Secular Hold IAU & XLF 11.20%
Condition Bear Market Rally
S&P Target 1020
Hedge XLU -2.06%

Position Date Return Days Call
SE 6/27/2011 17.27% 201 Hold
CLH 7/6/2011 17.78% 192 Hold
GCI 7/14/2011 7.72% 184 Hold
CSGS 10/3/2011 24.34% 103 Hold
NLY 10/25/2011 0.00% 81 Hold
DD 10/27/2011 0.08% 79 Hold
KBR 10/27/2011 8.14% 79 Hold
VG 10/27/2011 -30.03% 79 Buy
TTM 11/30/2011 15.33% 45 Hold
BT 1/4/2012 -0.24% 10 Hold

S&P Annualized -6.68%
Mousetrap Annualized 11.41%
Hedged Annualized 0.98%
Secular Annualized 17.94%

True to form, the January effect has positively impacted value stocks and small caps, both of which are well represented in the Mousetrap model – which is now outperforming the S&P 500 by better than 18% (as measured by annualized performance since the model was launched on 5/31/2011).

Both of my broad market models are still showing a bear market, so the hedge is still listed – shorting XLU.

Some of the things making this an atypical market cycle:

1) Extreme government intervention.
2) Extreme limits to continued government intervention.

The market is teetering between these two competing forces. If governments can continue to intervene, we will eventually have runaway inflation. If governments choose austerity, we will eventually have a deflationary implosion.

The only thing NOT in the cards is smooth sailing. Either the market will collapse or take off in a fake bull market spurred by massive devaluation of all Western currencies: both the U.S. Dollar in QE3 and QE for the Euro.

The United States cannot do QE3 without European easing, however. If they did, they would simply push Europe over the edge and Europe would pull us down too. QE3 would simply show a sharp spike upward in the S&P, becoming a bull trap of historic proportions before all global markets collapsed.

At least, that’s how it looks right now.

The only thing I can see in my models is that whatever is going to happen will likely happen this quarter. Whatever the market does, it should to so suddenly and sharply, and whether it is above or below the 200 day moving average, I do not believe it will end the quarter AT the 200 day moving average, or anywhere close to it.

Tim