Good Evening,
I am surprised, but there is no denying it, the V-shaped bounce is back in 2014. It was my opinion, as well as that of many others, that the character of the market had changed in 2014. That we were returning to life as we knew it before the FED intervened in the market a little over 26 months ago. The correction had reached -7% and it looked for sure like it was going to breech the -10% mark (the technical level of a correction) which it had not done since the FED manipulation started. But lo and behold, here came the dip buyers again buoyed by some bad news that was taken as good, which has been another characteristic of the FED manipulated market. We thought it was gone, but now that it has returned we must deal with it. Here is a chart of the S&P 500. I have annotated the last two V shaped bounces that have occurred. It should be noted that these rarely if ever occurred prior to the injection of cheap money into the system by the FED.
Today’s C-Fund Chart
So what does this mean? Anyone who shorts the market (sells the weakness) in order to buy it back on the rebound will be left behind. This became so prominent during the past 2 years that most traders who were able to adapt found themselves buying and holding. A practice that they are very uncomfortable with because it generally has produced poor results in the past. Nevertheless, our group adapted by using a stiffer set of indicators that allowed a greater loss before producing a sell signal. Due to the tapering by the FED, it was the consensus among most experienced traders that in 2014 trading would return to normal and it certainly appeared that was indeed the case until today. The FED have now reduced the amount of bond buying by 20 Billion per month to a purchase of 65 Billion per month. At what point in the taper things will return to normal is anybody’s guess. The bottom line is this, until that happens we can either buy and hold or we can chase the market. Due to the tapering, the practice of buying and holding carries a much higher risk than it did in 2013. Inversely, the practice of using sound money management and taking defensive measures when the selling starts may cause you to under-perform as it did in 2013. I choose to chase the market for now because I firmly believe that the character of this market will continue to change with additional tapering and I don’t want to be caught leaning the wrong way when the “big” correction comes. I will sacrifice performance at the alter of safety because “It’s not what you make, it’s what you keep.” Admiral Halsey- The Christian version “Darn the torpedoes and full speed ahead!”
So here’s what happened today:
Stocks end choppy week on a high note
The day’s trading left us with the following signals: C-Neutral, S-Sell, I-Sell, F-Buy. Our current allocation is 10/G, 90/F. If is -2.76% so far in 2014. Here are the latest posted results:
| 02/06/14 | |||||
| Fund | G Fund | F Fund | C Fund | S Fund | I Fund |
| Price | 14.3229 | 15.9817 | 22.953 | 32.5233 | 24.4617 |
| $ Change | 0.0009 | -0.0123 | 0.2936 | 0.3558 | 0.3237 |
| % Change day | +0.01% | -0.08% | +1.30% | +1.11% | +1.34% |
| % Change week | +0.04% | -0.05% | -0.43% | -1.53% | -0.29% |
| % Change month | +0.04% | -0.05% | -0.43% | -1.53% | -0.29% |
| % Change year | +0.25% | +1.53% | -3.86% | -3.41% | -4.31% |
| L INC | L 2020 | L 2030 | L 2040 | L 2050 | |
| Price | 16.7318 | 21.394 | 22.8928 | 24.1372 | 13.6093 |
| $ Change | 0.0426 | 0.1412 | 0.1910 | 0.2305 | 0.1469 |
| % Change day | +0.26% | +0.66% | +0.84% | +0.96% | +1.09% |
| % Change week | -0.08% | -0.28% | -0.38% | -0.47% | -0.54% |
| % Change month | -0.08% | -0.28% | -0.38% | -0.47% | -0.54% |
| % Change year | -0.50% | -1.84% | -2.41% | -2.81% | -3.23% |
Here is the current chart for the F Fund.
As you can see, we’re still in pretty good shape. I’ll continue to monitor the charts closely and should they roll over (sell in defensive funds/buy in equities) we will make the appropriate changes to our allocation. However, I will be very cautious with any move to the equity based funds at this time and will not do so until they are solidly back in upward trends. That’s the sacrifice of performance that I eluded to earlier, or even better yet, the insurance that I was talking about last night. That’s all for this week! I’m exhausted!!! May God continue to bless your trades.
Scott
