ecam newsletter november 2011
TRANSCRIPT
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CONTENTS
1) MARKET COMMENTS
2) TECHNICAL ANALYSIS
3) TACTICAL ASSET ALLOCATION
4) RECOMMENDED HOLDINGS
1)1)1)1) MARKET COMMENTSMARKET COMMENTSMARKET COMMENTSMARKET COMMENTS
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1.3146 against the US Dollar as the Eurozone1.3146 against the US Dollar as the Eurozone1.3146 against the US Dollar as the Eurozone1.3146 against the US Dollar as the Eurozone
debt crisis continued to fester. The newsdebt crisis continued to fester. The newsdebt crisis continued to fester. The newsdebt crisis continued to fester. The news----flowflowflowflow
has been nothing short of dismal, with Portugalhas been nothing short of dismal, with Portugalhas been nothing short of dismal, with Portugalhas been nothing short of dismal, with Portugal
and Belgium getting downgraded by Fitch andand Belgium getting downgraded by Fitch andand Belgium getting downgraded by Fitch andand Belgium getting downgraded by Fitch and
S&P respectively while Greece reportedly pickedS&P respectively while Greece reportedly pickedS&P respectively while Greece reportedly pickedS&P respectively while Greece reportedly picked
a fighta fighta fighta fight with its creditors over an upcoming bondwith its creditors over an upcoming bondwith its creditors over an upcoming bondwith its creditors over an upcoming bond
For the week ending Friday, 25 November 2011 the major worlds markets closed as follows:
Close Weekly Change
Dow Jones Industrial Average ($DJAI) 11231 -4.78%
S & P 500 ($SPX) 1158 -4.69%
Nasdaq Composite Average ($COMPQ) 2441 -5.09%
Japan Nikkei Average ($NIKK) 8160 -2.57%
French CAC 40 ($CAC) 2856 -4.67%
German DAX Composite ($DAX) 5492 -5.30%
British FTSE 100 ($FTSE) 5164 -3.70%Sydney All Ords ($AORD) 4057 -4.45%
China Shanghai Composite ($SSEC) 2380 -1.50%
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INVESTOR NEWSLETTERINVESTOR NEWSLETTERINVESTOR NEWSLETTERINVESTOR NEWSLETTER 4th4th4th4th QUARTER UPDATEQUARTER UPDATEQUARTER UPDATEQUARTER UPDATE NOVEMBER 2011NOVEMBER 2011NOVEMBER 2011NOVEMBER 2011
By Dwayne Malone
It appears this past week could potentially have
been a pivotal event in the ongoing European debt
crisis.
Clearly there was a severe change in sentiment
from the previous week where it was generally
believed a work around solution would be foundto the current European debt crisis. This was
clearly spelled out in this weekends Euro market
wrap courtesy of DailyFx:
The Euro hit the lowest levThe Euro hit the lowest levThe Euro hit the lowest levThe Euro hit the lowest level in nearly two monthsel in nearly two monthsel in nearly two monthsel in nearly two months
last week on approach to the yearlast week on approach to the yearlast week on approach to the yearlast week on approach to the year----totototo----date low atdate low atdate low atdate low at
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swap meant to relieve its debt burden (to sayswap meant to relieve its debt burden (to sayswap meant to relieve its debt burden (to sayswap meant to relieve its debt burden (to say
nothing of thenothing of thenothing of thenothing of the German 10German 10German 10German 10----year bond auctionyear bond auctionyear bond auctionyear bond auction
fiascofiascofiascofiasco). These are all minor issues however). These are all minor issues however). These are all minor issues however). These are all minor issues however
relative to investors trrelative to investors trrelative to investors trrelative to investors true concern, that Germanue concern, that Germanue concern, that Germanue concern, that German
intransigence will doom the single currency.intransigence will doom the single currency.intransigence will doom the single currency.intransigence will doom the single currency.The abject failure of Eurozone politicians toThe abject failure of Eurozone politicians toThe abject failure of Eurozone politicians toThe abject failure of Eurozone politicians to
meaningfully contain the spread of the debtmeaningfully contain the spread of the debtmeaningfully contain the spread of the debtmeaningfully contain the spread of the debt
crisis up to this point is arguably a foregonecrisis up to this point is arguably a foregonecrisis up to this point is arguably a foregonecrisis up to this point is arguably a foregone
conclusion. Despite countless summitsconclusion. Despite countless summitsconclusion. Despite countless summitsconclusion. Despite countless summits
producing producing producing producing comprehensive remedies over nearlycomprehensive remedies over nearlycomprehensive remedies over nearlycomprehensive remedies over nearly
two years, officials have proven themselvestwo years, officials have proven themselvestwo years, officials have proven themselvestwo years, officials have proven themselves
unable to convince the markets that they areunable to convince the markets that they areunable to convince the markets that they areunable to convince the markets that they are
truly serious about sovereign risk. As manytruly serious about sovereign risk. As manytruly serious about sovereign risk. As manytruly serious about sovereign risk. As many
(including ourselves) have argued for some(including ourselves) have argued for some(including ourselves) have argued for some(including ourselves) have argued for some
weeks now, the only two options this late inweeks now, the only two options this late inweeks now, the only two options this late inweeks now, the only two options this late in thethethethe
game are joint Eurobondsgame are joint Eurobondsgame are joint Eurobondsgame are joint Eurobonds a setup that woulda setup that woulda setup that woulda setup that would
effectively allow healthier core countries to coeffectively allow healthier core countries to coeffectively allow healthier core countries to coeffectively allow healthier core countries to co----
sign loans to their debtsign loans to their debtsign loans to their debtsign loans to their debt----strapped brethrenstrapped brethrenstrapped brethrenstrapped brethren orororor
an aggressive bondan aggressive bondan aggressive bondan aggressive bond----buying program from thebuying program from thebuying program from thebuying program from the
European Central Bank to hold down regionalEuropean Central Bank to hold down regionalEuropean Central Bank to hold down regionalEuropean Central Bank to hold down regional
borrowing costs and bborrowing costs and bborrowing costs and bborrowing costs and buy time for structuraluy time for structuraluy time for structuraluy time for structural
reforms.reforms.reforms.reforms.
