Secular Hold IAU XLV
Cyclical Target 940
Condition Bear Market Rally
Hedge XLU -2.32%
Position Date Return Days Call
SE 6/27/2011 10.85% 132 Hold
CLH 7/6/2011 6.88% 123 Hold
GCI 7/14/2011 -16.83% 115 Hold
GTAT 9/8/2011 -25.10% 59 Buy
CSGS 10/3/2011 19.09% 34 Hold
NLY 10/25/2011 -0.24% 12 Hold
DD 10/27/2011 0.70% 10 Hold
AMGN 10/27/2011 -4.78% 10 Hold
KBR 10/27/2011 -6.37% 10 Hold
VG 10/27/2011 -18.27% 10 Hold
Mousetrap Return 1.57%
S&P Return -6.84%
Hedged Return -1.95%
Mousetrap Annualized 3.61%
S&P Annualized -15.71%
Hedged Annualized -4.48%
Long Advantage 19.32%
Hedged Advantage 11.23%
Money flow indicates that strength will be in commodities, large cap, and multinational stocks.
Small cap, bonds, and utilities should underperform.
Although I am indeed short utilities, the question remains about my own portfolio. A good number of my “fundamental” selections have led me to small caps, and it may be that I have created a model that is susceptible to a “value trap” in which value stocks underperform (i.e. they are at a discount for a reason).
Beginning this week I plan to report the secular holds of IAU (gold) and XLV (healthcare services) against the fundamental hybrid model. If my guess is correct, simply holding XLV may very well outperform the individually selected stocks. If so, it may be that during a bear market it is best to simply hedge one sector stock against either another sector or the S&P itself. Time will tell. While I have backtested the technicals and tested the fundamentals in real time, I have not been able to backtest them both together, and this live portfolio is ITSELF that test.
Finally, to add to what I wrote in the paper regarding demographics, I’ve created a graph showing an inflated birthrate against the S&P.
The birthrate data represents the birthrate plus 46 years, against an inflation rate of 2.9%, and multiplied against itself three times, with a divider of 576 to put it on the same scale as the S&P.
[ATTACH=CONFIG]11319[/ATTACH]
Using this scaling, barring any new technology, the S&P would be projected to remain in a trading range until 2020, with a failed breakout in 2013 to 2016.
Of course, anything could happen, and such a long range is not immediately tradable – but it IS interesting.
Picking good companies in good sectors, however, will remain essential, as simply buying and holding the broad averages will likely lead to yet another lost decade.
The exception, of course, is gold – and the current IAU hold is not likely to be changed for another 7 to 9 years.
Tim
