Signal Change Effective January 11, 2013

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The GGT Long-Cash Ratio (LCR), which is a measure of how many stocks in the database are outperforming their history over the past year, has hit a new local high of 4.2, meaning that 42 stocks of every 52 are firing on all cylinders (e.g., 10 are underperforming or 42:10 ratio).

This level has only been hit a few times in the past since September 2008 (when I started publishing GGT) and has lasted only 1-5 days in length before a significant drop in the markets has occurred.

Here's a graph which puts it in context:

Over 80% of the database is in some form of LONG status.  We certainly can move higher from here, but I do not think we'll go much higher before a drop occurs.  This is a terrible reward:risk ratio.

Since the long call in this account at the start of December we have moved up +4.3% in the C-Fund (tracks S&P500), +7.1% in the S-Fund (tracks the market ex-S&P500), and +5.9% in the I-Fund (tracks the EAFE index).  The F-Fund, which is a bond fund, has lost -0.4%.  Using the aggressive portfolio allocation values of December 3rd this is a total gain of  4.4% on this signal.

Today (Friday) is Day 2.  Monday will be Day 3, and I'm traveling.  Given the restrictions of this retirement account (2 trades per month) and the overbought nature of the markets, in combination with the extraordinarily high level of the % longs in the database and the ticking time bomb that has occurred when we hit these levels, I am moving 100% to G-Fund (Cash), effective with the close of markets on Friday, January 11th.  I may leave some money on the table, but in general, it is not worth the risk at this point.  I could easily lose 4% in a day or two, wiping out the work of the past 6 weeks.

Of course, you are responsible for your own investment decisions and I am not.  Please do your diligence, and please take ownership for your actions.

Regards,

pgd

December 7 Weekend Update

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Although the fiscal curb/cliff is keeping us locked in a range, it appears that we're on track as far as our allocations are concerned.

The following is a snapshot of allocations vs. balances for my wife's TSP account:

The chart on the right shows the allocations as of our latest signal, and the chart on the left shows what has actually happened since the last signal.

Bottom line, the I-Fund is dead-on in terms of overall percentage of allocation, F-Fund has been slipping, as I would expect in an appreciating market (albeit, weakly appreciating), and the C-Fund and S-Fund have been growing a bit more than my algorithm projected.  Nevertheless, I'm fine with the present allocations and will not make any changes at the present time.

Unless I get a signal to the contrary (always possible), I will leave these allocations until the end of the month.

Regards,

pgd

Allocation Change Effective Monday, December 3

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Effective with the close of markets on Friday, November 30th, my GGT TSP model has signaled a transition.  Note that NOT ALL FUNDS have signaled a move, so this one is suspect and failure is possible.

My new allocations are:

Aggressive Portfolio

F-Fund:  24%
C-Fund:  14%
I-Fund:  42%
S-Fund:  20%

Conservative Portfolio


G-Fund:  56%
F-Fund:  24%
S-Fund:  20%

I am following the Aggressive Portfolio.

The two funds under the Aggressive Portfolio that did not indicate transition are C-Fund and I-Fund.  They are close to transitioning, but no cigar.  Hence, if I were to follow the conservative portfolio and invest in these when/if they transitioned in December I would use the 2x chances we get to invest in a given month, and if we move to cash (we always seem to do this around the 14th of December), we would miss any potential Santa Clause rally.  I am choosing not to do this.

These changes will be in place by the close of business on 12/3 if I make the change request prior to noon EDT.



Since 11/25/08, which is when this model started, the following statistics have been generated:

As always, you are responsible for your own investment decisions, and I am not.  Please do your diligence, and please take ownership for your actions.

Regards,

pgd

Cash Signal Intact as of Close of Friday, November 16

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By most common measures the markets are oversold and we should be considering entering.  Nothing at this point is indicating that we should move in, and with a short week due to Thanksgiving, I anticipate lower demand in the markets which will cause a general drift of prices.  The analogy is a sailboat without a keel -- you can go a specific direction, but you may also do it sideways ...

Since the sell signal that was effective with the close of November 2nd and which we could have acted on with the close of prices on the 3rd, we have the following market performance:

F-Fund (bonds):  Up +0.18%
C-Fund (mimic S&P500):  Down -3.87%
S-Fund (mimic small cap stocks):  Down -4.46%
I-Fund (mimic international index): Down -2.70%

We've been in cash so we've edged up a whopping +0.04%, which does not keep up with inflation in case you were wondering.  This is better than losing the amounts above, so net-net, we're up on this particular call.