Germany has been quick to reject both options,Germany has been quick to reject both options,Germany has been quick to reject both options,Germany has been quick to reject both options,claiming Eurobonds will allow profligateclaiming Eurobonds will allow profligateclaiming Eurobonds will allow profligateclaiming Eurobonds will allow profligate
countries to sidecountries to sidecountries to sidecountries to side----step reform with impunitystep reform with impunitystep reform with impunitystep reform with impunity
while an ECB version of quantitative easing willwhile an ECB version of quantitative easing willwhile an ECB version of quantitative easing willwhile an ECB version of quantitative easing will
unleash inflation. Admittedly, the Eurobounleash inflation. Admittedly, the Eurobounleash inflation. Admittedly, the Eurobounleash inflation. Admittedly, the Eurobondndndnd
option is not a great one. Looking past theoption is not a great one. Looking past theoption is not a great one. Looking past theoption is not a great one. Looking past the
moral hazard argument, such a scheme wouldmoral hazard argument, such a scheme wouldmoral hazard argument, such a scheme wouldmoral hazard argument, such a scheme would
practically take a long time to set up, and time ispractically take a long time to set up, and time ispractically take a long time to set up, and time ispractically take a long time to set up, and time is
not something that Eurozone politicians have innot something that Eurozone politicians have innot something that Eurozone politicians have innot something that Eurozone politicians have in
surplus at this point. On the other hand, if thesurplus at this point. On the other hand, if thesurplus at this point. On the other hand, if thesurplus at this point. On the other hand, if the
ECB were to be giECB were to be giECB were to be giECB were to be given the green light to enter theven the green light to enter theven the green light to enter theven the green light to enter thefray as a true buyer of last resort for memberfray as a true buyer of last resort for memberfray as a true buyer of last resort for memberfray as a true buyer of last resort for member
states bonds, it could do so quickly and providestates bonds, it could do so quickly and providestates bonds, it could do so quickly and providestates bonds, it could do so quickly and provide
immediate relief. Indeed, the inflationimmediate relief. Indeed, the inflationimmediate relief. Indeed, the inflationimmediate relief. Indeed, the inflation
implications of such a move seem hardlyimplications of such a move seem hardlyimplications of such a move seem hardlyimplications of such a move seem hardly
problematic now as slowing growth bears downproblematic now as slowing growth bears downproblematic now as slowing growth bears downproblematic now as slowing growth bears down
oooon price growth, so if ever there was time ton price growth, so if ever there was time ton price growth, so if ever there was time ton price growth, so if ever there was time to
print money than this is it.print money than this is it.print money than this is it.print money than this is it.
