THE MONTHLY SPECTACLE September 2, 2002 "It's visionary" |
There are 2 Market rules all good investment pros follow: 1. Don't fight the Fed. 2. The trend is your friend. The first has given many of us severe heartburn as Greenspan has seemed to pay too much attention to the Stock Market and not enough attention to the economy. Raising rates to cool the market and then dropping rates too late. A good economist wants steady rates (whether high or low) and consistency from the Fed. This would allow long range planning (predictable NPV) for capital investment by corporations. Obviously the lower the rates, the quicker you would hit breakeven. But fluctuations like we have had scares the Bejeezus out of the guys with the money. Thus a slow recovery. The Fed indicator, although very bad over the past few years, will remain in my CCI as I believe Greenspan has learned his lesson. So low rates we have. A Big positive. The second rule is to follow the trend. This has worked great! But a Big negative. So there's the Market. Let's check the Created Confidence Indicator. This indicator is made up of 35 elements which the Big Money follow. These are the changes for the month: MACROECONOMIC -0- (was -0-) Lumber Trend...................................neutral to negative Inventories......................................neutral to positive VALUATION +5 (was +3) PE Trend......................................................negative to neutral Inflation.........................................................neutral to positive SHORT TERM TECHNICALS -3 (was +2) 9 month change..........................................positive to neutral Too far, too fast..........................................positive to negative Stochastic.............................................positive to negative Leisure Outlook........................................negative to positive VIX..........................................................positive to neutral Put / Call Ratio..........................................positive to neutral I've done a little back checking to validate the CCI hypothesis. First, I created the CCI as a young man in the hopes of beating the S&P by just a few percentage points each year. I felt that over 20 or 30 years this would give me excellent returns and make me rich. The CCI is strictly to be used as the condition of the market. The tilt of the playing field, so to speak. I consider it first before choosing my investment direction. As such, it is hard to qualify its usefulness objectively, but lets just see. Using strictly mechanical trading rules of invest 100% when the CCI is a +3 or better, and 0% below that, at the beginning of each month, I would have had the following returns above the S&P 500: 1998 +8.01% 1999 +2.46% 2000 +0.5% (Follow the Fed just didn't work) 2001 +3.20% 2002 to date +26.8% (Sold the beginning of June, bought the beginning of August) I think this proves the validity of the CCI and The Monthly Spectacle. Unfortunately, it is very hard to give up your ego and follow your instruments when flying at night. Men never ask for directions when they are lost. That has been a costly behavior for most market investors. The past 12 month return for the CCI is +7.7% in real terms, not relative to the S&P. By the way, if you did the math, the September CCI is a +2, sell signal by use of the mechanical system shown above. My extreme high on the S&P would be 925. This is a milestone to reconsider my positions, if I have any. Joe Subscription News: The Monthly Spectacle will require a subscription in the future. As I start this venture up, I am offering special lifetime reduced rates for the first 100 subscribers, and a 3 month trial subscription Special Offer. (This means really cheap.) Please contact me by email for details. 2691 STOCK SCREEN: Growth companies with fundamentals and value. AMGP AMERIGROUP Corporation NLS Nautilus Group, Inc SYNA Synaptics, Incorporated TRR TRC Companies |
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