Mousetrap 12/18/2011

[Timothy Clontz]

Secular Hold IAU & XLF 1.37%
Condition Bear Market
S&P Target 940
Hedge XLU -1.04%

Position Date Return Days Call
SE 6/27/2011 11.15% 173 Hold
CLH 7/6/2011 13.66% 164 Hold
GCI 7/14/2011 -5.07% 156 Hold
CSGS 10/3/2011 15.12% 75 Hold
NLY 10/25/2011 -0.18% 53 Buy
DD 10/27/2011 -9.06% 51 Hold
KBR 10/27/2011 -13.41% 51 Hold
VG 10/27/2011 -30.61% 51 Hold
WHR 11/30/2011 -3.95% 17 Hold
TTM 11/30/2011 -7.25% 17 Hold

S&P Annualized -17.04%
Mousetrap Annualized -3.16%
Hedged Annualized -4.10%
Secular Annualized 2.49%

Gold has now weakened so that the secular configuration rates:

1) Stocks
2) Gold
3) Bonds

Remember, this is calculated from a very long view, using P&F box settings of 3%

The link will probably not work – to see it you will have to cut and paste this into a browser window:

http://stockcharts.com/def/servlet/SC.pnf?chart=$spx:$GOLD,PLPADANRBO[PA][D][F1!3!3.0!!2!20]&pref=G

This shows stocks edging out gold. And,

http://stockcharts.com/def/servlet/SC.pnf?chart=bnd:$GOLD,PLPADANRBO[PA][D][F1!3!3.0!!2!20]&pref=G

This shows bonds still underperforming.

The secular strategy is to simply avoid the worst selection (i.e. bonds). Right now, therefore, the secular model is holding XLF (financials) and IAU (gold). Of the three models, Mousetrap (fundamental / technical hybrid), Hedged (shorting XLU against the Mousetrap), and Secular (Gold and a Sector selection), the secular model is still outperforming, and is currently the only one still positive from 5/31/2011 to today.

While a 2.49% annual rate is nothing to dance about, it is nearly a 20% annualized advantage over the S&P.

It is also, I might add, by far the simplest model.

Value stocks tend to underperform during bear markets, and they also have negative seasonality from September 1 through December 31. Historically, value stocks do best from January 1 through August 31 (see http://www.equityclock.com/seasonality/ )

On that same chart you can also see that XLU is out of season, and XLF will be in season starting January 19th. This matches the money flow in my models, which is short XLU (utilities) and long XLF (financials).

Also, earlier this week I noted that my friend Len was short the market on his timing model. My own more primitive timing model is simply in a bear market, and no longer in rally status. Bounces are still shortable for the time being. The Mousetrap, of course, does not use short term timing, and remains unchanged.

Good luck. Bear markets are a pain.

Tim