10/29/2018 Sector Trade

The Sector Model sold XLE and bought XLI with a slightly positive gap (i.e. XLI down slightly more than XLE).

10/29/2018 Trade Notice

The Full Model sold AMED and bought CL with a 3% favorable gap (i.e. AMED was up over 3% and CL was down slightly).

10/25/2018 A Fake Economy Can Still Lift Stocks

The action in the market is showing up with conflicting takes between the Sector Model and the Full Model.

The Sector Model has been painfully suffering in XLE after going nowhere in XLP.  It is now negative for the year, as is the Full Model.

But XLE is one of those odd sectors.  It’s indicative of a long term market top, with increasing volatility, but at the same time a market top can go on for quite a while.  Market timers would be looking for the exits just in time for a market surge.

The Full Model, however, shows a more complex story.  Here are the best industries:

CHEMICAL

COSMETIC

EDUC

ENTTECH

FURNITUR

HEAVYTRK

HOMEBILD

HOUSEPRD

INSLIFE

INSTRMNT

TRUCKING

Insurance and Education are things people need.

Cosmetics and Entertainment tech are things people want.

But for me the combinations of Furniture, Homebuild, Household Products, Trucking, and Heavy Trucking show an economy that still has legs.

Granted, the rising deficit shows that this economy is a fake economy, but it’s been fake since early 2009.  The fact that an economy is built on government sugar is meaningless when it comes to the stock market.  As long as the debt continues to rise the stocks will too.  We profit now and our children suffer later – but nevertheless we profit now.

It looks like things are being built and moved around.

So the Sector Model shows a market top and the Full Model shows that the bull still has legs.  Either way, I never move into cash.  I just move it around into better bargains as they arise.

Tim

10/22/2018 Trade Notice

The Full Model sold ASTE and bought DFS with a 3% favorable gap (ASTE up 1% and DFS down 2% going into the trade).

10/21/2018 When Nothing Works, Do Nothing

Sector Model	XLE	-1.80%
Full Model	Date	Return	Days
BT	8/11/2015	-47.53%	1167
TMK	11/23/2015	45.95%	1063
NVR	12/16/2015	30.83%	1040
CMP	2/19/2016	9.59%	975
NVR	2/22/2016	36.34%	972
AMWD	3/17/2016	-7.94%	948
CASY	5/12/2016	13.23%	892
AEM	6/7/2016	-24.75%	866
ESRX	6/13/2016	25.54%	860
AMED	6/16/2016	114.83%	857
FRO	6/27/2016	-6.71%	846
ASTE	7/12/2016	-18.93%	831
MFC	9/1/2016	26.84%	780
SFM	9/8/2016	39.53%	773
CFFN	9/12/2016	-1.72%	769
FOSL	5/11/2017	29.22%	528
HIBB	7/25/2017	32.44%	453
FOSL	7/27/2017	69.02%	451
HZO	8/1/2017	32.86%	446
BCE	5/31/2018	-17.12%	143
(Since 5/31/2011)
S&P	Annualized	10.22%
Sector Model	Annualized	12.66%
Full Model	Annualized	12.89%
S&P	Total	105.36%
Sector Model	Total	141.30%
Full Model	Total	145.11%
Sector Model	Advantage	2.43%
Full Model	Advantage	2.67%
	Previous	2018
S&P	98.38%	3.52%
Sector Model	172.95%	-5.05%
Full Model	145.63%	-0.21%

The Full Model is still outperforming the Sector Model – but just barely.  The recent shake up in the market is taking its toll on individual stocks, of which I have 20 positions each shaking in the wind.

The rule of thumb is to maintain at least 7 unrelated positions, in order to avoid individual stock and industry risk.  But broad market risk cannot be avoided, and those who try only hurt themselves long term.  We’ve all heard of timers who called the last major downturn.  The problem is that they call too many downturns and end up losing out on gains they would have had if they merely did nothing.

Then there is the practice of hedging, which merely locks in a perpetual drain on the simple fact that the market will tend to grow in dollars over time (even if those dollars themselves are worth less).

And gold?  Silver?  Inflation hedges?

Let’s say that the dollar loses half of its value and gold rides the tide.  100k in gold is now worth 200k in devalued dollars.  But when you cash it in you have to pay taxes on the monopoly money you “gained” by trying to merely stop the bleeding.

No, in the long run stocks win out.  Not always in the extreme short run, but in the long run they win.

So, what do I do when nothing works?

Why, if nothing works, then I should do nothing.

Or, perhaps, as little as possible.

The Full Model is nominally due for a trade, but the current setup of [ASTE-sell / DFS-buy] is predicated on a 3% favorable gap or better.  That is, ASTE would have to go up 3% more than DFS does, or DFS would have to go down 3% more than ASTE does.  That could happen this week.  But with a holding period of 5 years per position I’m in no rush.

Tim

10/17/2018 Sector Trade

The Sector Model sold XLP and bought XLE.