Saturday, May 24, 2014

05/24/2014 Defensive is not short


Style Model
Large Value
Sector Model
XLU
-2.50%
Large Portfolio
Date
Return
Days
ABX
4/11/2013
-31.20%
408
NEM
9/30/2013
-15.13%
236
BX
4/14/2014
4.56%
40
TIVO
4/23/2014
0.99%
31
SHOO
4/28/2014
-8.38%
26
UNF
5/2/2014
3.54%
22
CERN
5/8/2014
7.33%
16
PWR
5/12/2014
-1.04%
12
JRN
5/19/2014
0.99%
5
BT
5/21/2014
0.66%
3
(Since 5/31/2011)
S&P
Annualized
12.29%
Sector Model
Annualized
25.62%
Large Portfolio
Annualized
25.48%

 

Rotation: selling CERN; buying PM.

The models remain defensive:

Large Value
Small Value
Mid Value
Mid Blend
Small Growth
Small Blend
Large Growth
Large Blend
Mid Growth
Utilities
1
2
3
4
7
18
20
28
68
Finance
5
8
9
12
14
33
36
47
74
Staples
6
10
11
13
16
40
43
50
75
Materials
15
19
21
25
31
54
56
59
76
Industrial
17
23
24
30
34
57
58
62
77
Healthcare
22
29
32
38
44
60
61
67
78
Technology
26
35
41
45
51
63
65
70
79
Cyclicals
27
37
42
46
52
64
66
71
80
Energy
39
48
49
53
55
69
72
73
81

 

And that has only strengthened in spite of the relatively poor performance this past week in the Sector Model:



 

Keep in mind that the models measure price against breadth and volume.  If price falls relative to breadth and volume, it only strengthens the signal.  These are not momentum based models, but mean-reversion models.  They target beaten down stocks, rather than surf on the popular ones.

PM, for instance, is resting 2 standard deviations below the trend it has established from the beginning of 2009.  The company is planning to buy back some stock, it has good cash flow, and it is paying a reasonable dividend of 4.34%. Although it is not scheduled to sky-rocket this year, it shouldn’t plummet either.  And with the defensive nature of the internal market structure, that’s exactly the type of stock we should look for.

In spite of the fact that the market indexes have been rising to all-time highs, small growth stocks are getting hammered: http://scharts.co/1miGBFb



Tom Dorsey might call this kind of event a “Stealth Correction.”

The bullish percent index on Stockcharts is showing mild caution, since it has fallen below 70%: http://scharts.co/1miHLkc



 

These are cautionary indicators, and explain some of the bearishness we see in the news lately.

Does that mean the market will go down?

If it does, I doubt it will by much.  Remember, QE is still in play.  The taper is not a reversal.  The Fed hasn’t hit the brakes yet; it has merely pulled back on the accelerator.  People who short the market are still in more “danger” than folks who just hold forever.

At some point we’ll have a full blown correction, but trying to time that point during QE has made a lot of people poorer.

Best just to look for large value stocks in defensive sectors and ride out whatever comes.

And that’s exactly what I plan to do.

Tim

 

2 comments:

  1. Wow, TIBX (+7.6% today)... rumored acquisition offer by SAP (model not likely clued in on that possibility).

    ReplyDelete
  2. No -- and it missed the CSCO bounce the other day as well. I've redesigned the model and have been migrating positions over to the new design (which has caused me to miss some bounces from a previous setup). Oh well.

    ReplyDelete