CI Outlook - Archives

February 2012

We are adjusting portfolio holdings and trading strategies as the market is evolving from a volatile trading range market to one trending higher.  Since the October low of last year, market volatility has declined and the markets tendency to trend has expanded into what may be the beginning of a lasting bull move higher.  As measured by the decline in the CBOE VIX and the rise in the ADX indicator price trends have surfaced which enable breakout buying and other momentum strategies to be successful.  Therefore we have diversified your ETF holdings into more momentum driven ETF’s including NASDAQ 100, the SPDR Technology Fund and IShares Transport ion Average.  Where it is appropriate we have profitably traded GNC Holdings and  These securities demonstrated the type of price and earnings momentum we find attractive in a trending market.  The additional returns earned from these momentum based trades supplement returns from our core approach of investing in higher current income securities.  Those income securities include the recently purchased Australia ETF and the MLP’s we currently hold.  While income holdings are fairly stable momentum trades move quickly.  Therefore they require quick liquidation when they have reached full potential, or when the market becomes exceptionally overbought and subject to risk of a pullback.

At the moment both Bespoke Investment and Lowry’s Investment Research believe the market is overbought and ready for a pullback.  When we see research from these investment letters agreeing with our own propriety indicators we plan to quickly liquidate single momentum based stocks.  However, we will hold recently acquired momentum ETF’s QQQ and IShares Transport Average (IYT) pending confirmation of a market downturn.  Because ETF’s are diversified funds they should be less volatile than the single stocks we purchase as momentum trades.  Additionally, although the market is extended, it may continue to move higher as under invested entities, such as pension funds, are forced to commit new cash.  Therefore we will continue to liquidate specific stocks as they reach full valuation targets, but will refrain from selling broader market based ETF’s.  Rather than calling a market top we hope to let the markets own action tell us when to exit the broad holdings represented by the ETF’s in our portfolios.  And while monitoring our own indicators and those of Lowry, Bespoke and other experts we will watch and wait to see if the market resolves its overbought condition through either time or price.

As always we want to thank you for your business and invite you to call us with any matter concerning your investments.


CJ Brott               Karen Burns

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