The Mike Turner CycleProphet Report for Monday, December 2, 2013

Last week, I cautioned you to be vigilant regarding an end to the current nearly 5-year bull market. I did not say the end was imminent; although it could start at any time. Indeed, this bull market could last for several more years. The average major bull market, historically, has lasted for more than a decade (see DJIA Historical Consolidation Periods chart, below), except for the crash of 1929, if you assume the beginning of these multi-year bull markets start at a break-out of a multi-year consolidation period and ends at the beginning of the next consolidation period (see bull markets following each of the green-shaded Consolidation Periods in the chart, below).

 

 

The most recent consolidation period began in January of 2000 and ended when the DJIA significantly crossed above the 14,000 level in February of this year (see Current Consolidation chart, below). One could easily argue, if you assume we are in a 'normal' market, that the move above 14,000 was the start of a real bull market that could last another decade if history repeats itself as it did in 1925, 1950 and 1982.

 

 

If I believed this is a 'normal' market, then I would have a lot more confidence that this raging surge higher will continue for a long, long time; with only short-term 'corrections' of 10% or more.

I like trading in a bull market. Who doesn't? My Signal Investor portfolio (see stats, below) is up nearly 40% for the year, while the S&P 500 is up 26.62%.. By the way, follow this link if you want to see 100% of the historical trades on this portfolio.

There are two major flaws with assuming the market will only move higher:

 

     

  1. This is, quite likely, NOT a 'normal' market; not when interest rate price fixing is in play on a global scale, and
  2. There are trillions of dollars of not-real money being pumped into financial structures around the world in the form of central bank bond (and other) buy-back schemes (aka, monetization of sovereign debt).

     

 

In other words, global markets in general and the US stock market in specific, are being propped up through artificial stimulus. This is wonderful for those of us who own stocks, but it is a terrible thing for true economic underpinning. We, as stock market investors, want our money invested in stocks with solid economic foundations for supporting both top and bottom-line growth. Unfortunately, a significant portion of the success of our portfolios is based on temporary and unsustainable free money being printed one way or the other by central banks.

This, of course, can continue indefinitely; but not forever. So, there are some important issues to consider when putting your hard-earned money to work in the stock market:

 

     

  • Can central banks and sovereign governments print enough fiat money to outpace real economic conditions that are, at best, anemic? You and I both know that real economic conditions in the US are weak, at best. Real unemployment is unsustainably high. The country is being forced into a 30-hour Obamacare-induced work-week. Take-home pay has dropped significantly over the past 4 years. Far too many people have given up looking for a job. Too many people are on non-social security government assistance just to survive. What is worse, there does not seem to be much if any improvement coming in the future in regard to these stats.
  • Can the US and global economies actually get back on their feet with real top-line growth and expanding numbers of employees before the central banks quit juicing the market? If economies and employment numbers can improve significantly (the operative word), then central banks can dial back their price-fixing of interest rates and extremely loose monetary supply. If this can occur reasonably simultaneously, then the markets could soar higher. Unfortunately, those are some very big if's.
  • There is a very real possibility that the Obama-driven liberal experiment regarding the takeover of healthcare in the US, will be a colossal failure. Not taking one side or the other, if this does occur, then the uncertainty of one-sixth of our economy could be a significant catalyst to a downturn in the stock market. This social experiment is the largest power grab by our government in history and time will tell if it is truly for the good of the people. There are strong arguments on both sides and the current roll-out has not been well received by most people. The problem is, there does not seem to be a viable alternative at this juncture. It's a little like being taken over by the Borg in Star Trek. Once you are added to the 'collective', there is no removing the implants from your system without killing the patient. We can only hope there is a happy ending to this unfolding painful story.

     

 

The bottom-line? Stay vigilant and remain skeptical, but by all means, do not stay out of this bull market.

 


 

The Bull/Bear and Turner Oscillator Reports...

 

The ratio of new technical long buys to new technical short sells is a solid 2-to-1 in favor of the bulls this week. And with three of the four major index forecasts indicating a mild head-wind and one (the Russell 2000) indicating a fairly strong tail-wind for this week for bullish trades, the rating has moved up a notch to [ - 1].

12% of the inverse ETFs are in a Buy Mode (the same number as last week). The bulk of these ETFs continue to be commodity (gold/oil) and VIX related; although a new entry this week is from the Agriculture segment of the market. With no broad market inverse ETFs in the group, there is no indication of an impending change in the bullish nature of the market.

The black line (net of the total of new technical long buy signals for the month minus the net of the total of new technical short sell signals for the month), is not quite as bearish this week as it was last week. But, it is important to note that this type of pattern has, historically, been more likely than not a signal of a near-term sell-off in the broader market.

