Sunday, October 25, 2009

Returns for week ending 10/23/09

Model portfolio, hypothetical returns for past…
1 week: -0.5%

Value of $10,000 invested at inception in 2003: $56,564

Sunday, October 18, 2009

Returns for week ending 10/16/09

Model portfolio, hypothetical returns for past…
1 week: +0.1%

Value of $10,000 invested at inception in 2003: $56,829

RIP Buy-and-Hold - Part 2

The Dow Jones Industrial Index passed a psychological milestone this week as the Index broke above the 10,000 level for the first time in a year. The Dow first broke above 10,000 more than ten years ago in 1999 and has since done so on 26 occasions.

Yes, a ten-year buy-and-hold (buy-and-hope) index investor has had NO capital gain over the period!

Sunday, October 11, 2009

Returns for week ending 10/9/09

Model portfolio, hypothetical returns for past…
1 week: +2.1%

Value of $10,000 invested at inception in 2003: $56,811

Saturday, October 10, 2009

Performance summary since inception

This chart shows the performance of the model portfolio compared to our benchmark index since the model's inception.

The system's objective remains constant... to significantly outperform our benchmarks over the complete bull/bear market cycle, with smaller periodic losses than experienced by a passive buy-and-hold strategy. While the model portfolio hasn't been winning the sprint over the past 6 months, it is clearly winning the marathon over the full market cycle.

The model portfolio is also doing an excellent job of managing downside risk. The model's largest periodic loss (from peak to trough) is less than 13%, while the S&P 500 index lost more than 55% at its trough in March. The model portfolio is now within 5% of its all-time peak, while the S&P 500 is still trading more than 33% below its all-time peak made in October 2007.

The model portfolio is up more than 43% over the same period.

Sunday, October 4, 2009

Trading Volume Separates Bull Markets from Bear Rallies - Part 2

In April, I highlighted a market volume study by Bill Hester of Hussman Funds, where he noted in "Trading Volume Separates Bull Markets from Bear Rallies" that bull markets have typically begun on strong volume after selling had become exhausted. Since Supply and Demand are the fundamental drivers for price movement, Hester's analysis provides valuable insight as to the nature of the current rally and possible future outcomes.

In his latest market volume study, Hester writes, "This chart (above) updates one of the graphs for the elapsed time from that earlier piece. The vertical axis measures the six-month percent change in the S&P 500 from the bottom of each bear market going back to the early 1940's. The horizontal axis shows the percent change in volume over that same period.

Familiar durable bear-market bottoms stand out, like in 1982 and 1974. These rallies had strong returns that coincided with large bursts of trading volume during the first six months of the rally. There are a couple of examples, like 1998 and 2003, where bull markets had a good start on mediocre expansions in volume. But for the most part, in the cases where volume contracted the bull market beginnings have been uninspiring. More common is a strong increase in volume that coincides with gains of 20 to 25 percent during the first six months. It's clear that this year's rally is an extreme outlier in the dataset, with above-average returns and a continued contraction in volume from the levels of trading in March."

Hester goes on to break out the volume of a handful of "phoenix" stocks that account for a huge share of the volume of this rally, such as AIG, Fannie Mae, Freddie Mac, Citigroup and Bank of America. When the Phoenix stocks are taken into account, the volume story is even more ominous. For Hester's full report, click here.

Rather than base our investments on predictions, the Strategic Growth Model will continue to align its capital with the current market conditions, profiting from the statistical edge the system provides over the intermediate timeframe. For now, the intermediate market trend is UP.

Returns for week ending 10/2/09

Model portfolio, hypothetical returns for past…
1 week: -0.4%
52 weeks: +13.0%

Value of $10,000 invested at inception in 2003: $55,643