Mousetrap 11/13/2011

Secular Hold IAU & XLF 10.31%
Condition Bear Market Rally
S&P Target 940
Hedge XLU -3.43%

Position Date Return Days Call
SE 6/27/2011 10.62% 138 Hold
CLH 7/6/2011 7.62% 129 Hold
GCI 7/14/2011 -14.99% 121 Hold
GTAT 9/8/2011 -29.94% 65 Hold
CSGS 10/3/2011 20.76% 40 Hold
NLY 10/25/2011 -0.61% 18 Hold
DD 10/27/2011 0.33% 16 Hold
AMGN 10/27/2011 -0.14% 16 Hold
KBR 10/27/2011 -2.65% 16 Hold
VG 10/27/2011 -17.68% 16 Hold

S&P Annualized -13.39%
Mousetrap Annualized 5.12%
Hedged Annualized -5.35%
Secular Annualized 22.82%

A couple of changes:

1) I abbreviated the returns to simply show the annualized rate of return
2) I added the secular return one would get by simply holding two etfs (first line)
3) I’ve added a short term timer to my model, which is currently in rally status (second line)

The purpose of the model is to see if a fundamental / technical hybrid can beat simply using a technical strategy alone, with the goal of beating the S&P by 30%.

Currently the model is beating the S&P, but NOT beating a secular holding strategy. That might change, but it’s significant if this trend continues, since a secular holding strategy (as explained in detail in the paper I sent) would be far simpler and tax effective.

I’ve listed the sector hold on the top line as XLF, and I plan to sell XLV and replace it with XLF on Monday morning. The only reason I would not do so would be if XLF significantly gapped up further than XLV. If they are close at the open, or if XLF gaps further down, I will execute immediately.

As for the fundamental selections, value stocks are known to underperform during bear markets and outperform during bull markets. I’ve seen this before while observing fundamental-only strategies in the past. The current drag on the hybrid model may simply be a result of that effect, since the sector rotation model is continuing to function (confirming the benefit of the technical aspect of the model).

Tim