S&P 500 Index 1428
By Steve Blumenthal
December 12, 2012
Included in this weeks Trade Signals are the following:
- Updated Sentiment Charts – sentiment is neutral. I continue to favor “RISK ON”
- CMG Core Four Strategy Updates – current positioning (below highlighted in yellow)
Equity Market Update: “RISK ON”
I continue to favor RISK ON as Investor Sentiment continues to move higher in both the NDR Daily Trading Sentiment Composite and the NDR Crowd Sentiment Poll. Sentiment readings in both charts remain below Extreme Optimism and continue to support a bullish posture. See the Charts 1 and 2.
Investment Sentiment charts 12-12-12:
Chart 1. NDR Daily Trading Sentiment Composite. Favors RISK ON
- Note that the Gain/Annum (red arrow on the left) of 28.6% when Investor Sentiment as measured by NDR’s Daily Trading Sentiment Composite is below 41.8. Also note the Gain/Annum of -12.1% when Investor Sentiment is above 62.5.
- The “active hedging” idea is to go against the crowd at points of either Extreme Optimism or Extreme Pessimism. “Buy when everyone else is selling and sell when everyone else is buying”.
- I will be looking to hedge once again (ideas: covered calls and buy puts or add leveraged inverse ETF’s) when sentiment reaches the Excessive Optimism area (above 62.5). I marked a blue target area on Chart 1. I like to put hedges in place when the market reaches logical overhead resistance at the same time Investor Sentiment reaches the is Extreme Optimism zone (above 62.5).
Chart 2. NDR Crowd Sentiment Poll – continues to move higher in the neutral zone. This too favors RISK ON
Active hedging strategy:
Within the long-term secular bear environment I believe we are in, I favor hedging the long-term equity portfolio exposure tied to periods of Extreme Optimism and removing those hedges tied to periods of Extreme Pessimism. I like Put options and covered calls against long equity exposure. Never sell “naked” put or call options. Another idea is to budget a percentage of your long equity exposure to actively put on and take off exposure to a leveraged inverse index based ETF.
We are in a period of time which favors actively hedging long equity exposure. I like putting hedges on when investors are extremely optimistic and removing hedges when investors are extremely pessimistic. The focus on the long equity portion of your portfolio is to enhance return, reduce risk and preserve capital. Go to www.cboe.com to learn more about options. All investments involve risk.
Sentiment – Outlook – Risk Management Summary
My broader view is that I continue to believe we are in a long-term secular bear environment and that the equity market upside will be constrained as we struggle with the weight of excessive debt, excessive regulation, increased taxation, irresponsible spending and unmanageable entitlements. Too much debt constrains growth; and today’s low yields and modestly high valuations simply don’t support attractive forward 10-year return expectations.
CMG Tactical Strategies – Current Positioning
CMG Managed HY Bond Program: The strategy is long HY bond funds and enjoying an attractive advance. The strategy is up over 10.50% year-to-date net of fees and has a 20 year track record. The idea is to participate during periods of rising prices gaining return by capturing price gains and the high yields the fund produce. Additionally, the goal of the strategy is to avoid periods of price decline. We have a strict focus on stop loss risk management. Performance has been strong year-to-date. http://www.cmgwealth.com/our-products/separately-managed-accounts/individual-strategies/cmg-managed-hy/
System Research Treasury Bond Program: Currently short-treasury bond exposure. The strategy will trade either long or short (via an inverse treasury bond fund) long term Treasury bond exposure. Performance has been strong year-to-date. http://www.cmgwealth.com/our-products/separately-managed-accounts/individual-strategies/sr-treasury-bond/
Scotia Partners Growth S&P Plus Program: Scotia’s model is in a bullish model position. When the signals are in agreement on a bullish up trend, the strategy will enter into an long 2x S&P trade on an down day within the up trend (as measured by the S&P 500 Index). The goal is to identify the directional trend of the market and profit from the trend. Simply, the strategy will trade long the S&P on a down day within an up trending market attempting to profit when the S&P advances. The reverse is true when the model is in a confirmed bearish trend reading. Additionally, the strategy has a mean reversion signal that goes short the market when the market is overbought (typically up 4 or 5 days in a row), or long the market when it is oversold (typically down 4 or 5 days in a row). Performance has been disappointing year-to-date; however, we continue to believe it is important to build a portfolio with multiple risk drivers including strategies that have the ability to make money in both up and down trending environments. For example, the strategy gained 75% in 2008. If the current year-to-date decline of 7% net of fees holds, 2012 will mark the first losing year since the funds inception in 2004. Click here for more information and important disclosures. http://www.cmgwealth.com/our-products/separately-managed-accounts/individual-strategies/scotia-growth-sp-plus/
CMG Opportunistic All Asset Strategy: There has been a decided shift towards equities over the last several weeks. This strategy has been doing a good job of increasing equity exposure during bullish periods and increasing fixed income exposure ahead of bearish trending periods. Performance has been strong year-to-date. To learn more go to: http://www.cmgwealth.com/our-products/separately-managed-accounts/individual-strategies/cmg-opportunistic/
Tactical Investment and other Trading – Alternative strategies:
Please note: Within your portfolio construction process, I do not recommend hedges against your tactical strategy allocations as they already offer a diversifying return stream to your overall portfolio. The idea within the Enhanced MPT portfolio construction process is to combine a diverse set of risks that include assets/strategies that historically produce non-correlating return streams (i.e. strategies with the ability to profit in up or down trending markets). Of course, past performance can not predict or guarantee future performance.
With warm regards,
Steve
Stephen B. Blumenthal
Founder & CEO
CMG Capital Management Group, Inc.
1000 Continental Drive, Suite 570
King of Prussia, PA 19406
steve@cmgwealth.com
610-989-9090 Phone
610-989-9092 Fax
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Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended and/or undertaken by CMG Capital Management Group, Inc (or any of its related entities-together “CMG”) will be profitable, equal any historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. No portion of the content should be construed as an offer or solicitation for the purchase or sale of any security. References to specific securities, investment programs or funds are for illustrative purposes only and are not intended to be, and should not be interpreted as recommendations to purchase or sell such securities.
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Written Disclosure Statement. CMG is an SEC registered investment adviser principally located in King of Prussia, PA. Stephen B. Blumenthal is CMG’s founder and CEO. Please note: The above views are those of CMG and its CEO, Stephen Blumenthal, and do not reflect those of any sub-advisor that CMG may engage to manage any CMG strategy. A copy of CMG’s current written disclosure statement discussing advisory services and fees is available upon request or via CMG’s internet web site at (http://www.cmgwealth.com/disclosures/advs).