|
Style Model
|
Small Value
|
||
|
Sector Model
|
XLF
|
0.13%
|
|
|
Large Portfolio
|
Date
|
Return
|
Days
|
|
BX
|
4/14/2014
|
12.21%
|
75
|
|
TIVO
|
4/23/2014
|
7.13%
|
66
|
|
SHOO
|
4/28/2014
|
-3.26%
|
61
|
|
PWR
|
5/12/2014
|
3.61%
|
47
|
|
JRN
|
5/19/2014
|
9.69%
|
40
|
|
BT
|
5/22/2014
|
2.43%
|
37
|
|
PM
|
5/27/2014
|
-0.96%
|
32
|
|
SR
|
6/2/2014
|
12.13%
|
26
|
|
CFI
|
6/9/2014
|
-2.18%
|
19
|
|
FRAN
|
6/16/2014
|
0.00%
|
12
|
|
(Since 5/31/2011)
|
|||
|
S&P
|
Annualized
|
13.03%
|
|
|
Sector Model
|
Annualized
|
26.75%
|
|
|
Large Portfolio
|
Annualized
|
26.87%
|
Rotation: selling BT; buying ESI (ITT Educational).
The recent discrepancy between a bearish XLU (on the Sector
Model) and a mildly bullish Small Value (on the Style Model) has now been
resolved toward a more bullish short term configuration of Small Value and
Financials:
|
Small Value
|
Mid Value
|
Small Growth
|
Mid Blend
|
Large Value
|
Small Blend
|
Large Blend
|
Large Growth
|
Mid Growth
|
|
|
Finance
|
1
|
4
|
8
|
11
|
14
|
25
|
36
|
37
|
58
|
|
Utilities
|
2
|
5
|
9
|
13
|
16
|
26
|
38
|
40
|
59
|
|
Industrial
|
3
|
7
|
12
|
18
|
19
|
30
|
44
|
47
|
65
|
|
Staples
|
6
|
10
|
15
|
20
|
23
|
35
|
49
|
51
|
69
|
|
Healthcare
|
17
|
22
|
29
|
33
|
39
|
54
|
61
|
63
|
75
|
|
Materials
|
21
|
27
|
32
|
42
|
46
|
56
|
67
|
68
|
76
|
|
Cyclicals
|
24
|
31
|
41
|
48
|
52
|
60
|
70
|
71
|
79
|
|
Technology
|
28
|
34
|
43
|
50
|
55
|
64
|
72
|
73
|
80
|
|
Energy
|
45
|
53
|
57
|
62
|
66
|
74
|
77
|
78
|
81
|
The presence of Utilities and Staples in the upper half are
cautionary, but not of immediate concern.
The Finance sector is in the lead.
Small caps are in the lead. That’s
enough to point to some kind of short term rally.
As I mentioned last week, though, all of this is a bit
nonsensical in nominal terms because of the activity of the Fed.
Some months ago I posted this secular graph:
This is a deviation channel for the birth rate plus 45 years
(i.e. the median age for the workforce), and the S&P / money supply ratio. It shows that in terms of real value the
S&P is only pausing in a long term decline that will not terminate until
the end of this decade. The continued “rise”
is partially an illusion created by a dramatic expansion of the Federal balance
sheet.
We are 14 years into a 20 year long secular bear market that
appears to be rising because of all
the money printing. People who have been long the market have paid taxes on
monopoly money, while people who have been short have lost their shirts (and
their shorts).
In terms of sector rotation we’ve been in a stealth bear –
that is, a bearish configuration that keeps going “up” in terms of dollars.
The typical sequence is Energy out performing at a market
top, then Staples and Healthcare in an early bear, with Utilities and
Financials at the end. Financials
outperform under the expectation of Federal stimulus and early business
investment.
But now stimulus is being systematically withdrawn. So, then, while we would have normally seen a
bear market ENDING in Financials, we instead see the model calling for
Financials at an all-time market high.
This is the kind of nonsensical mishmash that the Fed has
made of inter-market analysis. It has
been the bane of hedge funds and a continuing embarrassment to economic
commentators like Hussman.
That’s why calling a market direction has been so counter-intuitive.
Interest rates, gold, and stocks have all defied any kind of “normal” behavior.
These are not normal times.
One could say that “this time is different” but that’s only
good until reality finally returns:
·
The market is at an all-time high in a sector
configuration that is typical of a terminal decline in a bear.
·
Financials advance when the Fed is increasing
stimulus, but are now in play when the Fed is decreasing stimulus.
·
Interest rates go up when the Fed decreases
stimulus, but they are going down instead.
Make sense to you?
It doesn’t to me.
To be honest, I never could make sense of this game. That’s why I made the models. They don’t seem
to care what it all means. They just
follow breadth and volume and call it a day:
The Sector Model continues to plug along. It seems to reach
out for those sectors that are being condemned in the news, and I recently saw
an article pointing out how Financials are typically the worst sector anyone
could ever hold.
If it’s so bad that it’s making headlines, it’s probably the
right time to invest.
Time will tell.
Tim
