04/30/2014 Boring is Better

Style Model	Large Value
Sector Model	XLU	2.11%
Large Portfolio	Date	Return	Days
ABX	4/11/2013	-26.41%	384
NEM	9/30/2013	-9.25%	212
JOY	11/18/2013	6.27%	163
RS	2/10/2014	2.12%	79
CSCO	2/12/2014	2.84%	77
CBI	2/20/2014	-0.68%	69
HFC	3/17/2014	5.47%	44
BX	4/14/2014	0.57%	16
TIVO	4/23/2014	-2.49%	7
SHOO	4/28/2014	0.60%	2
(Since 5/31/2011)
S&P	Annualized	12.13%
Sector Model	Annualized	27.68%
Large Portfolio	Annualized	25.88%

 

Rotation: selling HFC; buying MHK.

The style model has moved to Large Value.  Boring is better.

Tim

 

 

04/29/2014 Extreme Bearishness

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

Utilities, Large caps, Value stocks -- all have one thing in common: they aren't supposed to move as much as the market.

You only invest in sluggish stocks when you are afraid the market will turn in the wrong direction.

I have macros running tonight.  I may have a new trade in the morning.

04/27/2014 Correction

The configuration of the Sector and Style matrix has changed:

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

Accordingly, the trade on the Full model will change to account for the new fundamental configuration.

The corrected trade for Monday morning is: selling DUK; buying SHOO.

04/26/2014 What are you doing???

Style Model	Mid Value
Sector Model	XLU	0.65%
Large Portfolio	Date	Return	Days
ABX	4/11/2013	-25.49%	380
NEM	9/30/2013	-4.06%	208
JOY	11/18/2013	7.00%	159
RS	2/10/2014	1.05%	75
CSCO	2/12/2014	2.13%	73
CBI	2/20/2014	0.01%	65
DUK	3/10/2014	5.62%	47
HFC	3/17/2014	4.26%	40
BX	4/14/2014	4.02%	12
TIVO	4/23/2014	-1.99%	3
(Since 5/31/2011)
S&P	Annualized	11.87%
Sector Model	Annualized	27.78%
Large Portfolio	Annualized	26.33%

 

Rotation: selling HFC; buying GCO (in the shoe industry).

We lived in Hendersonville Tennessee when I was five until I was ten.  The most fascinating thing about the place was how routine it was to see tornado weather.  My brother and I got so used to it that we’d rush outside to play a game with the wind:

The rule was simple – jump straight up in the air to see who got blown back the furthest.

You could spread out your jacket to catch the wind, but you had to jump STRAIGHT up without cheating.

My older brother usually won, but I loved the game anyway.

Mom also had a routine.  She’d crack open all the windows a little to let the air pressure adjust.  It would take her from room to room upstairs and downstairs.  She’d also shut all the cabinets and put away anything that could turn into flying debris.

It would take her a while before she realized something horrible…

Her two boys weren’t dutifully waiting in the little closet under the stairs.

In fact, they weren’t in the house at all!

She’d run upstairs again just to make sure, before rushing downstairs and out the back door, screaming at the top of her lungs, “What are you doing???”

We’d shrug our shoulders and laugh.  Game over.  Time to go cower until the coast was clear again.

The next day we’d review the damage while we rode the school bus.  I remember seeing one house without a roof, and a good while later I’d see a roof in a field without a house.

And we could always recognize the look in the sky when another tornado watch was coming our way.

Sometimes there was a dead calm in the gloom before the wind began to pick up.  And I even got to see a few funnels form in the distance before Mom ended our little game.

So, a little note on the recent performance of the model…

Keep in mind that both models are defensive in nature.  They do better in bearish conditions than they do in bullish ones.  Although they will outperform in a bull market, they do even better in a bear.

Nowhere is this more apparent than in the struggle the S&P has experienced so far this year:

 

The Sector Model is up 18.31% for the year.

The S&P is up 0.81% for the year.

That kind of outperformance usually happens before a correction.

Again, I don’t use timing indicators for my own models because 1) I’m a lousy timer and 2) my models do best in the worst of times.  So there are no changes I plan to make in my own investments.  I’m just noting it here because some folks do like to get a weather report on occasion and my rough little barometer is showing a low pressure system overhead.

With defensive models, good news for me isn’t so great for all those momentum traders out there.  I’d suggest taking stock in your stocks with a good hard look at the fundamentals you’re investing in.  If they can weather a storm, you should be fine.

If they can’t – what are you doing???

Tim