No surprises here this week. As we suggested last Monday, stocks continued to weaken (down the most in five months but just 2.12% in the scheme of things on the S&P) as they hit a short-term top, while gold bounced off the bottom put in place last Monday.
It was another down week for the NASDAQ 100, the fifth in a row, and now down six of the last seven weeks since mid-September, when the markets reached their 2012 highs. The
NASDAQ 100 lost 2.72% and is below its 200-day moving average five of the last eight trading sessions.
While the election, or at least the results of the election, seems to be the obvious reason for this weakness, there were a few stock stories from the week gone by.
Priceline announced the purchase of Kayak for more than a billion in stock and cash. As is usual in these deals, the acquiring company stock, which is in the NASDAQ 100, fell on the news.
The storm-shortened week left the NASDAQ 100 down 0.2% this past week. There was quite a bit of movement, though, as Thursday’s big gain was lost in Friday’s equally big loss. Apple, the biggest component in the NASDAQ 100 was down over 4% for the week after the release of the iPad mini and other refreshed products. Microsoft in comparison saw its stock rise over 4%.
Two of the biggest components in the NASDAQ 100 – Apple and Microsoft – had a busy week. Apple announced new products, including the much-anticipated mini iPad, a new iPad, new MacBook and new notebook. Apple also announced earnings, and while it beat on revenue, it fell short on earnings and the sales numbers for some specific products. Margins also looked poorer than past reports. Microsoft announced Windows 8, as well as its own hardware offering called Surface. These two launches are an attempt to redefine the company to a new touch-centric approach.
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.
The Self-Adjusting Trend Following investors are waking up this week to 2X long the NASDAQ 100. This occurred due to the strength in the index since the double bottom of mid-May and June 1st. However, this position also occurred in spite of the first weekly loss since May (down just 0.13% for the Independence Holiday trading week) and with one of the long-term moving averages still showing weakness. STF should continue to hold this position unless further negativity breaks the market down, or the long-term moving averages converge – creating a replay of what happened at the end of July last year.
This week marks the beginning of the earnings season, and the first big player out of the box for the NASDAQ 100 is Google. Apple has recently risen from the $520-range to back above $600/share, maybe on the thought that it is the best house in the tech neighborhood. Earnings expectations are low, so good news could keep this market buoyant in the face of ongoing political and international news.
Why does our Self-Adjusting Trend Following strategy stay 2X long against a market that in the short term is clearly going down and an index that has broken through support levels like the 50-day moving average? Why not reduce the risk in the portfolio during events like the last three weeks? It may have been frustrating to watch 2X losses pile up since April 2nd, but Wednesday is why STF is 
patient with the market and more focused on the trends than the individual bit of information like today’s price of the market. The NASDAQ 100 rallied almost 3.9% from Tuesday’s close. The overall trends utilized in STF have not broken down this year, and until they do, STF will persistently hold to those trends.