Sneak Peek: The Daily Decision Weekly Timing Model
February 7, 2010
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.
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TSP Daily Decision Service Members:
The market’s corrective phase continued last week as the major indices finished lower for a fourth consecutive week. However, thanks to a furious round of short-covering late in the day on Friday, the damage was limited to just -0.72% for the S&P 500, -0.55% on the DJIA, and -0.29 over on the NASDAQ.
The week began on a hopeful note as traders realized that the administration’s plan to punish and/or break up the big banks was unlikely to ever see the light of day from a legislative standpoint. With stocks oversold and appearing to have held at an important technical level, it wasn’t surprising to see a bounce higher early in the week.
However, the combination of overhead resistance, a failed auction in Portugal, and rumors of trouble in hedgefundland brought back the sellers in a big way. With worry about sovereign debt defaults in Europe running rampant, traders flocked to the safety of the dollar, which, in turn, wreaked havoc with the carry trade; forcing traders to unwind positions by buying dollars to cover shorts and selling stocks, commodities, and emerging markets.
The question of the day is if the decline has run its course. If you didn’t know that Friday’s big rally at the end of the day was program related, you could probably argue that a decline of -8.5% was enough of a pullback to entice the bargain hunters to return to the game. But, with the Dow popping up more than 100 points in 10 minutes with an hour to go in the day and then another 50 points in the final 10 minutes, it is clear that the move was program driven. As such, we’re of the mind that the current dance to the downside may not have ended on Friday afternoon.
Turning to our models, for the first time in nearly 11 months, our weekly model has moved into the sell zone. As a reminder, our weekly model is designed to "call" the overall direction of the market for the coming week. The weekly model has given signals to go neutral six times since the current “mini bull” began on March 10th, but you have to go all the way back to March 16th to find the last sell signal (which was quickly reversed).
Whether or not this particular signal turns out to be accurate or not is anybody’s guess. However, unless the bulls reassert themselves enthusiastically in the near future, we’re going to suggest that the character of the market has changed – and our first sell signal since early March would be entered as exhibit A.
With the market having already corrected -7.5% on a closing basis since its January 19th cycle high, we’re a little hesitant to jump on the short side immediately. Thus, we are going to watch the action closely on Monday to determine whether or not it is prudent to move into a short position in the Main and Hybrid models.
Please note that this is NOT a Trade Alert and we are not taking action at this time. As always, we will send a specific Trade Alert when we decide to make a move.
Enjoy the remainder of your weekend,
Dave Moenning
Founder TopStockPortfolios.com
Below is the Weekly Timing Signal reading for the week:
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The Bottom Line (Our Current Positions):
- Main Model: 100% Cash (Money Market)
- Agressive Model: 100% ProShares UltraShort S&P (SDS)
- Hybrid Model: 100% Cash (Money Market)
Daily Decision Performance Results
Below are the performance results of our model portfolios:
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Please see important disclosures on the inherent limitations of model portfolio results. Past performance is no guarantee of future results.
Chart Watch: S&P 500 (Last 6 Months)
About the Weekly Timing Signal
The Daily Decision Service employs two different "Timing Models" in order to help us make the decision of where (and how much) to be invested. We start each week with our "Weekly Timing Signal" which is updated over the weekend (after the computers have had a chance to crunch the numbers from hundreds of indicators). In short, the weekly signal is designed to anticipate the likely direction of the stock market during the coming week.
While the weekly signal has a stellar long-term record, the stock market has a tendency to have a mind of its own and to react swiftly to news. Thus, we depend on our Daily Model Indicators during the week to ensure that we stay in tune with the trend of the market at all times.
Long Term Performance Testing: Weekly Timing Signal
Before we ever go "live" with the trading strategy, we insist that the management system be thoroughly tested - preferably in good markets, bad markets and everything in between. So, before we introduced our Daily Decision service, we asked the largest institutional research firm in the country to conduct an independent test of the system. Although no backtest is ever perfect (far from it!), what we're looking for is an indication of how the system could perform in different conditions. In short, based on the numbers below, we feel the system has impressive potential and we thought you might enjoy seeing the numbers.