With all of this in mind, the spotlight in the weekWith all of this in mind, the spotlight in the weekWith all of this in mind, the spotlight in the weekWith all of this in mind, the spotlight in the week
ahead will turn to a twoahead will turn to a twoahead will turn to a twoahead will turn to a two----day meeting of Euroday meeting of Euroday meeting of Euroday meeting of Euro
area finance ministers starting in Brussels onarea finance ministers starting in Brussels onarea finance ministers starting in Brussels onarea finance ministers starting in Brussels on
Tuesday, with ECB involvement in conTuesday, with ECB involvement in conTuesday, with ECB involvement in conTuesday, with ECB involvement in containingtainingtainingtaining
spreading turmoil likely in focus. Indeed, ifspreading turmoil likely in focus. Indeed, ifspreading turmoil likely in focus. Indeed, ifspreading turmoil likely in focus. Indeed, if
policymakers emerge out of the sitpolicymakers emerge out of the sitpolicymakers emerge out of the sitpolicymakers emerge out of the sit----down withdown withdown withdown with
another halfanother halfanother halfanother half----baked proposal akin to what wasbaked proposal akin to what wasbaked proposal akin to what wasbaked proposal akin to what was
announced in October, traders are unlikely toannounced in October, traders are unlikely toannounced in October, traders are unlikely toannounced in October, traders are unlikely to
respond favorably. Against this backdrop, arespond favorably. Against this backdrop, arespond favorably. Against this backdrop, arespond favorably. Against this backdrop, along list of countrieslong list of countrieslong list of countrieslong list of countries including Italy, Belgium,including Italy, Belgium,including Italy, Belgium,including Italy, Belgium,
France and Spain are set to hold bondFrance and Spain are set to hold bondFrance and Spain are set to hold bondFrance and Spain are set to hold bond
auctions, givingauctions, givingauctions, givingauctions, giving EU politicians a realEU politicians a realEU politicians a realEU politicians a real----timetimetimetime
reading on traders assessment of their effortsreading on traders assessment of their effortsreading on traders assessment of their effortsreading on traders assessment of their efforts
via yield levels.via yield levels.via yield levels.via yield levels.
If Berlins administration is ready toIf Berlins administration is ready toIf Berlins administration is ready toIf Berlins administration is ready to
meaningfully deal with the crisis, it cameaningfully deal with the crisis, it cameaningfully deal with the crisis, it cameaningfully deal with the crisis, it can selln selln selln sell
ECB involvement to their population as aECB involvement to their population as aECB involvement to their population as aECB involvement to their population as a
bulwark against deflationary pressure amidbulwark against deflationary pressure amidbulwark against deflationary pressure amidbulwark against deflationary pressure amid
slowing growth rather than a bailout (whichslowing growth rather than a bailout (whichslowing growth rather than a bailout (whichslowing growth rather than a bailout (which
would not be entirely dishonest consideringwould not be entirely dishonest consideringwould not be entirely dishonest consideringwould not be entirely dishonest considering
the sharp slowdown in headline CPI beingthe sharp slowdown in headline CPI beingthe sharp slowdown in headline CPI beingthe sharp slowdown in headline CPI being
forecast for 2012). It would be wiseforecast for 2012). It would be wiseforecast for 2012). It would be wiseforecast for 2012). It would be wise forforforfor
Germany itself, for as an exporter it wouldGermany itself, for as an exporter it wouldGermany itself, for as an exporter it wouldGermany itself, for as an exporter it would
benefit from saving the single currency whilebenefit from saving the single currency whilebenefit from saving the single currency whilebenefit from saving the single currency while
driving down its value. The rest of thedriving down its value. The rest of thedriving down its value. The rest of thedriving down its value. The rest of the
Eurozone is best to press and pray for justEurozone is best to press and pray for justEurozone is best to press and pray for justEurozone is best to press and pray for just
such an outcome.such an outcome.such an outcome.such an outcome.
It appears the end of the kick the can down
the road exercise is close at hand and we are
approaching a climax. Over the past 2 months
the market has dealt severe punishment on
those countries who have not exhibited a true
desire to reform in terms of increased bond
yields demanded for sovereign bond sales. In
the process two political leaders have been
replaced by the market (Papandreou in Greece
and Berlusconi in Italy). The key is where we
go from here.
As said above, the markets were in a
fundamental and technical condition to
advance into year end. Year-to-date the
markets are down on all major indexes and we
are entering what is traditionally the best
months of the year to be invested in equities(Nov-Apr annually). In addition the
Thanksgiving week has traditionally been a
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very bullish time to be in the markets but last
weeks Thanksgiving gave the worst performance
since 1932!
Portfolio managers have severelyunderperformed the markets given the
incredible volatility present over the past year
and it is my belief there will be a concerted
effort on their parts over the next month to
window dress portfolios going into year end.
U.S. Economic data has been quite encouraging
over the past few weeks and the economy in the
U.S. remains in muddle along mode.
Fundamentally corporate profits in the U.S. are
at record levels due to high productivity gains
combined with a consumer who still appears
willing to spend despite the terrible jobs picture.
This past week I noted both rail and truck traffic
in the U.S. remains strong and more indicative
of a growth mode as opposed to a slow down
mode. Transportation metrics such as the
American Trucking Association's Truck Tonnage
Index and the American Association of Railroad'sWeekly Rail Traffic Report both showed a
manufacturing sector that remains in growth
mode.
