Returns for week ending 5/29/09
Model portfolio, hypothetical returns for past…
1 week: +1.4%
52 weeks: +15.2%
Value of $10,000 invested at inception in 2003: $53,464
S&P 500 Index, returns for past…
52 weeks: -34.3%
Saturday, May 30, 2009
Monday, May 25, 2009
Saturday, May 16, 2009
Saturday, May 9, 2009
Sunday, May 3, 2009
Saturday, April 25, 2009
Returns for week ending 4/24/09
Model portfolio, hypothetical returns for past…
1 week: -2.8%
52 weeks: +19.8%
Value of $10,000 invested at inception in 2003: $52,908
S&P 500 Index, returns (with dividends) for past…
52 weeks: -36.0%
Comment regarding past few week's performance: The model portfolio has not participated in the market gains since the March bottom. This is disappointing of course, but not a complete surprise due to the nature of the current rally, rebounding sharply off of a historic market sell-off.
Market technicians have noted that this rally has been largely fueled by "short covering" as evidenced by the tepid trading volume. This means that the formerly "most heavily sold" stocks with the biggest 52-week losses are now seeing the greatest gains. In other words, the market's lagging sectors have been leading this rally. There is a saying that "even turkeys can try to fly in a windstorm."
It is important to note that the Strategic Growth Model is purposely designed to deliver non-correlated returns over time, and its short term performance will often not mirror the market trend. Of course, when market conditions are poor, this is a very good thing, as evidenced by the model portfolio's 52 week returns vs. the S&P 500 index. The Strategic Growth Model has continued to perform within its design thresholds, even making a new high water mark a few weeks ago.
As for the current rally, market internals currently indicate it is a bear rally and prone to failure. At some point market internals will become more robust and capital will favor growth stocks over the market laggards. At that time, I expect the Strategic Growth Model will again outperform the market as it detects the leading stocks in the ascendant sectors where growth capital is flowing.
In the meantime, the model's stock selection engine is finding very few growth stocks meeting its strict selection criteria. As a result the model portfolio is now holding more than 50% cash which will reduce the portfolio's risk as we await improved market conditions.
Trading Volume Separates Bull Markets from Bear Rallies
Is the current rally the beginning of a new Bull Market, or is it a "Bear Rally?"
Supply and Demand comprise the foundation of market pricing. Research shows that sustained rallies are usually accompanied with expanding volume, signaling increased demand for stocks.
"Volume tends to expand in the main direction of the trend. In a bull market, advances accompanied by increasing volume or declines on diminishing volume are taken to be bullish. Conversly, in a bear market, declines are accompanied by increasing volume and advances show diminishing volume. Volume should always be studied as a trend (relative to what has preceded)." -Richard Russell, The Dow Theory Today
Here is a link to an excellent study of trading volume by William Hester at Hussman Funds.
http://www.hussman.net/rsi/rallyvolume.htm
The chart shows that the current rally is truly historic in terms of percentage gain off the March bottom, but volume has not been expanding enough to instill confidence that this is more than a Bear Rally. To get the most meaning out of the chart, Hester's essay is required reading.
Here is the short course... The chart's blue dates represent the beginning of each bull market since 1940. The red dates represent this decade's bear-market rallies, including 4 during the 2000-2003 bear market and the rally that lasted from November of last year through January.
As Hester summarizes:
"... new bull markets, whether at their inception or soon after, have a history of recruiting noticeable improvements in volume. So far this rally lacks that important quality. Over the next few weeks stock market volume will be a metric to watch closely."
