|
Sector Model
|
XLU & XLP
|
-1.30%
|
|
|
Style Model
|
Small Value
|
||
|
Large Portfolio
|
Date
|
Return
|
Days
|
|
CAJ
|
9/25/2012
|
-11.22%
|
332
|
|
ABX
|
4/11/2013
|
-19.17%
|
134
|
|
TTM
|
5/6/2013
|
-13.54%
|
109
|
|
DLB
|
5/13/2013
|
-5.60%
|
102
|
|
OKE
|
6/17/2013
|
17.42%
|
67
|
|
BTI
|
7/1/2013
|
2.36%
|
53
|
|
CLH
|
7/8/2013
|
8.33%
|
46
|
|
FAST
|
7/22/2013
|
-2.84%
|
32
|
|
VAR
|
8/2/2013
|
-0.59%
|
21
|
|
OUTR
|
8/19/2013
|
-0.24%
|
4
|
|
(Since 5/31/2011)
|
|||
|
S&P
|
Annualized
|
9.79%
|
|
|
Sector Model
|
Annualized
|
23.49%
|
|
|
Large Portfolio
|
Annualized
|
28.39%
|
As I pointed out yesterday on the blog, the sector model
switched from XLU & XLB, to XLU & XLP.
In terms of market rotation, that is moving from a top combination to a
bear combination. However, I don’t just
look at sectors, but also market cap and styles (chart below).
So, a quick note on the market.
The recent flash freeze in Nasdaq is a symptom of a bull
market that is getting long in the tooth.
Also, the talk of tapering by the Fed has the market spooked to the
point that large players are positioning themselves for a bear market. Accordingly, the combination of sector,
market cap, and style configurations are in line for a market top:
NORMALLY the market has the following relationship with the
Fed…
BEAR
At a market top the Fed starts to lower interest rates. During a bear market rally the Fed tries to
allow interest rates to rise, and the market fails. During the final throes of a bear, both
interest rates and market prices plummet together.
BULL
At a market bottom the Fed holds rates down while the market
begins to turn. At a correction the Fed
is tightening rates and the market stumbles, but recovers on its own. At a market top both prices and rates are
rising together.
In a NORMAL market we’d be looking for a correction here,
rather than a bear market.
HOWEVER, if we are indeed in the midst of a secular bear
market (my own opinion based on the demographic hole in working age vs. non-working
age people), then such a “correction” would fail to recover. A failed “correction” would be akin to 1937,
when we had the depression within the depression.
I don’t have a crystal ball, and all this talk of tapering
could just be a trial balloon. The Fed
knows about 1937, and would LIKE to avoid it if possible. So, between the two options of a correction
or a deflationary implosion, most large players seem to be positioning
themselves for a normal to mild bear.
Since my model is long only, it does not time the market,
but instead it rotates between industries and sectors. In a market dip I will dip too, but will
rotate out of stocks that dip less and into ones that have dipped more, so that
when a recovery does happen, I will be positioned to recover faster.
If you are faint of heart, though, the next few months could
be a good time to take up yoga and meditation…
Tim
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