Truck Traffic:Truck Traffic:Truck Traffic:Truck Traffic:
"The American Trucking Associations advance"The American Trucking Associations advance"The American Trucking Associations advance"The American Trucking Associations advance
seasonally adjusted (SA) Forseasonally adjusted (SA) Forseasonally adjusted (SA) Forseasonally adjusted (SA) For----Hire Truck TonnageHire Truck TonnageHire Truck TonnageHire Truck Tonnage
Index increased 0.5% in October after rising aIndex increased 0.5% in October after rising aIndex increased 0.5% in October after rising aIndex increased 0.5% in October after rising a
revised 1.5% in September 2011. The latest gainrevised 1.5% in September 2011. The latest gainrevised 1.5% in September 2011. The latest gainrevised 1.5% in September 2011. The latest gainput the SA index at 116.3 (2000=100) input the SA index at 116.3 (2000=100) input the SA index at 116.3 (2000=100) input the SA index at 116.3 (2000=100) in
OctobOctobOctobOctober, up from the September level of 115.8.er, up from the September level of 115.8.er, up from the September level of 115.8.er, up from the September level of 115.8.
Compared with October 2010, truck tonnageCompared with October 2010, truck tonnageCompared with October 2010, truck tonnageCompared with October 2010, truck tonnage
was up 5.7% following an increase in Septemberwas up 5.7% following an increase in Septemberwas up 5.7% following an increase in Septemberwas up 5.7% following an increase in September
of 5.8% above a year earlier. Further, Octobersof 5.8% above a year earlier. Further, Octobersof 5.8% above a year earlier. Further, Octobersof 5.8% above a year earlier. Further, Octobers
tonnage reading was just 4.4% below the indexstonnage reading was just 4.4% below the indexstonnage reading was just 4.4% below the indexstonnage reading was just 4.4% below the indexs
allallallall----time high in January 20time high in January 20time high in January 20time high in January 2005.05.05.05.
Tonnage readings continue to show thatTonnage readings continue to show thatTonnage readings continue to show thatTonnage readings continue to show that
economy is growing and not sliding back intoeconomy is growing and not sliding back intoeconomy is growing and not sliding back intoeconomy is growing and not sliding back into
recession, ATA Chief Economist Bob Costellorecession, ATA Chief Economist Bob Costellorecession, ATA Chief Economist Bob Costellorecession, ATA Chief Economist Bob Costello
said. Over the last two months, tonnage is upsaid. Over the last two months, tonnage is upsaid. Over the last two months, tonnage is upsaid. Over the last two months, tonnage is up
nearly 2% and is just shy of the recent high innearly 2% and is just shy of the recent high innearly 2% and is just shy of the recent high innearly 2% and is just shy of the recent high in
January of this year.January of this year.January of this year.January of this year.
Manufacturing output has been the primaryManufacturing output has been the primaryManufacturing output has been the primaryManufacturing output has been the primaryreason why truck freight volumes are increasingreason why truck freight volumes are increasingreason why truck freight volumes are increasingreason why truck freight volumes are increasing
more than GDP. The industrial sector shouldmore than GDP. The industrial sector shouldmore than GDP. The industrial sector shouldmore than GDP. The industrial sector should
slow next year, but still grow more than GDP,slow next year, but still grow more than GDP,slow next year, but still grow more than GDP,slow next year, but still grow more than GDP,
which means truck tonnage can increase fasterwhich means truck tonnage can increase fasterwhich means truck tonnage can increase fasterwhich means truck tonnage can increase faster
than GDP too, he said."than GDP too, he said."than GDP too, he said."than GDP too, he said."
RaRaRaRailway Traffic:ilway Traffic:ilway Traffic:ilway Traffic:
The Association of American Railroads (AAR)The Association of American Railroads (AAR)The Association of American Railroads (AAR)The Association of American Railroads (AAR)
today reported gains in weekly rail traffic, withtoday reported gains in weekly rail traffic, withtoday reported gains in weekly rail traffic, withtoday reported gains in weekly rail traffic, with
U.S. railroads originating 301,919 carloads forU.S. railroads originating 301,919 carloads forU.S. railroads originating 301,919 carloads forU.S. railroads originating 301,919 carloads for
the week ending Nov. 19, 2011, up 1.1 percentthe week ending Nov. 19, 2011, up 1.1 percentthe week ending Nov. 19, 2011, up 1.1 percentthe week ending Nov. 19, 2011, up 1.1 percent
compared with the same week last year.compared with the same week last year.compared with the same week last year.compared with the same week last year.
Intermodal vIntermodal vIntermodal vIntermodal volume for the week totaled 243,234olume for the week totaled 243,234olume for the week totaled 243,234olume for the week totaled 243,234
trailers and containers, up 3 percent comparedtrailers and containers, up 3 percent comparedtrailers and containers, up 3 percent comparedtrailers and containers, up 3 percent compared
with the same week last year.with the same week last year.with the same week last year.with the same week last year.
