market climate and weather forecast
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Market Climate and Weather Forecast. "It is not the strongest of the species that survives, nor the most intelligent, but the ones most adaptable to change." Charles Darwin. Presented by Herb Geissler, Managing Director of The St.Clair Group - PowerPoint PPT PresentationTRANSCRIPT
Market Climateand Weather Forecast
Presented by Herb Geissler, Managing Director of The St.Clair Group
Rational Investing/VectorVest Special Interest Group of Pittsburgh AAII
May, 2012
"It is not the strongest of the species that survives, nor the most intelligent,
but the ones most adaptable to change." Charles Darwin
Absolute Return More Important Than Relative
Return
Kuznets’ Infrastructure cycle averages 17.6 years for each bull or bear phase
Ten-fold, 15-20 year
Big Bull Market
15-20 yearConsolidating Bear Market
Cyclical ClimateNew Political Agendas and Administrations
globallythrough 2013
Still in churning phase of Kuznets cycle Europe sick with sovereign debt & austerity fears, US healing slowly from debt crisis and is improving
manufacturing efficiencies with fewer workers emerging markets coping with demand shrinkage from
their major markets in developed countries
Then why has US stock market been so strong?
Recent Market Surges WereFueled by Fed Stimulus
Liquidity
Stock Market Tracks Growth in GDP
For 40 years, ECRI’s
WLI Called every major SP500 Drop
The leading economic indicator (LEI), published by Economic Cycle Research Institute, is a weighted average of ten different economic and financial indicators. Above 50 is expansion, below 50 is contraction
Growth in WLI since January ’12 is now weakening
and WLI (absolute) is barely above 50 and remains below par
ISMs (PMIs) Confirm Direction of Stock Market
Market rises when ISM is above 50, except right after 9/11/2001
9/11
NAPM = 54.8
NMBA = 53.5
in April ‘12
Even the Workshop of The World
Is in Contraction
Consumer ConfidenceStruggling to Reach Prior
Lows
Consumer confidence still close to the worst during Normal periods
Small Business Confidenceis below normal and
weakening
Rhetoric Causes Trading Rhetoric Causes Trading RangesRanges
2013 Bull Rally 2013 Bull Rally Hinges on Hinges on Severity of Severity of AusterityAusterity
June Buying
Opportunity
Analysts’ Consensus Expects
Rebound from “Soft” 2012
Source: Morgan Stanley Research of Analyst Expectations
2012 Intermediate-Term 2012 Intermediate-Term Strategic ConclusionsStrategic Conclusions
Walk softly and carry a big stickWalk softly and carry a big stick
1. Active institutional bottom-fishing and Operation Twist in November 2011 produced strong relief rally to end-March, 2012, as cash hoards were put to work
2. Liquidity from Fed is over, Europe is in sovereign debt crisis, emerging markets slowing down all likely to cause US stocks to sag into seasonal low by July 4 th, ‘12
3. U.S manufacturing sector becoming healthier from “creative destruction” and better technologies. But investing methods require greater selectivity in strategies and vehicles during such uncertain times
4. Political uncertainties and posturing delays problem-solving into next administration. Stocks bobble (crab-like) through 2012 into a political relief rally in Fall 2012
5. Next administration “forced” to drastically cut spending, paring Government from 20% of GDP closer to historical 15%, increasing job-losses. Big Slice will be received better than frequent small slivers. European socialism/populism will worsen problems
6. Thus 2013 likely to be a “blood bath” year for the US economy and the stock market. Using Contras and Defensives could be critical to getting any positive returns.
Depends on Who You Are?Depends on Who You Are?
