Position Date Return Days Call
BKI 5/31/2011 -0.59% 70 Hold
CFI 6/22/2011 -0.40% 48 Hold
SE 6/27/2011 -8.13% 43 Hold
AWR 7/5/2011 -1.48% 35 Hold
CLH 7/6/2011 -7.30% 34 Hold
GCI 7/14/2011 -23.36% 26 Hold
AGO 8/5/2011 -15.41% 4 Hold
DISH NA NA NA Buy


Mousetrap Return -8.10%
S&P Return -9.56%

Mousetrap Annualized -79.61%
S&P Annualized -94.02%

Annualized Advantage 14.41%

I was wondering how Bernanke was going to beguile the markets this time. We all knew he was politically discouraged from doing a QE3, but we also knew he was going to do SOMETHING.

Voila! Instead of saying he was going to give extra money over a short period of time, he was going to give lower interest rates over a long period of time. Since the markets are forward looking, once he put a specific DATE on it (out to the ridiculous horizon of 2013), the markets could do the math and rise accordingly. At first there appeared to be some confusion because there was no QE3, but then the market figured out that QE2013 was just as good. Granted, zero interest rate policy doesn’t directly inject money into the system in the same way – but it does have the same effect in the end. It’s kind of like drinking tequila, THEN drinking the margarita mix afterwards. By the time it gets in your stomach it has the same effect.

On my model I have a new position, DISH, which I will enter at today’s closing price.

Also, I’d like to add the cautionary note that we are now most probably in a Bear market. I expect the market to shoot up toward its long term moving averages, but fail a little south of 1300 on the S&P. While I don’t have a crystal ball, that would be NORMAL market behavior.

If it shoots past 1300 I may rethink some things, but both my yield ratio model and my sector configuration model are calling a Bear with a target in the 700-800 range. Those who use P&F charts will likely see a similar preliminary bearish price objective. Although my “Mousetrap” model is continuing to outperform the S&P, that would be small comfort by the time you got to the bottom. If you are holding any of these positions, be prepared to either unload them between 1250 and 1300, or else hedge.

My current hedge would be to short XLE, but NOT until we got higher than 1250 on the S&P.

Just to reinforce the bearish nature of this market – my top two performing stocks during the upturn today were both UTILITY stocks, with the water utility rising around 11%. That’s NOT where the money would be going in a healthy bull market. That’s a bearish defensive play, in the extreme.

Take it slow – in spite of the behavior of the past week, bear markets take time. There’s normally plenty of time to get properly positioned. While I’ll continue to run this model untimed – I also personally hedge. Enjoy the run up, but don’t get cocky.

Tim