Eleven of the 20 carload commodity groupsEleven of the 20 carload commodity groupsEleven of the 20 carload commodity groupsEleven of the 20 carload commodity groupsposted increases compared with the same weekposted increases compared with the same weekposted increases compared with the same weekposted increases compared with the same week
in 2010, including: nonmetallic minerals up 30.6in 2010, including: nonmetallic minerals up 30.6in 2010, including: nonmetallic minerals up 30.6in 2010, including: nonmetallic minerals up 30.6
percentpercentpercentpercent; petroleum products, up 21.3 percent,; petroleum products, up 21.3 percent,; petroleum products, up 21.3 percent,; petroleum products, up 21.3 percent,
and motor vehicles and equipment, up 16.3and motor vehicles and equipment, up 16.3and motor vehicles and equipment, up 16.3and motor vehicles and equipment, up 16.3
percent. The groups showing a decrease inpercent. The groups showing a decrease inpercent. The groups showing a decrease inpercent. The groups showing a decrease in
weekly traffic included: primary forest products,weekly traffic included: primary forest products,weekly traffic included: primary forest products,weekly traffic included: primary forest products,
down 13.8; farm products, excluding graindown 13.8; farm products, excluding graindown 13.8; farm products, excluding graindown 13.8; farm products, excluding grain
down 12.4, and grain, down 11.9 percent.down 12.4, and grain, down 11.9 percent.down 12.4, and grain, down 11.9 percent.down 12.4, and grain, down 11.9 percent.
Weekly carload volume on Eastern railroads wasWeekly carload volume on Eastern railroads wasWeekly carload volume on Eastern railroads wasWeekly carload volume on Eastern railroads wasdown 1.2 percent compared with the same weekdown 1.2 percent compared with the same weekdown 1.2 percent compared with the same weekdown 1.2 percent compared with the same week
last year. In the West, weekly carload volumelast year. In the West, weekly carload volumelast year. In the West, weekly carload volumelast year. In the West, weekly carload volume
was up 2.7 percent compared with the samewas up 2.7 percent compared with the samewas up 2.7 percent compared with the samewas up 2.7 percent compared with the same
week in 2010.week in 2010.week in 2010.week in 2010.
For the first 46 weeks of 2011, U.S. railroadsFor the first 46 weeks of 2011, U.S. railroadsFor the first 46 weeks of 2011, U.S. railroadsFor the first 46 weeks of 2011, U.S. railroads
reported cumureported cumureported cumureported cumulative volume of 13,444,752lative volume of 13,444,752lative volume of 13,444,752lative volume of 13,444,752
carloads, up 1.8 percent from the same pointcarloads, up 1.8 percent from the same pointcarloads, up 1.8 percent from the same pointcarloads, up 1.8 percent from the same point
last year, and 10,584,178 trailers andlast year, and 10,584,178 trailers andlast year, and 10,584,178 trailers andlast year, and 10,584,178 trailers and
containers, up 5.2 percent from last year.containers, up 5.2 percent from last year.containers, up 5.2 percent from last year.containers, up 5.2 percent from last year.
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The technical picture this week deteriorated significantly. What started out as a promising setup on
both the daily (short term) and weekly (medium term) charts rapidly turned around as of Mondays open.
The majority of the price charts are now bearish on the daily and neutral-to-bearish on the weekly.
This is combined with bearish confirmation on the monthly charts that has been in place since
September. However, short term markets are oversold and due for bullish turn.
CyclesCyclesCyclesCycles
----YYYYear 1 of the 10 year Decenear 1 of the 10 year Decenear 1 of the 10 year Decenear 1 of the 10 year Decennial patternnial patternnial patternnial pattern
If Europe took care of business quickly, it is my belief global stock markets would rally sharply as early as
next week. Unfortunately, there is a major ongoing political crisis in the region and until it is sorted out
the volatility and downtrend will continue.
2) TECHNICAL ANALYSIS2) TECHNICAL ANALYSIS2) TECHNICAL ANALYSIS2) TECHNICAL ANALYSIS
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----YYYYear 3 of the 4 year Presidential Cycleear 3 of the 4 year Presidential Cycleear 3 of the 4 year Presidential Cycleear 3 of the 4 year Presidential Cycle The first table shows the DJIA for Presidential Year 3.
Year Total return MDD MDD date
1887 -8.42% 16.98% 10/15/1887
1891 11.11% 9.34% 7/30/1891
1895 1.68% 19.35% 12/21/1895
1899 9.20% 24.91% 12/18/1899
1903 -24.03% 37.73% 11/9/1903
1907 -37.73% 45.00% 11/15/1907
1911 0.40% 16.23% 9/25/1911
1915 81.66% 15.88% 5/14/1915
1919 30.45% 13.43% 12/22/1919
1923 -3.25% 18.62% 10/27/1923
1927 28.75% 10.01% 10/22/1927
1931 -52.67% 62.03% 12/17/1931
1935 38.53% 9.76% 3/14/1935
1939 -2.92% 21.58% 4/8/1939
1943 13.81% 11.14% 11/30/1943
1947 2.23% 11.53% 5/17/1947
1951 14.37% 7.79% 6/29/1951
1955 20.77% 10.02% 10/11/1955
1959 16.40% 9.89% 9/22/1959
1963 17.00% 6.44% 11/22/1963
1967 15.20% 9.92% 11/8/1967
1971 6.11% 16.08% 11/23/1971
1975 38.32% 11.07% 10/1/1975
1979 4.19% 11.25% 11/17/1979
1983 20.27% 6.83% 8./8/1983
1987 2.25% 36.13% 10/19/1987
1991 20.32% 6.93% 12/10/1981
1995 33.45% 3.29% 8/24/1995
1999 25.22% 11.53% 10/15/1999
2003 25.32% 14.91% 3/11/2003
2007 6.43% 10.03% 11/26/2007
Averages 14.85% 16.64%
There has not been a down 3rd year since 1939.
