09/12/2011 Mousetrap

Condition Bear Market
S&P Target 970
Hedge XLE 0.40%

Position Date Return Days Call
BKI 5/31/2011 1.90% 102 Hold
CFI 6/22/2011 -3.28% 80 Hold
SE 6/27/2011 -5.97% 75 Hold
AWR 7/5/2011 -3.64% 45 Closed
CLH 7/6/2011 -4.56% 66 Hold
GCI 7/14/2011 -27.70% 58 Hold
AGO 8/5/2011 -8.48% 36 Hold
DISH 8/10/2011 10.37% 31 Hold
GTAT 9/8/2011 -7.29% 2 Buy
NA NA NA NA NA

Mousetrap Return -5.41%
S&P Return -9.37%
Hedged Return -4.82%

Mousetrap Annualized -35.90%
S&P Annualized -62.25%
Hedge Annualized -28.57%

Annualized Advantage 26.35%
Hedged Advantage 33.68%

We have not yet had a full bear market rally, and the current acceleration between the sectors is showing a probable drive over the 4th quarter of 2011 back up to the long term moving averages. Money Flow is also favoring bullish sectors over bearish ones. The S&P500 index is now on short term support and the VIX is on short term resistance, while the dollar seems poised to spike unless the Fed intervenes.

In other words, there is no clear consensus using the most popular “indicators.”

My sector rotation model remains firmly in stage 2 (out of 5) of a bear market. The rotation is almost too perfect…

I am expecting a rally soon – but only a rally.

GTAT (long) / XLE (short) remain the hedged pairs for new entries. None of my models are granular enough to do more than hedge here. I do not recommend micromanaging the market moves without a timer far more robust than my own.

And my friend Len is on vacation… so no help there! :-)

Tim

Condition Bear Market
S&P Target 970
Hedge XLE -0.07%

Position Date Return Days Call
BKI 5/31/2011 2.22% 104 Hold
CFI 6/22/2011 -6.41% 82 Hold
SE 6/27/2011 -4.76% 77 Hold
AWR 7/5/2011 -3.64% 45 Closed
CLH 7/6/2011 0.34% 68 Hold
GCI 7/14/2011 -30.05% 60 Buy
AGO 8/5/2011 -9.28% 38 Hold
DISH 8/10/2011 10.33% 33 Hold
GTAT 9/8/2011 -6.02% 4 Hold
NA NA NA NA NA

Mousetrap Return -5.25%
S&P Return -8.81%
Hedged Return -5.31%

Mousetrap Annualized -33.79%
S&P Annualized -56.66%
Hedge Annualized -34.19%

Annualized Advantage 22.87%
Hedged Advantage 22.47%

GCI long and XLE short are the current hedged pair for a new entry.

GCI keeps coming up to the plate and striking out. Annoying little brat.

And the market is being blown about like Odysseus, hopelessly lost in Greek waters.

Condition Bear Market
S&P Target 970
Hedge XLE -0.35%

Position Date Return Days Call
BKI 5/31/2011 4.17% 105 Hold
CFI 6/22/2011 -4.73% 83 Hold
SE 6/27/2011 -4.99% 78 Hold
AWR 7/5/2011 -3.64% 45 Closed
CLH 7/6/2011 1.84% 69 Hold
GCI 7/14/2011 -27.41% 61 Buy
AGO 8/5/2011 -11.30% 39 Hold
DISH 8/10/2011 13.40% 34 Hold
GTAT 9/8/2011 -6.19% 5 Hold
NA NA NA NA NA

Mousetrap Return -4.32%
S&P Return -8.06%
Hedged Return -4.63%

Mousetrap Annualized -27.34%
S&P Annualized -51.06%
Hedge Annualized -29.31%

Annualized Advantage 23.71%
Hedged Advantage 21.74%

My friend Len – the market timing expert – tells me that breadth is behaving consistent with a rally here.

I don’t think either of us are expecting anything more bullish than a quick run toward the long term moving averages.

Condition Bear Market
S&P Target 970
Hedge XLE -3.61%

Position Date Return Days
BKI 5/31/2011 6.35% 107
CFI 6/22/2011 -2.56% 85
SE 6/27/2011 -1.93% 80
AWR 7/5/2011 -3.64% 45
CLH 7/6/2011 4.01% 71
GCI 7/14/2011 -25.94% 63
AGO 8/5/2011 -7.59% 41
DISH 8/10/2011 16.70% 36
GTAT 9/8/2011 -13.23% 7
NA NA NA NA

Mousetrap Return -3.09%
S&P Return -5.51%
Hedged Return -6.30%

Mousetrap Annualized -19.00%
S&P Annualized -33.84%
Hedge Annualized -38.72%

Annualized Advantage 14.84%
Hedged Advantage -4.87%

Last year my most painful trade was TOT, a French oil company that got triple hammered from 1) the BP disaster, 2) a sharply falling Euro, and 3) the almost-bear-market that Bernanke delayed with QE2.

Yesterday GTAT fell nearly 9% with strong doubts in the entire industry after the Solyndra debacle. The 12 month trailing PE is 7.4, with GCI at 4.8. These are very attractive prices, but cheap prices can get even cheaper.

Long term money flow accumulation is still heavily tilted for recovery in those industries, but the high volatility in the entire market is exceeded by these two stocks with a beta of 1.6 on each.

My annualized advantage on the long selections is 14.84%, well below my target of 30%. The hedged position is even worse, with a negative return versus the S&P.

Sector configurations, however, are very strongly bearish, with a continuing target of 970 on the S&P. The only thing to do at this point is to wait out this little rally.

I say “little rally” now, because money flow is not mean reverting from its bearish stance, and because value stocks are not attracting long term investors. Value stocks get slammed in bear markets, the Mousetrap selections are value oriented. Their underperformance this week speaks strongly against any kind of sustainable bull market in the near future.

It should exhaust sooner than I was originally anticipating – I think far below the long term moving averages.

Tim

PS I apologize for the delay in the sector configuration paper I was going to write last weekend. I lost a very dear friend and we buried him Sunday.