Last week we mentioned our behavioral measures were in extremely bullish territory which signals a down week. The market was down for the week and our measures have made a sizable movement. The movement usually signifies another down week coming up. We have hedged our portfolio for the week. If the week is a down week we will close the hedge at the end of the week. If the market is flat than close out the hedge. If the market is up, than continue the hedge as movement this signifies another down week to come.
Our portfolio looks like the following. We are holding US High Yield Corporate Bonds, REITs, Canada, Energy, and Russia. All these ETFs held up well for the week. Right now emerging markets are not on our list. We believe that emerging markets will present a buying opportunity sometime during the summer in which then they could rebound 10-20%, but for now they will stay flat or fall.
USHY 11.52%
RE_US 9.24%
Canada 9.59%
Energy 9.06%
Russia 9.83%
US 9.16%
Australia 8.09%
Japan 8.60%
Natural Resources 9.03%
Agg 7.98%
UK 7.93%
Sunday, February 27, 2011
Tuesday, February 22, 2011
Market Update 2.22.11
We generally post on Sundays. However, given the market activity today and our research in the last several weeks we would like to update you on our view of the markets going forward. It is obviously difficult to say what the markets will do tomorrow or how they will end the week.
We looked back in the history of our indicators and actually 2004 seems to represent 2011 well for the US. The 2000-2002 period saw a decline almost exactly a similar magnitude of the 2008 period. However, from peak to trough 2008 fell by around 15% more. Incidentally the 2003 recovery increased 15% less than the 2009-2010 recovery. This gives us some incidental evidence that the two time periods are similar. Our BFIA measures for February 22nd 2004 are almost identical to today's levels. In 2004 the market did not move very much over the year until October 2004. We believe the same will occur for 2011. The equity market will not move much over the year and reap its gains in a 6 week period. Therefore, we believe now is the time to hold off on all equity investments as there will be a pullback and narrow trading range for most of the year. Currently we are more in favor of developed equity markets than emerging if one is to hold equity. We do see energy making gains for the year. After the pullback we do favor high yielding assets such as high yield corporate bonds and real estate investment trusts until we see signals to put money back into equities.
Summary:
High Yield Corporate
REITs
Energy (Energy companies and oil itself)
Natural Resources (Lower exposure).
If investing in equities: Equity Markets to Outperform are US, Canada, Japan, and Russia. (Possibly Australia and Europe therefore lower exposure). Refrain from emerging markets for now.
There will also be periods to take advantage of shorting the market. It will be the only way to make significant gains for the year.
Once this week plays out we will post our call of whether to short or not.
We looked back in the history of our indicators and actually 2004 seems to represent 2011 well for the US. The 2000-2002 period saw a decline almost exactly a similar magnitude of the 2008 period. However, from peak to trough 2008 fell by around 15% more. Incidentally the 2003 recovery increased 15% less than the 2009-2010 recovery. This gives us some incidental evidence that the two time periods are similar. Our BFIA measures for February 22nd 2004 are almost identical to today's levels. In 2004 the market did not move very much over the year until October 2004. We believe the same will occur for 2011. The equity market will not move much over the year and reap its gains in a 6 week period. Therefore, we believe now is the time to hold off on all equity investments as there will be a pullback and narrow trading range for most of the year. Currently we are more in favor of developed equity markets than emerging if one is to hold equity. We do see energy making gains for the year. After the pullback we do favor high yielding assets such as high yield corporate bonds and real estate investment trusts until we see signals to put money back into equities.
Summary:
High Yield Corporate
REITs
Energy (Energy companies and oil itself)
Natural Resources (Lower exposure).
If investing in equities: Equity Markets to Outperform are US, Canada, Japan, and Russia. (Possibly Australia and Europe therefore lower exposure). Refrain from emerging markets for now.
There will also be periods to take advantage of shorting the market. It will be the only way to make significant gains for the year.
Once this week plays out we will post our call of whether to short or not.
Sunday, February 20, 2011
Market Update 2.20.11
Similar to last week we are bullish on the developed markets including the US, Europe, Japan, Canada, and Australia. We do not like emerging markets at this point except for certain emerging markets such as Russia, now Poland, and South Africa. We do like Mexico as well but sitting on the side lines as far as Mexico is concerned for now. In addition, we like energy and real estate.