October and November each had 7 MDD's, December
had 5, March, May, August and September each had 2
and April, June and July each had 1.
Should we close out the yearShould we close out the yearShould we close out the yearShould we close out the year belowbelowbelowbelow 11577 on the11577 on the11577 on the11577 on theDow Jones Industrial AverageDow Jones Industrial AverageDow Jones Industrial AverageDow Jones Industrial Average (currently 11231)(currently 11231)(currently 11231)(currently 11231) itititit
would be the 1would be the 1would be the 1would be the 1stststst losing year in the 3losing year in the 3losing year in the 3losing year in the 3rdrdrdrd year of ayear of ayear of ayear of a
Presidential Cycle since 1939 (and only the 7Presidential Cycle since 1939 (and only the 7Presidential Cycle since 1939 (and only the 7Presidential Cycle since 1939 (and only the 7thththth sincesincesincesince1887).1887).1887).1887).
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----Within the 6 month strength period of the Annual Stock Market CycleWithin the 6 month strength period of the Annual Stock Market CycleWithin the 6 month strength period of the Annual Stock Market CycleWithin the 6 month strength period of the Annual Stock Market Cycle
We are currently in the 2nd month of the 6 month strength period as defined by the
months of Nov-Apr inclusive.
Since 1950 the months of Nov-Apr produced an average yearly gain of 7.3% in the
Dow Jones Industrial Average whereas the months of May-Oct produced an average
gain of only 0.1%. Needless to say the strongest (and safest) time to be in themarkets historically is from November-April yearly.
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The SPX monthly chart remains bearish from
the end of August 2011.
The following constitutes a bearish
alignment:
1) price closed the month below the 10
month simple moving average, along with
2) confirmation from the associated
technical indicators as indicated on the
chart.
It is interesting to note on the chart we still
have a non-confirmation relative to the
previous head-fake in mid-2010 on the
RSI (14). It is the only technical indicator on
the chart yet to confirm so must be assumed
to be an outlier which should come into
alignment soon.
Until proven otherwise it must be assumed
we are headed lower. Good support levelsare shown near 1020-1030 on the chart
along with the 50% Fibonacci retracement
level. This would be a good initial price
target for the current bear market decline
(which would be an approximate 25% decline
from the 1370 peak and typical of a
standard bear market decline).
THE MONTHLY CHART REMAINS BEARISHTHE MONTHLY CHART REMAINS BEARISHTHE MONTHLY CHART REMAINS BEARISHTHE MONTHLY CHART REMAINS BEARISH
AND INDICATES LOWER PRICES AHEAD OVERAND INDICATES LOWER PRICES AHEAD OVERAND INDICATES LOWER PRICES AHEAD OVERAND INDICATES LOWER PRICES AHEAD OVERTHE NEXT FEW MONTHS.THE NEXT FEW MONTHS.THE NEXT FEW MONTHS.THE NEXT FEW MONTHS.
www.emiratescapitalassetmanagement.blogspot.comwww.emiratescapitalassetmanagement.blogspot.comwww.emiratescapitalassetmanagement.blogspot.comwww.emiratescapitalassetmanagement.blogspot.comEMIRATES CAPITAL ASSET MANAGEMENTEMIRATES CAPITAL ASSET MANAGEMENTEMIRATES CAPITAL ASSET MANAGEMENTEMIRATES CAPITAL ASSET MANAGEMENT
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The SPX weekly chart was looking somewhat
bullish up until the past week. Most of the
technical indicators had come into bullish
alignment (as shown by the dashed greenline) and there was every reason to believe
the probability of the market advancing
through Thanksgiving and into the year end
was strong. However, it appears the
European situation thwarted that attempt
and now we need to monitor whether the
intermediate term trend reverses back to
bearish.
As noted on the chart, during the lastadvance both the ADX and OBV did not
confirm the move. This had me somewhat
suspicious of the advance. Now, by the
same token; this decline is not confirmed by
both the Full Stochastic and MACD. Either
they are late to the game and will come
into alignment over the next week or they
are right.
Until proven otherwise it is safe to assume
the intermediate direction is neutral. It is
too early to call for huge downside and too
soon to call for huge upside. Unfortunately
sometimes when you have conflicting
indicators the sit on the fence approach is
warranted.
