Sunday, March 20, 2011

Market Update 3.20.11

The last two weeks have been volatile. We noted in the last several weeks that we would see a pullback. The model suggested last week there was not going to be too much more downside, 1%. However, the model did not forecast a tsunami in Japan, therefore we witnessed more downside than predicted.

Either way the model is suggesting that the US market is okay. Even with the exogenous events occurring in the world, the model suggests there is not much more downside for the US market. This means do not worry about a 15% correction as some pundits are predicting. The model is suggesting that emerging markets should be stayed away from still. However, there is one emerging market that the model is picking up at the start of its cycle, Brazil. In addition, Eastern Europe is also breaking out. The model also suggests to keep invested in REITs, high yield corporate, and commodities such as energy and natural resources.

Other than those areas and markets that are commodity rich markets such as Canada and Russia, stay away from other markets.

Sunday, March 13, 2011

Market Update 3/13/11

Our indicators have matched the 2003-2004 indicators almost to a tee since November 2003. If this is to continue than the next week should be a down week as well. We are not trying to market time here, but if one were to market time, I would do the following based on our measures. I would hedge this week. If there is a big down day, take your profits from that short position. The following week will either be a huge positive week or flat. If it is flat than the last week of March will be a huge positive week. Once that huge positive week occurs, take profits off the table. Wait for a 5% correction which may last until the second week of May and re-enter. The markets will correct back up and then swing down again before July. Take money off the table before July wait until August and then invest in August for the rest of the year. The next several months will be volatile with up and down swings with a downward trend. Another way to play it is to stay in cash until August with some exposure to the markets listed below.

Again, this is speculative. Our measures have been following 2004 measures for the US.

We have now updated our system. It is now more accurate in timing when to exit and enter positions. Currently, the model is suggesting to invest in the following markets,

USHY
REITs
Poland
Russia
US
Energy
Canada
Natural Resources

These are the markets that are currently ranked the highest based on the relative normalized measure. It can been seen that high yield investments, such as high yield corporate and REITs are at the top. Energy and natural resource countries are also included such as Russia and Canada. The sectors of energy and natural resources are strong.

Energy and natural resources were down big this past week relative to other markets. However, this has not changed our view. The model still likes energy and natural resources, which makes sense from a fundamental point of view in that the capacity to increase output has not increased and in order to obtain more capacity it will take years. Therefore, supply is falling while demand is growing. We invest based on the models which says invest in natural resources and energy.

Our new system detects markets on the move up as well to get in before major up moves. The markets we see are emerging market debt and Brazil. Brazil's stock market has not performed that well over the past year relative to other markets. It is flat since March of last year while other markets are up big. We are starting to see a move in Brazil.
We are also starting to see a move in Australia. The story for Australia is the same as Brazil. Australia has not performed that well compared to other markets in the last year. These markets are both energy and minerals trade with some financial in Australia.

Lastly, we see Indonesia as a potential trade. The Indonesia market was slammed over the past several months and has recovered. We are also looking at China. However, Indonesia and China are on our watch list while Brazil, Australia, and Emerging Market Debt are part of our portfolio.

Sunday, March 6, 2011

Market Update 3.08.11

Last week we suggested to hedge your portfolio for the week. The market tanked on Tuesday and then rebounded strongly on Thursday. Overall the market was flat. Based on last week we do not see any reason to suggest another down week. With the turmoil in the Middle East and possible protests in Saudi Arabia next week, however, anything is possible. Either, we examine the model results and invest based on the model.

When there is a major move in our indicators we hedge our portfolio for the week. Our measures did not move much over the last week. This signals that the probability of a down week is low. However, the type of movement seen in measures in the week before signals something down the road in 4-6 weeks. Therefore, we remain cautious.

Our portfolio is based on three trades.
First, high yield investments. These investments include US high yield corporate, REITs, and emerging market debt.

Second, natural resource and energy plays including markets such as Canada and Russia, energy, silver, and gold.

Third, betting on certain markets are undervalued such as Japan and Australia.