Mousetrap 8/7/2011

[Timothy Clontz]

Position Date Return Days Call
BKI 5/31/2011 -4.20% 71 Hold
CFI 6/22/2011 -4.97% 49 Hold
SE 6/27/2011 -11.26% 44 Hold
AWR 7/5/2011 -6.24% 36 Hold
CLH 7/6/2011 -11.65% 35 Hold
GCI 7/14/2011 -30.35% 27 Hold
AGO 8/5/2011 -19.93% 5 Buy
DISH 8/10/2011 -2.10% 0 Hold


Mousetrap Return -11.34%
S&P Return -12.41%

Mousetrap Annualized -124.08%
S&P Annualized -135.83%

Annualized Advantage 11.76%


The “Mousetrap” is barely limping along in the almost unprecedented decline in the market. As a long-only model, I suppose outperforming the S&P is good enough…


Timing model.

The good news is that the market decline helped me complete the confirmation testing on my timing model. The bad news is that I couldn’t put the timing model online until it was confirmed “out of sample.” Frankly, I didn’t BELIEVE the timing model, so the most I could do was use it as a hedge. I’ve mentioned on occasion that the sector to short was XLF, and then a few weeks ago I mentioned that the short sector was XLE. But I was not ready to share it until I was finished with the alpha testing.

So, now I have it ready. Only problem is that the market is WAY oversold, and it is not time to time the market until a short reversal from the new trend. The markets typically rally toward their long term moving averages, and then roll over for a final decline.

That would be around 1250.

In any case, the timed model is simple: no stock selection. It’s either long or short a single sector ETF and stays long or short until the business cycle trend changes. We are now in a bear. The short sector is XLE. When we have some kind of rally I’ll activate the selected short and post those changes along with the “Mousetrap”. And, while I’ve BEEN short the energy sector, I covered most of my short positions today.

But I do plan to re-enter the timed trades and share them in real time. I’ll also track the results as I do so, in the same way as the Mousetrap model.

That will leave two models: one timed, and one untimed; something for the long term investors (untimed) and the technical traders (timed).

In the meantime – enjoy the bounce. Len Mansky tells me it isn’t ready yet – but I will not use my timed model long in a bear market. So it’s on hold until the next clear short signal.

Tim

[Timothy Clontz]

Condition Bear Market
S&P Target 800

Position Date Return Days Call
BKI 5/31/2011 1.03% 72 Hold
CFI 6/22/2011 2.01% 50 Hold
SE 6/27/2011 -7.44% 45 Hold
AWR 7/5/2011 -2.42% 37 Hold
CLH 7/6/2011 -6.70% 36 Hold
GCI 7/14/2011 -26.23% 28 Hold
AGO 8/5/2011 -9.28% 6 Buy
DISH 8/10/2011 2.69% 1 Hold
NA NA NA NA NA
NA NA NA NA NA
Mousetrap Return -5.79%
S&P Return -8.36%

Mousetrap Annualized -61.55%
S&P Annualized -88.80%

Annualized Advantage 27.25%


Two positions remain to be filled on the Mousetrap model. And, in spite of it being slammed with the rest of the market, it continues to outperform that market.

My target is to outperform the S&P by 30% a year.

If the S&P could avoid losing 30% a year, I’ll have a profit.

I’d like to point out, however, that my timing models are in a Bear. That could change, but the current price target is 800 on the S&P – a significant decline from the present.

Corporate profits are up, but this has nothing to do with corporate profits. This has everything to do with governmental failure; both a failure of European governments to avoid looming default, and a failure of our own government to avoid a European model. It doesn’t really matter how well you water your plants in your apartment if the skyscraper you are in is burning down all around you.

As I mentioned before, I’ve personally hedged by shorting XLE (the energy sector). Yesterday I also mentioned that I was closing that position in order to ride a short term rally up to about 1250 on the S&P. We may or may not get there, but XLK (technology) would be a good short term position to take on a spike up.

If we get to that point, though, I’m planning to resume the XLE short.

Don’t get tricked out by the volatility, though. People get forced out of long and short positions at the wrong time because the moves are so titanic that they look like they will go on forever. No matter how volatile the market is, a steady plan, and a steady hand, will usually win.

Wait for it… Bear markets begin with a stab downward, then a rush back up to the long term moving averages. Once they fail to penetrate those averages, then the final stage begins.

Tim