THE WEEKLY CHART IS CURRENTLY NEUTHE WEEKLY CHART IS CURRENTLY NEUTHE WEEKLY CHART IS CURRENTLY NEUTHE WEEKLY CHART IS CURRENTLY NEUTRALTRALTRALTRAL
AND INDICATES MARKET INDECISION OVERAND INDICATES MARKET INDECISION OVERAND INDICATES MARKET INDECISION OVERAND INDICATES MARKET INDECISION OVERPRICE DIRECTION IN THE NEXT FEW WEEKS.PRICE DIRECTION IN THE NEXT FEW WEEKS.PRICE DIRECTION IN THE NEXT FEW WEEKS.PRICE DIRECTION IN THE NEXT FEW WEEKS.
EMIRATES CAPITAL ASSET MANAGEMENTEMIRATES CAPITAL ASSET MANAGEMENTEMIRATES CAPITAL ASSET MANAGEMENTEMIRATES CAPITAL ASSET MANAGEMENT www.emiratescapitalassetmanagement.blogspot.comwww.emiratescapitalassetmanagement.blogspot.comwww.emiratescapitalassetmanagement.blogspot.comwww.emiratescapitalassetmanagement.blogspot.com
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The short term daily SPX chart turned
bearish on November 16 (as shown by the
vertical red line on the chart) with all
technical indicators in alignment.
Key price support was broken at the 1218-
1220 level. This is a very important level
and clearly indicates the bears currently
have the short term advantage.
On the bright side, this decline has been
on low volume (you always look for volume
to support a given price movement) so it
appears there are not a lot of institutionalinvestors running for the exits. It is also
interesting to note the ATR (Average True
Range) has been very well behaved over
the decline. Normally strong declines are
supported by an INCREASE in average true
range due to panic selling. In this case the
ATR has continued to DECLINE. This is
short term positive.
Previous support at the bottom of the blue
box near 1120 is evident as well as a
parallel declining channel line Ive drawn
on the chart. Price is approaching
oversold and this suggests a short term
bounce is due.
THE DAILY CHART REMAINS BEARISH BUTTHE DAILY CHART REMAINS BEARISH BUTTHE DAILY CHART REMAINS BEARISH BUTTHE DAILY CHART REMAINS BEARISH BUT
IS SHOWING SIGNS THE CURRENT DECLINEIS SHOWING SIGNS THE CURRENT DECLINEIS SHOWING SIGNS THE CURRENT DECLINEIS SHOWING SIGNS THE CURRENT DECLINE
MAY BE ENDING. WITH THE OVERSOLDMAY BE ENDING. WITH THE OVERSOLDMAY BE ENDING. WITH THE OVERSOLDMAY BE ENDING. WITH THE OVERSOLDCONDITION IT IS SUGGESTING HIGHERCONDITION IT IS SUGGESTING HIGHERCONDITION IT IS SUGGESTING HIGHERCONDITION IT IS SUGGESTING HIGHER
PRICES AHEAD OVER THE SHORT TERM.PRICES AHEAD OVER THE SHORT TERM.PRICES AHEAD OVER THE SHORT TERM.PRICES AHEAD OVER THE SHORT TERM.
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3)3)3)3) ECAMECAMECAMECAM TACTICAL ASSET ALLOCATION MODELTACTICAL ASSET ALLOCATION MODELTACTICAL ASSET ALLOCATION MODELTACTICAL ASSET ALLOCATION MODEL
The ECAM tactical asset allocation model derives its strategic allocation based upon the same technical
analysis strategy utilized for the S&P 500. The given table below shows its current allocation.
EMIRATES CAPIEMIRATES CAPIEMIRATES CAPIEMIRATES CAPITAL ASSET MANAGEMENTTAL ASSET MANAGEMENTTAL ASSET MANAGEMENTTAL ASSET MANAGEMENT www.emiratescapitalassetmanagement.blogspot.comwww.emiratescapitalassetmanagement.blogspot.comwww.emiratescapitalassetmanagement.blogspot.comwww.emiratescapitalassetmanagement.blogspot.com
Basic AssetType
Basic %Allocation
ETF Name ETF Symbol Specific Asset Type Technical ReadingWeekly/Monthly
CurrentHoldings %
Vanguard Total MarketVIPERS-10%
VTI U.S. Large Cap DOWN/DOWN 0%U.S.DomesticEquities
15%
Vanguard Small CapVIPERS-5%
VB U.S. Small Cap DOWN/DOWN 0%
Vanguard FTSE All-Worldex-US-15%
VEU Developed Markets ex-U.S.