The broad markets peaked on September 14th -- easy to know in hindsight, impossible to know when you're in the middle of the forest.  Since that time we have had the following market performance:


G-Fund (cash): Up +0.23%
F-Fund (bonds):  Up +1.18%
C-Fund (mimic S&P500):  Down -6.87%
S-Fund (mimic small cap stocks):  Down -8.11%
I-Fund (mimic international index): Down -5.44%

Obviously the call to cash on October 10th, a move back into the 16th, and the call to cash on November 2nd helped save some capital, but we did lose some ground compared to November 2nd close:

The trades on November 5th were for a loss, lowering system performance across the board.  Our actual numbers are different than what is above because the above values assume 25% in each fund and in reality, I provide guidance on allocations that I use which are different than 25% in each fund.

If you are not owning a government-sponsored retirement fund but want to proxy into using exchanged traded funds (ETFs), there is a parallel universe:  GGT, using liquid ETFs that mimic the S-Fund (VXF), C-Fund (SPY), I-Fund (EFA), and F-Fund (AGG) has a better behavior overall for the past year, but note that the system is solidly in cash with the exception of the F-Fund (AGG)/bonds, which did signal long back on November 8th at an execution price on November 9th of $16.0324 (F-Fund) and limit buy of $112.14 (AGG).  F-Fund closed at $16.0348 on November 16th, for a gain of +0.01% (yes, 1/100th of a percent), and AGG at $112.21, for a gain of +0.06%.

In my view being long in bonds (F-Fund or AGG) is hardly worth the effort.  They can't go much higher in value since rates are so low.

Here's GGT's view of the TSP proxy ETFs:

Right-click on the image to open it in a new tab or window.

Most short-term market corrections fall in the 4-6% range.  We're a bit below that in the C and S funds, so to state that we're going to get a rebound and set new highs in the market is too optimistic.  I expect a rebound off the bottoms here, but I also anticipate possibly not entering into the markets until December.

I'll send notes out to the board if the behavior changes.  I'm watching both the GGT system and my independent TSP timer on a daily basis, and will post any relevant behavior.  Don't rely on me though -- do your own diligence, subscribe to my dropbox folder to get the ETF status on a daily basis, and you can make your own decisions without me posting here.

Regards,

pgd

Signal Change as of November 2nd Close

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Effective with the close of markets on Friday, November 2nd, my GGT model that I apply to the Thrift Savings Plan has transitioned to CASH for the equity markets and a limited position in the F-Fund.

If the dollar strengthens, as I expect it will, I would expect the F-Fund to continue to appreciate (up +0.1% over the last 30 days).  Correspondingly, the aggressive portfolio will see a position in the F-Fund and the rest of the monies will be in cash.

For the conservative portfolio, everything is in cash (100% G-Fund).

Allocations are as follows:

Conservative:  100% G-Fund

Aggressive:  39% F-Fund, 61% G-Fund

I do note that there is not a significant change of money flow into AGG, which is the proxy for the F-Fund (they both track the same index).  I would like to see prices of AGG remain low while there is "stealth" buying, and this is NOT the case right now:

From www.effectivevolume.com:

The top chart shows that average money flow has been OUT (institutionals are net sellers, not buyers), but the bottom price chart shows that we are at the bottom of a local range so there is a potential to move upward.  I would like to see, in the top chart, that total effective volume be above the 20-day moving average, and more importantly, that the slope of the 20d MA be positive (it is presently negative).

Metrics through November 2nd, 2012, based on TSP closing data started on 11/25/08, and using the rules of the TSP are as follows:

The performance numbers will be slighting different, as the table above assumes 25%-25%-25%-25% allocation in each fund, and I actually allocate using momentum over the last month.

Make your changes by noon Monday, November 5th and they will be applicable the evening of Monday, November 5th.

I am moving 100% to cash (G-Fund).

Remember, you are responsible for your own investment decisions, and I am not.  Please do your own diligence, and please take ownership for your actions.

Regards,

pgd

Signal Change as of October 16 Close

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Although I loathe rapid signal changes in any equity timing system, especially during a week of options expiration, I'm compelled to follow the signals generated by my indicators as they are typically better at moving me into and out of the market than I am at discretionary trading.

Correspondingly, although my concern is higher at the present time for being in the equity markets, I am generating the following changes:

Conservative Portfolio:

C-Fund:  25%
I-Fund:   26%
G-Fund:  49%

This conservative portfolio gives us some exposure to equities but protects us on the down side by keeping a good portion in cash (G-Fund).  Note that nothing is allocated to the F-Fund (bonds) and nothing is allocated to the S-Fund (small capitalization companies).  This is because they have not moved up aggressively as the C-Fund (large cap) nor the I-Fund (international index).

Aggressive Portfolio:

C-Fund:  42%
I-Fund:  44%
G-Fund:  14%

The aggressive portfolio is just that.  I see no compelling reason to allocate to the S-Fund at the present time.

I will be allocating to the CONSERVATIVE PORTFOLIO with the close of markets on 10/17.

Regards,

pgd

Signal Change for October 10, 2012

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With the close of markets on Wednesday, October 10th, my TSP models have confirmed a 100% move to cash.

I will transfer 100% of my holdings to the G-Fund, effective with the close today.

Regards,

pgd