S&P 500 Index 1462
By Steve Blumenthal
January 09, 2013
Included in this week’s Trade Signals are the following:
- Updated Sentiment Charts – Daily Trading Sentiment has moved back into the Excessive Optimism zone. Weekly Crowd Sentiment is moving higher within the Neutral zone. I continue to cautiously favor “RISK ON” but be prepared to hedge.
- High Yield bond signal remains in a “buy”. Favors RISK ON.
- I recommend you consider buying put options to protect your long-term equity exposure when sentiment moves to Excessive Optimism and removing the protection when sentiment moves to Excessive Pessimism. I’m looking for the NDR Crowd Sentiment Poll to move into the Extreme Optimism zone to establish put protection. Also consider writing covered calls to reduce the overall cost of the put option protection. Another idea is to consider raising some cash and buying inverse ETFs to protect equity exposure.
- CMG Core Four Strategies – current positions and 2012 performance update
Investment Sentiment charts 1-9-13:
Chart 1. NDR Daily Trading Sentiment Composite. For now I cautiously favor RISK ON.
Chart 2. NDR Crowd Sentiment Poll – moving higher within the Neutral zone. This favors RISK ON. Watch for move into the Extreme Optimism zone.
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. As you can see in the above charts, there are just a few times each year that the market moves into “Extreme”. 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.
I believe that 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.
CMG Core Four Strategies – Current Positions
CMG Managed HY Bond Program: +10.28% net of fees in 2012. The strategy remains long HY bond funds and enjoying an attractive advance. The idea is to participate during periods of rising prices gaining return by capturing price gains and the high yields the funds 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: +9.29% net of fees in 2012. The strategy began 2013 10% short treasury exposure, moved to a 100% long treasury position on January 3, reduced exposure and is moving to a 100% short treasury exposure at tonight’s close. The model is signaling a rising rate environment. The strategy will trade either long or short (via an inverse Treasury bond fund) long-term Treasury bond exposure. For additional information,
http://www.cmgwealth.com/our-products/separately-managed-accounts/individual-strategies/sr-treasury-bond/
Scotia Partners Growth S&P Plus Program: -6.51% net of fees in 2012. Within our select group of tactical strategies, Scotia’s returns were disappointing in 2012. I continue to favor the strategy properly allocated within an enhanced modern portfolio theory design structure. This was Scotia’s first down year since its inception in 2004.
Scotia’s model is in a bullish position today, favoring a continued market uptrend. When the signals are in agreement on a bullish up trend, the strategy will enter into a 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. 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: TD Ameritrade +12.65% net of fees in 2012. TCA +10.87% net of fees in 2012. Both programs are allocated over 75% to long equity mutual funds with the balance allocated to fixed income. 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 (important note):
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 cannot 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
IMPORTANT DISCLOSURE INFORMATION
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).