Be prepared for a "scare market

Sector Model XLB 1.14%

Large Portfolio Date Return Days
ABX 4/11/2013 -31.49% 233
QCOM 9/3/2013 11.54% 88
NEM 9/30/2013 -11.26% 61
BCR 10/4/2013 21.05% 57
ED 10/18/2013 -1.67% 43
ISRG 10/21/2013 0.10% 40
EW 10/28/2013 -14.96% 33
ARLP 11/11/2013 -2.12% 19
JOY 11/18/2013 -0.41% 12
OXY 11/27/2013 -2.73% 3

(Since 5/31/2011)
S&P Annualized 12.49%
Sector Model Annualized 24.01%
Large Portfolio Annualized 29.64%


From: [url]http://market-mousetrap.blogspot.com/2013/11/11302013-be-prepared-for-scare-market.html[/url]

Rotation: selling QCOM; buying OUTR (again).

QCOM currently has a return rate of 57.32%, so it’s in a good spot to take profits.

OUTR only netted a few dollars last time, but it might be better positioned now. We’ll see. In the meantime, my two gold stocks continue to flounder.

As for the broad market… eh. People are talking it up and down, and I’m thankful that I don’t have to factor any estimates of the market’s direction before I pick a stock. That said, we are overdue for a correction, but not due for a bear market, and we should be 5-10% higher by this time next year. The taper, if it comes, might slow down the advance, but not reverse it.

The key here is that tapering is not tightening. The wild card, however, is the estimate that people have. No one pays for a stock based on what they think it is currently worth. Instead, they invest based on what they think the stock will be worth in the future. The same goes for the broad market estimates. So then, while a taper is indeed not in itself the same thing as “tightening,” it IS a signal that tightening is more possible than it was before the taper.

As we’ve seen in previous demographic estimates, the market would be worth less than 1000 if there had been no QE, and even though we are due for a bull market NOW, that bull market would have begun at a much lower level than now.

With continued QE, the market should go up.

With tapering, the market should go up.

The market should only go down if QE is reversed. Reversal should not happen before 2024. If the market THINKS it is going to happen before then, we could see – not a bear market – but rather a “scare market.” A scare market would look like 1987 – a sharp drop followed by a continued advance, causing market timers to suffer in both directions. It will depend in large part on how believable and clear Yellen is that there will be no tightening before 2024. I don’t think she’s considered that far, however, so a scare market is more likely than an uneventful advance.

Write down your plan ahead of time.

Stick with it.

Tim