6/28/2015 What to do when you're wrong

Sector Model	XLE	-5.93%
Full Model	Date	Return	Days
PWR	3/9/2015	4.84%	111
CBI	4/2/2015	10.09%	87
MTZ	4/9/2015	6.52%	80
NE	5/7/2015	-12.41%	52
DRQ	5/15/2015	0.22%	44
RES	5/19/2015	-4.42%	40
SPN	5/28/2015	-9.45%	31
ARLP	6/10/2015	-13.58%	18
PKX	6/17/2015	0.94%	11
NOV	6/23/2015	0.51%	5
(Since 5/31/2011)
S&P	Annualized	11.57%
Sector Model	Annualized	18.51%
Full Model	Annualized	18.11%
S&P	Total	56.23%
Sector Model	Total	99.85%
Full Model	Total	97.11%
Sector Model	Advantage	6.95%
Full Model	Advantage	6.55%
	Previous	2015
S&P	53.06%	2.07%
Sector Model	122.60%	-10.22%
Full Model	101.13%	-2.00%

 

Both models had a hard week, with the market continuing to skate along on fumes.

Sector configuration continues to resemble a market top:

 

As I mentioned before, since my models look ahead, a market top is NOT a time to jump and run, but a time to look for some euphoria.

I could use some euphoria right now.

The short and long view of the Sector Model show the current angst in perspective.  First the short view:

 

And now the long (15 year) view:

 

The important point of comparison is the trend lines.  In the short view we are substantially below the trend line, and in the long view we are slightly above.

Although it feels abnormal at the moment, it would be entirely normal for us to fall a bit more and break the long term trend that hasn’t been touched since 2013.

What’s important to keep in mind is that no year will be exactly average. Some years will be above and some below. The key is to know what your long term strategy is and how you are performing against it.

Define your strategy ahead of time. Measure it. Keep it in mind. And you won’t get caught up in the euphoria or the panic. You will inevitably face both.

Tim