11/16/2014 A Time for Traps

Sector Model	XLF	0.92%
Large Portfolio	Date	Return	Days
SR	6/2/2014	-10.54%	166
ESI	8/4/2014	-27.46%	103
STRA	8/18/2014	33.97%	89
PBI	8/25/2014	-6.96%	82
CLF	9/2/2014	-28.06%	74
KFY	9/29/2014	4.49%	47
IQNT	10/6/2014	47.38%	40
EDU	10/27/2014	0.49%	19
PLT	11/6/2014	-0.71%	9
BKE	11/10/2014	0.44%	5
(Since 5/31/2011)
S&P	Annualized	12.78%
Sector Model	Annualized	25.77%
Large Portfolio	Annualized	24.17%

 

Rotation: selling CLF; buying CPSI.

Biting the bullet and taking the loss.

The Sector Model had a hard week, but is still well ahead of the S&P for the year:

So much for the models.

What of the market itself?

Now that the United States is taking QE off the table (or at least being outsourced), the behavior of the rest of the world is more pertinent to our own future.  Europe continues to struggle with deflation.  Japan is devaluing its currency.  OPEC is pumping oil.  Russia is swallowing neighbors.  ISIS remains a threat.  The United States is facing another two years of gridlock, with most Republican bills of the future meant to show what Obama will NOT pass, rather than finding something he will.

And the President will be practicing a political version of a scorched earth policy – daring Congress to impeach him for unilateral actions.

John Hussman is predicting doom – but that is normally bullish…

All joking aside, my Sector model is showing relative positions for a late bull and my Style model is showing an early bear.  The aggregate of the two together averages to a perfect market top configuration.  Demographics show the bottom trough of the secular bear to be 2015-2018.

A few weeks ago both Sector and Style models were configured for an early bull, and the changed configuration in both is quite a feat.  The market gyrations have not simply been that of all stocks going down and all going back up.  Behind the scenes the money has flowed out of bullish sectors and into bearish ones.

Industries are more optimistic:

BUILDSUP

EDUC

ELECEQ

ELECTRNX

FUNL SVC

HLTHSYS

HUMAN

INSLIFE

PACKAGE

SEMI-EQP

WIRELESS

 

Most of these are bullish (with the exception of Health and Funeral Services… two sides of the same bearish coin).

So, bull or bear?  There is no guidance in the tea leaves.  The “smart money” can’t seem to make up its mind.

Beware of bull and bear traps: false moves in either direction that lure you into taking loses on both short and long bets that reverse just as soon as you get into them.

Tim