Sneak Peek: The Daily Decision (New Strategy for Aggressive Model)
July 5, 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:
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 always send a Trade Alert via email BEFORE we make a move.
Enjoy the remainder of your weekend,
Dave Moenning
Founder TopStockPortfolios.com
Daily Decision Weekly Model Reading
Below is the Weekly Timing Signal reading for the week:
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Daily Decision Current Positions of Models
Below is a summary of our current holdings in each of our three Daily Decision Modesl:
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Daily Decision Performance Results
Here are the latest performance results of all three model portfolios:
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Please see important disclosures on the inherent limitations of model portfolio results. Past performance is not a guarantee of future results.
S&P 500 Last 12 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.
Our assumptions for the backtested results for the Hybrid and Aggressive Models for 2007 and 2008 are as follows: For the Aggressive Model, when on a Buy, we used the double-long Russell 2000 ETF (UWM) after 1/25/07 (the inception date for the UWM) and the double-short S&P 500 ETF (SDS) for short signals. For the Hybrid Model we incorporated the same approach, but also used T-bills when the model was in the neutral position.
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.