The bottom-line this week is the same as last week: As long as global central banks (especially the US Federal Reserve) continue to backstop the market with trillions of dollars of monetary infusion, and as long as interest rates are being artificially kept at or near 0%, buying into weakness continues to be a reasonable strategy.

Turner Bull/Bear Forecast
For the Upcoming Week

Investor Sentiment Weekly Forecast

The Turner Bull/Bear Forecast™ provides a one-week directional forecast on the market, with [-5] being the most Bearish and a [+5] being the most Bullish. This is predicated on the ratio of number of new Buy Signals to the number of new Short Sell Signals for the previous week. The assumption is investors are becoming more Bullish the more lopsided the ratio becomes in favor of new Buy Signals; and, the converse is true; the more lopsided the ratio becomes in favor of new Short Sell Signals, the more Bearish investor sentiment.

 

Turner CrossOver Oscillator

The Turner CrossOver Oscillator™ provides an indication of the over-bought or over-sold condition of the market. The red line (New Short Sell Signals) shows a technical direction and strength (or lack thereof) of investors to push stock prices lower, triggering new Short Sell Signals. The higher the Short Sell Signals line, the more Bearish the market. The black line (Composite of both Short Sell and Long Buy Signals) is the combined impact of both the new Short Sell Signals and the new Buy Signals and is an indication of the degree of oversold or overbought condition of the market. Buying opportunities exist when the Composite of Signals line is moving higher. The higher this line moves, the more Bullish the market. Market bottoms are represented by a change in direction of the Composite of Signals line from moving lower to moving higher. Market corrections become much more likely when the Composite of Signals line crosses the Short Sell Signals line from below the Short Sell Signals line to above the Short Sell Signals line. The market is represented by the green shaded area.

 


 

Mike Turner's Managed Account Services...

 

We have had several inquiries regarding the difference between my involvement with CycleProphet and Sabinal Capital Investments.

CycleProphet is a subscription-based service company (that I own) where we provide tools and model portfolios for individual traders and investors who want to and have the time to manage their own money. The goal of these services is to provide self-directed investors/traders with world-class trade-timing tools and trading ideas that result in market-beating returns, in exchange for a very nominal subscription fee.

Sabinal Capital, on the other hand, is a licensed registered advisory (that I also own) where I manage a single portfolio (the Sabinal One Portfolio) of stocks and ETFs. Many of my clients start out being CycleProphet subscribers. They learn the value of the tools and strategies that I use and then come to me for money management when they have the confidence in my approach to the market and do not have the time or desire to manage their own stock market portfolio. As a side note... Some of my Sabinal clients like to have me manage part of their investable funds while they continue to manage some or all of the rest of their funds. These clients enjoy getting complimentary access to CycleProphet. All Sabinal Capital clients get a complimentary (free) subscription to CycleProphet.

One question comes up a lot: "Is the Sabinal One portfolio the same as the Signal Investor portfolio?"

They are NOT the same although I do use virtually identical trading methodologies in both portfolios.

Sabinal uses a "Managed Account" approach where my clients remain in control of their funds at all times in an account that belongs exclusively to them. They give me limited trading authority to make trades on their behalf, but they always have 24/7 access to their account and can start/stop my management of their account at a moment's notice at any time.

My Trading Methodology is rules-based, meaning I have a trading rule for every market condition, including both bull and bear market cycles. I am diligent and disciplined in my application of these rules. These rules cover equity selection, timing for trade entry and timing for trade exit.

You will find that I do not 'like' or 'dislike' any equity, thus removing any emotion from my trade decisions. I make the rules, but the rules make the trades.

Most of my entry trades are executed at the beginning each trading week, but exits can occur at any time a change in trend is detected by my quant-based computer algorithms.

My goal is to remain 100% invested at all times but there can be times when the portfolio is 100% cash.

My approach to trading is very tactical; meaning, I buy upward trending equities and exit those trades the moment a reversal in pricing trend is detected. I do not believe in a buy-and-hold strategy. Most trades are held in the portfolio for less than 90 days and will not qualify for long-term capital gains considerations.

I use my computer generated scoring system in my selection of equities to put into and remove from the portfolio. I use fundamental scoring to tell me which equities to consider putting into the portfolio. I use technical scoring for timing when to get in or out of fundamentally strong equities. And, I use my mathematically based time-cycle forecasts to see if my equity selection is likely to have a tailwind in its near-term pricing trend.

