Any thoughts that the stock market was going to extend its rally were shortened last week by a truly horrendous jobs report. In an economy that needs 250,000 new jobs each month just to replace retirees, we only had slightly more than 80,000 in March. The economists’ expectations were bunched around 200,000, so the disappointment in the air was palpable when the market opened and swiftly sank 150 points on the Dow Industrials.
Which would you rather have: Investment A with only a 20% cumulative return or Investment B with almost a 200% cumulative return? Would you choose Investment A with several years of losses and only a few years of gains, or pick Investment B with only a few down years and many more years of cumulative gains? Would you want to go through two periods of losses of over 30% with Investment A or the smoother ride with Investment B?
With the S&P 500 reaching new post-crash highs, it is interesting, to say the least, that most individual investors are not bullish on stocks. Rather, as the market has moved relentlessly higher this year, individual investors have turned more and more bearish. Continue reading
The last four days the world has been slightly out of focus for me. I had knee surgery on Wednesday (walked on too many cobblestones in old European cities, I guess) and then a wisdom tooth extraction on Saturday morning (good thing I packed my market wisdom into our computer programs before the surgery!). Both were under anesthesia and so, the world was slowly coming back into focus at last on Sunday.
The NASDAQ 100 continues to lurch forward with the rest of the stock market indices. Four days spent in a 17-point range kept the index below the anticipated 2655 closing value until Friday, when a strong advance brought it close to the 2700 level. Still at 2X in this choppy market, the Self-Adjusting Trend Following strategy closed the week up just over 2% for the third week in a row. Looking back, the last time the index was near 2700 was the prior period when STF was 2X. The shift to 1X took place around 2639, and the shift back to 2X at 2612 was four weeks ago. For the month of July, STF produced a positive gain of 1.69%
Another positive week for the NASDAQ 100 (up 1.1%) resulted in another 2% gain for STF as it remains 2X long. Early in the week, this looked to be a pretty poor choice as weakness in Apple, in particular, caused the NASDAQ 100 to underperform the S&P 500 and Dow Indices. The NASDAQ 100 has been in a relatively strong channel recently, so if that trend continues, we may see a close this week above 2655.
“Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die 
on euphoria.”
Sir John Templeton
The majority of the news headlines are scary: “Europe is in Recession,” “US Unemployment Remains Stuck at 8.2%,” “Growth in Emerging Markets Continues to Slow,” etc. It is no wonder that investors are reacting emotionally on this pessimism, avoiding equities and plowing record amounts of money into money market funds (with no yields) and bond funds, even though interest rates are at or near historic lows.
We were flying back to the USA from London on a jumbo jet Saturday. The cabin attendant looked at us and said, “Did you just fly this route?” “Nope, not for many years,” I replied. “I could have sworn I just stopped and talked to you,” he said. Simultaneously, we both blurted out, “Déjà vu!”