Passive Investor is defined by absence of Passive Investor is defined by absence of disciplined rules to sell-off losersdisciplined rules to sell-off losers ““Snooze and lose” has destroyed many nest eggsSnooze and lose” has destroyed many nest eggs
Active investors vary in degree of activityActive investors vary in degree of activity Timing to avoid big losses = dynamic asset allocation = MA12Timing to avoid big losses = dynamic asset allocation = MA12 Periodic rebalance ETFs = tactical asset allocation = IVYPeriodic rebalance ETFs = tactical asset allocation = IVY
Monthly weed and refresh of stocks = position tradingMonthly weed and refresh of stocks = position trading Daily or weekly trading = swing tradingDaily or weekly trading = swing trading
Modestly active investors need better tools to trigger Modestly active investors need better tools to trigger sound entry and exits that stay out of harm’s waysound entry and exits that stay out of harm’s way
Strategy PreferencesStrategy PreferencesFor Intermediate Term For Intermediate Term
InvestorsInvestors
Three Simple Strategiesfor Moderately Active Investors
to stay on the RIGHT side of the market
1. Exit stocks whenever Index drops below its 12 month moving average
2. Diversify risk by holding 5 non-correlated ETFs only when each above its 10 month MA
3. Find single best-class to boost return, with moderate drawdown, by holding the “top performing” ETF of the 5, refresh monthly
For Dynamic Asset Allocation during Cyclical Periods,For Dynamic Asset Allocation during Cyclical Periods, 12 Month Moving Average 12 Month Moving Average
Pinpoints Reversals and Minimizes Pinpoints Reversals and Minimizes Draw-downsDraw-downs
During 10 difficult years, would have averaged 6.6% annual gain with 11.5% max draw-down
vs 1.2% gain and 52.6% mdd with Buy & Hold
During past 60 years, using MA12 would have produced 40% more profit
IVY Spreadsheets, posted monthly,
Tells You Which ETFs to Hold
IVY BASIC, as shown, keeps you out of trouble and beats buy-and-hold returnsIVY TOP, best single ETF, produced 17.3% compound annual return over past five years
CDs with spreadsheets and tutorials available for $30
IVY was Cautiously Bullishat end of April 2012
IVY BASIC closed positions in VEU (Major Nations, exc USA) and DBC (commodities)
Holding VTI (US Large Caps), VNQ (Real Estate) and IEF (Bonds) for 60% invested
IVY TOP is holding VNQ
For Position traders,
Weather Forecastfor More Active Investors
When the facts change, I change my position.What do you do, sir?
- John Maynard Keynes
2011 Frustrating with Trading Ranges
and Short, Spiky Trend-Surges
2009 2010
2011
Now, SPY has pierced MA20 and MA50
and may find support again at past highs
For Position traders,
Would you be long
now?
RSI less than 50
Price is below MA50
MACD sloping down
and is under zero
DMIs are net-
negative
Risk Aversion is Absent in a liquidity melt-up, as Europe addresses sovereign
debt issues
Risk aversion = FEAR
Over Confidence =GREED
For Position Traders,
Bull runs take off when VIX drops below 25
McClellan Summation Index(MA20)
Confirmed Bull Rally before Xmasand the stall in March, finding support at prior highs
For PositionTraders,
Longs Make Money When More Than Half of SPX is above
MA50
For Position Traders,
50/50/0 Rules Signaled Xmas Bull Now Suggests More Downside If Support
Is Broken
For Position Traders,
With Current Uncertainties,Leadership Shifting to
Defensives
ConsumerDiscretionary
Healthcare
ConsumerStaples
Utilities
Weather Forecast:Sunny, but clouds on
horizon Bull rally confirmed in mid December with VIX
under 25, McC Sum crossing its MA20, and 50/50/zero chart
Rally faltering, with only 40% of SPX over MA50s 50/50/0, strong since Jan 1, now testing support at
bottom of trading range
End of Operation Twist in June and political rhetoric likely to trigger a nasty summer correction
Correction would provide a major buying opportunity for post-Election rally
For Swing Traders,
Recap of Today’s Points
Economy and stock market will be distressed for next several years
Three Simple Strategies can protect and enhance wealth, patiently
Position and swing trading can boost returns, whenever market moves advantageously as confirmed by a few key indicators
Any Questions ?
CDs with the 3 spreadsheets and 3 tutorials
are available for $30 here or by mail.Send check and return address to:
Herb Geissler1792 Taper Drive
Upper St. Clair, PA 15241