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.