markets Index Fund 1
MSCI Sweden Index Fund 1
MSCI Spain Index Fund 1
MSCI Hong Kong Index Fund 1
MSCI South Korea Index Fund 1
MSCI Singapore Index Fund 1
MSCI Austria Index Fund 1

Strategy 3
Money Market 12.5%
Agriculture 12.5%
U.S. Long Bonds 12.5%
Industrial Materials 12.5%
Energy 12.5%
Emerging Markets 12.5%
U.S. REITs 12.5%
EAFE 12.5%
Precious Metals 0.0%
U.S. Large Cap 0.0%
U.S. Small Cap 0.0%
Intl Real Estate 0.0%