Our US measures have reached very bullish territory. Our US long measure is currently 0.62. The last time we seen this measure hit 0.62 was back in February 23rd of 2004. Two weeks later, March 7th of 2004 the market pull backed between 4 and 5%. And then it was the start of a bull market. The last time our short indicator hit its current level was back in September 20th of 2009. The next two weeks the market fell 4%.
We have never seen our long indicator fall below 0.60. We believe this is the floor. Our short strategy is to witness some major movement in our indicator before shorting. We will pursue that strategy going forward. We have not seen any movement
in the indicators so far. We will wait for another two weeks than access the situation because than we believe the market is due to correct around 5%.
At that point we believe the market will continue to rise after the pull back until the summer.
Our US measures have reached very bullish territory. Our US long measure is currently 0.62. The last time we seen this measure hit 0.62 was back in February 23rd of 2004. Two weeks later, March 7th of 2004 the market pull backed between 4 and 5%. And then it was the start of a bull market. The last time our short indicator hit its current level was back in September 20th of 2009. The next two weeks the market fell 4%.
We have never seen our long indicator fall below 0.60. We believe this is the floor. Our short strategy is to witness some major movement in our indicator before shorting. We will pursue that strategy going forward. We have not seen any movement
in the indicators so far. We will wait for another two weeks than access the situation because than we believe the market is due to correct around 5%.
At that point we believe the market will continue to rise after the pull back until the summer.
Sunday, February 13, 2011
Market Update 2.14.11
This time last year our model was heavy in favor of the emerging markets. Our portfolio was about 80-90% emerging market exposure in addition to markets such as Taiwan and Israel, etc.
There has been a turnaround in the portfolio. We now hold very little emerging markets. The only market considered emerging we like is Russia. For now we plan on holding developed market equity, REITs, Energy, and High Yield Corporate Bonds until we see any changes in the model. Our short measures are still indicating that certain emerging markets are good short plays including India, Indonesia, Malaysia, Thailand, and Chile. Below are the following markets we have in our portfolio.
Agriculture
Australia
Canada
Energy
Europe
Japan
Real Estate
Russia
US
USHY
We still predict some pullback in the global markets. We do not see any immediate pullback but predict one this year. Our agent-based indicator for the US is over 1 meaning that it is fairly to slightly over valued. After the tech bust in 2000 and the bottom in 2002 it took 4 years for the US measure to hit 1. After the global financial crisis in 2008 and the bottom in early 2009 it took only two years. The summer of 2006 was difficult. We predict something similar. Once we see our measures change in a significant fashion we will apply a full hedge to our portfolio. We will keep you updated once that occurs.
There has been a turnaround in the portfolio. We now hold very little emerging markets. The only market considered emerging we like is Russia. For now we plan on holding developed market equity, REITs, Energy, and High Yield Corporate Bonds until we see any changes in the model. Our short measures are still indicating that certain emerging markets are good short plays including India, Indonesia, Malaysia, Thailand, and Chile. Below are the following markets we have in our portfolio.
Agriculture
Australia
Canada
Energy
Europe
Japan
Real Estate
Russia
US
USHY
We still predict some pullback in the global markets. We do not see any immediate pullback but predict one this year. Our agent-based indicator for the US is over 1 meaning that it is fairly to slightly over valued. After the tech bust in 2000 and the bottom in 2002 it took 4 years for the US measure to hit 1. After the global financial crisis in 2008 and the bottom in early 2009 it took only two years. The summer of 2006 was difficult. We predict something similar. Once we see our measures change in a significant fashion we will apply a full hedge to our portfolio. We will keep you updated once that occurs.
Sunday, February 6, 2011
Market Update 2.06.11
We still view a similarity of 2011 with 2006 and therefore, see a pullback lasting 2-3 months but the S&P 500 ending above 1400 for the year. Based on our agent-based measure we predicted some pullback. We saw a major down day on January 30th but the market came back this last week. As of right now we do not see any immediate signs of a pullback. We do see February not making any major gains or losses. We will be running our measures every week to determine when we see a better picture of a pullback.
The investments we like based on all our measures are:
1. US high yield bonds
2. Russia
3. Mexico
4. REITs
5. Canada
6. Korea
7. Energy
8. US
9. Japan
10. Taiwan
11. South Africa
The investments we like based on all our measures are:
1. US high yield bonds
2. Russia
3. Mexico
4. REITs
5. Canada
6. Korea
7. Energy
8. US
9. Japan
10. Taiwan
11. South Africa
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