Sneak Peek: The Daily Decision (New Strategy for Aggressive Model)

Sneak Peek: The Daily Decision Service

On occasion, TSP allows all visitors to "sneak a peek" inside one of our portfolios. This is not a promotional piece on the service, but rather a live look into the service's latest report to subscribers. Below is this week's report on the weekly timing signal reading.

If you'd like to save on the Daily Decision, here's the link: Save 33% on The TSP Daily Decision (Just $109.99 a quarter)

 

TSP Daily Decision Service Members:

It was another tough week in the stock market with the market falling each and every session. (And for those of you keeping score at home, the DJIA has now been down 9 of the last 10 days.) The end result saw the DJIA fall -4.5%, the S&P dropped an even -5%, the NASDAQ dove -5.9%, and Russell 2000 tumbled -7.1%.

The week didn’t start off too badly as last weekend's G20 meeting was highlighted by calls for austerity via increased taxes and decreased spending (usually a combination that does not lead to strong economic growth or stellar returns in the stock market). The new austerity movement, which economists tell us is potentially deflationary, seemed to spook investors who are wary that the best days of the current global economic recovery may be behind us already.

Adding to the gloom-and-doom atmosphere was an article by NY Times columnist Paul Krugman entitled, "The Third Depression." As you might be able to guess given the title, the article suggests that we are in the early stages of an all-out depression.

Another supporting factor for the week’s decline had to do with the downward revision to the Conference Board’s LEI (Leading Economic Index) for China. Closer to home, a sharp decline in consumer confidence as well as sluggish trends in the manufacturing and employment data left investors underwhelmed about the outlook for the global economy.

Looking at our positions, we were pleased to have sidestepped the big decline this week in the Main and Hybrid models, which were snuggled up in cash and on the sidelines.

In the Aggressive Model, we decided to make an adjustment to the trading strategy for the model last week. After many, many requests from subscribers, we’ve decided to up the ante a bit. Thus, the Aggressive model will begin employing triple-leveraged ETF’s in the program. On the long side this means we will be choosing from the ProShares UltraPro S&P 500 (UPRO), ProShares UltraPro QQQ (TQQQ), and the Direxion Daily Small Cap Bull 3X (TNA). Then on the short side, our options will include: SPXU, SQQQ, and TZA.

To review, our Main Model is a long/short/neutral strategy using 1-to-1 S&P 500 ETF’s (SPY, SH). Our Hybrid Model also incorporates a long/short/neutral strategy but uses 2X leveraged ETF’s and employs "manager selection" in terms of what index/ETF to use on each trade. And the our Aggressive Model will now utilize a long/short strategy and 3X ETF’s.

While we embrace the change in strategy and the corresponding expansion of the differentiation between our three models, implementing such a change on the fly can prove challenging. Thus, in light of the fact that we were on the wrong side of the trend and yet not anxious to jump into a leveraged short position after 10 straight down days, we decided to call a “time out” by moving to cash. And since cash is not generally an option for the model, we will be looking for an opportunity to take the appropriate position this week.

Turning to our models, our weekly timing model, which attempts to “call” the direction of the action for the coming week remains in the Neutral zone this week. This tells us to lean toward the sidelines in our Main and Hybrid models and look to our Daily model for further direction on a short-term basis.

Gun to the head, we’d bet that the recent data, which shows that the economies of Europe are not falling off of a cliff, will support a rebound. We will be watching the strength of that rebound as a key “tell” for what to expect next. For example, should we see signs of traders continuing to sell into rallies, we would expect to see some additional downside ahead. However, if the bulls can get their act together, stocks could enjoy a strong rebound in the near-term. So, don’t touch that dial…

As a reminder, we will