Below is a summary of the system test results which formed the basis of our Weekly Timing Signal. Please note that the results below do not represent actual trading. However, the test does provide us with an indication of what we might be able to expect in varying market environments such as a bull market, a bear market, and that annoying "in between" type of environment.
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The analysis and information in this report and on our website is for informational purposes only. No part of the material presented in this report or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the editors of TopStockPortfolios and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. Investors should always consult an investment professional before making any investment.
Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided.
The analysis provided is based on both technical and fundamental research and is provided “as is” without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.
The information contained in our websites and TopStockPortfolios publications is provided by Ridge Publishing Co. Inc. (Ridge). One of the principals of Ridge, Mr. David Moenning, is also President and majority shareholder of Heritage Capital Management, Inc. (HCM) a Chicago-based money management firm. HCM is registered with the U.S. Securities and Exchange Commission as an investment adviser. HCM also serves as a sub-advisor to other investment advisory firms. Ridge is a publisher and has not registered as an investment adviser. Neither HCM nor Ridge is registered as a broker-dealer.
Employees and affiliates of HCM and Ridge may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Editors will indicate whether they or HCM has a position in stocks or other securities mentioned in any publication. The disclosures will be accurate as of the time of publication and may change thereafter without notice.
The Daily Decision Models are model portfolios. The return calculations for the Main Model and Aggressive from 8/1/09 represent the implementation of the model portfolio strategies based on the trade alerts issued by the service. Returns from 3/6/09 through 7/31/09 represent the implementation of the model portfolio strategy based on the Daily Decision Model signals as published on the website. Return calculations prior to 3/6/2009 represent hypothetical system testing. Returns for the main model assume going long the S&P 500 on buy signals, short the S&P 500 on sell signals, and to cash on neutral signals. Returns for the Aggressive model assume going long Proshares Ultra Russell 2000 ETF on buy signals and short the ETF on sell signals up to 9/2/09 and then implementing the trade alerts thereafter. Returns for the Hybrid model through 8/30/09 mirror the Aggressive model transactions. From 8/30/09 through 9/24/09 the Hybrid model returns assume using the Main Model signals and the Aggressive model positions. Returns after 9/24/09 represent the implementation of the trade alerts thereafter. The return calculations for the Historical System Test are based on system testing from 1/1/1980 through 12/31/2008. From 1/1/1980 through 12/31/1986, historical test results utilized long-only modeling.
Hypothetical system testing and model portfolios do not represent actual trading. It should be noted that backtested results do not take into account payment of commissions or reinvestment of dividends, have inherent limitations, incorporates the benefit of hindsight in the development of the model, and are for informational purposes only.
Your actual results may differ from results reported for the model portfolio for many reasons, including, without limitation: (i) performance results for the model portfolio do not reflect trading commissions that you may or may not incur; (ii) performance results for the model portfolio do not account for the impact, if any, of certain market factors, such as lack of liquidity, that may affect your results; (iii) the securities chosen for the model portfolio may be volatile, and although the "purchase" or "sale" of a security in the model portfolio will not be made in the model portfolio until confirmation that the email alert has been sent to all subscribers, delivery delays and other factors may cause the price you obtain to differ substantially from the price at the time the alert was sent; and (iv) the prices of securities in the model portfolio at the point in time you begin subscribing to our service may be higher than such prices at the time such stocks or options were chosen for inclusion in the model portfolio.
The S&P 500 is a stock market index containing the stocks of 500 large-cap corporations, most of which are US companies. The index is the most notable of the many indices owned and maintained by Standard & Poor's, a division of McGraw-Hill. S&P 500 is used in reference not only to the index but also to the 500 companies that have their common stock included in the index. S&P 500 returns from 1980 through 2008 are "total return" and include the reinvestment of dividends.Investors cannot invest directly in the index.
Investments in equities carry an inherent element of risk including the potential for significant loss of principal. Past performance is not an indication of future results.