The Sabinal One Long/Short Investment Strategy

It is a fact that markets go through bull and bear cycles. If an investment strategy is long-only (such a most 401k programs and most mutual funds), the strategy generally does well in bull market cycles, but can be crushed in bear cycles. No one wants to go through another 2008 bear market where losses can exceed 50% or more. The Sabinal One Long/Short investment strategy is designed to generate real net profits in bull markets and bear markets; even if that bear market is as bad as 2008 or worse.

My long/short approach to investing in the stock market is to be long and bullish in most trades in bull markets; and, long and bearish in most trades in bear markets.

My quant-based computer programs help me determine when a market or market segment has moved from a bullish trend to a bearish trend. When a bearish trend begins, I move my clients out of long bull-biased trades. Once the bear market is confirmed by our computerized analysis, I move my clients into inverse ETFs (Exchange Traded Funds).

The objective is simple: Be fully invested in long bull-biased trades in bull markets; and, be fully invested in long bear-biased trades via inverse ETFs in bear markets.

This strategy gives the portfolio the ability to generate profits in both bull and bear markets.

Shorting

The Sabinal One Portfolio does not hold short positions. The Portfolio only holds cash or long positions. However, when market conditions warrant, I will execute long trades in short (inverse) ETFs.

Options, FOREX and Futures

The Sabinal One Portfolio does not hold options, FOREX or futures.

Asset Allocation

I typically will not put more than 5% of the portfolio's value into an opening position. As the holding grows in value over time, the portfolio can become out-of-balance with regard to the equal distribution objective. When those instances occur, we may sell some or all shares of any holding to keep the portfolio more-or-less equal weighted among all holdings.

Diversification

The Sabinal One portfolio should not be considered as a "Diversified Investment Strategy". This is because the portfolio only invests in the stock market. However, within its stock market investments, its goal is to have no more than 30% of the total value of the portfolio in any one stock market "Sector" and no more than 20% of the total value of the portfolio in any one stock market "Industry". The terms, "Sector" and "Industry" are standard grouping codes used in the financial industry.

The Sabinal One Overall Approach to Trading

The Sabinal One portfolio has a target of being 100% invested at all times. Typically, a "holding" in the portfolio is defined as an investment into a stock or ETF in terms of shares purchased. I rely heavily on my quantitative analysis computer programs and forecasting algorithms for equity selection. Holdings are sold when any of the following occur:

     

  • My computer programs rate, rank and score each equity in the Sabinal One portfolio. When a holding no longer maintains a high enough score, I will sell the holding and look for a suitable replacement.
  • I utilize a quantitatively-derived trend reversal detection strategy for each holding. When the computer detects a trend reversal (as opposed to normal volatility) is in play my stop limit price is triggered. I use "Stop Limits", which means I will only accept the stop price in a falling share price situation. Should the share price of a holding fall through the Stop Limit without trading, I may sell the position at the best price available or I may reset the stop price at a lower number or I may remove the stop for an unspecified period of time or I may allow the holding to move higher until it trades at the stop limit price.
  • I may, from time-to-time, choose to raise or lower a stop to an arbitrary price or I may close the position by selling some or all shares due to our evaluation of market conditions or to lock in profits or limit losses.

     

 

Should you want to know more about my money management services, please follow this link and fill out the Request for More Information form. My office will get in touch with you and set up a personal phone call with me where we can discuss your financial situation and whether or not the Sabinal One portfolio is a good solution for some of your investable net worth.

 


 

Closing Thoughts...

 

This past week I received a well thought-out email from a subscriber, which basically said, "We are in a raging bull market so quit working so hard and just put everything in the stock market."

My first thought was, "With emails like this, are we now at a market top?"

Certainly, at the top of every major bull market, there will be those that jump in with the assumption that the market can only go higher. In most instances, the last people to join a bull market are the ones who cannot stay on the sidelines any longer and finally, after saying the market cannot continue to move higher, capitulate and jump in with both feet and all their money. This type of investor inevitably comes in just before a major crash or correction.

I am a firm believer in staying the course in all markets. In my case, the "course" is to be 100% in the market when it is in a bull trend (as it is now) and 100% in the market (utilizing inverse ETFs) in a bear market (as we will encounter at some point in the future).

The market will one day, either move into an extended bear trend at worst... or move into another consolidation period, at best. In the meantime, I will continue to 'work hard' looking for stocks that have upside potential.

Through 11 months this year, I am beating the market by about 45.7%. I'd say 'working hard' has paid off for me and those who follow my example.

Have a great week in the market!

Mike Turner, President CycleProphet, Inc.

Mike Turner, Founder and President
CycleProphet, Inc.





Posted 12-02-2013 1:47 PM by Mike Turner