DOWN/DOWN 0%ForeignEquities
25%
Vanguard EmergingMarkets VIPERS-10%
VWO Emerging Markets DOWN/DOWN 0%
Vanguard Total Bond
Market-10%
BND U.S. Bonds UP/UP 10%Bonds 15%
iShares Barclays TIPSBond Fund-5%
TIP U.S. InflationProtected Bonds
UP/UP 5%
Vanguard REIT VIPERS-10%
VNQ U.S. Real Estate DOWN/DOWN 0%Real Estate 15%
SPDR Wilshire Intl RealEstate Index ETF-5%
RWX Foreign Real Estate DOWN/DOWN 0%
DB Commodities TrackingIndex Fund-10%
DBC Broad CommodityBasket
DOWN/DOWN 0%
PowerShares DB Multi-Sector Commodity TrustAgriculture Fund-5%
DBA Soft (food) andLivestock Commodities
DOWN/DOWN 0%
Claymore/Clear GlobalTimber Index-2.5% CUT Managed Forest andTimber Harvest DOWN/DOWN 0%
Commodities 20%
Market Vectors GoldMiners ETF-2.5%
GDX Gold Miners/Producers DOWN/DOWN 0%
None 0%Discretionary 10%
Cash Powershares DB USDollar Index BullishFund
UUP85%
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4) RECOMMENDED HOLDINGS4) RECOMMENDED HOLDINGS4) RECOMMENDED HOLDINGS4) RECOMMENDED HOLDINGS
The weekly and monthly equity charts are both currently bearish. As such, it would be unwise to hold
considerable long term equity positions given the current intermediate to-long term charts.
In the short term the market has undergone a large correction on low volume and is currently
oversold. This bodes well for the near term as cyclically we are entering a strong period in the
markets.
By way of comparison, the following statistics are for the month of December:
Since 1963, over all years, the NASDAQ in December has been up 65% of the time with an averageSince 1963, over all years, the NASDAQ in December has been up 65% of the time with an averageSince 1963, over all years, the NASDAQ in December has been up 65% of the time with an averageSince 1963, over all years, the NASDAQ in December has been up 65% of the time with an average
gain of 1.9%. During the 3gain of 1.9%. During the 3gain of 1.9%. During the 3gain of 1.9%. During the 3rdrdrdrd year of the Presidential Cycle December has been up 75% time with anyear of the Presidential Cycle December has been up 75% time with anyear of the Presidential Cycle December has been up 75% time with anyear of the Presidential Cycle December has been up 75% time with an
average gain of 4.6%. The best December for theaverage gain of 4.6%. The best December for theaverage gain of 4.6%. The best December for theaverage gain of 4.6%. The best December for the NASDAQNASDAQNASDAQNASDAQ was 1999 (+21.3%), the worst 2002 (was 1999 (+21.3%), the worst 2002 (was 1999 (+21.3%), the worst 2002 (was 1999 (+21.3%), the worst 2002 (----
10.1%).10.1%).10.1%).10.1%).
Since 1928 the SPX has been up 75% of the time in December with an average gain of 1.5%. DuringSince 1928 the SPX has been up 75% of the time in December with an average gain of 1.5%. DuringSince 1928 the SPX has been up 75% of the time in December with an average gain of 1.5%. DuringSince 1928 the SPX has been up 75% of the time in December with an average gain of 1.5%. During
the 3the 3the 3the 3rdrdrdrd year of the Presidential Cycle the SPX has been upyear of the Presidential Cycle the SPX has been upyear of the Presidential Cycle the SPX has been upyear of the Presidential Cycle the SPX has been up 80% of the time with an average gain of80% of the time with an average gain of80% of the time with an average gain of80% of the time with an average gain of
2.2%. The best December for the SPX was 2008 (+10.7%) the worst 1931 (2.2%. The best December for the SPX was 2008 (+10.7%) the worst 1931 (2.2%. The best December for the SPX was 2008 (+10.7%) the worst 1931 (2.2%. The best December for the SPX was 2008 (+10.7%) the worst 1931 (----13.4%).13.4%).13.4%).13.4%).
Since 1979 the Russell 2000 (R2K) has been up 75% of the time in December with an average gain ofSince 1979 the Russell 2000 (R2K) has been up 75% of the time in December with an average gain ofSince 1979 the Russell 2000 (R2K) has been up 75% of the time in December with an average gain ofSince 1979 the Russell 2000 (R2K) has been up 75% of the time in December with an average gain of
3.0%. During the 33.0%. During the 33.0%. During the 33.0%. During the 3rdrdrdrd year of the Presyear of the Presyear of the Presyear of the Presidential Cycle the R2K has been up 88% of the time with anidential Cycle the R2K has been up 88% of the time with anidential Cycle the R2K has been up 88% of the time with anidential Cycle the R2K has been up 88% of the time with an
average gain of 4.4%. The only down year during the 3average gain of 4.4%. The only down year during the 3average gain of 4.4%. The only down year during the 3average gain of 4.4%. The only down year during the 3rdrdrdrd year of the Presidential Cycle for the R2K wasyear of the Presidential Cycle for the R2K wasyear of the Presidential Cycle for the R2K wasyear of the Presidential Cycle for the R2K was
1983, down 2.1%. The best December for the R2K 2008 (+19.8%) following a November that was1983, down 2.1%. The best December for the R2K 2008 (+19.8%) following a November that was1983, down 2.1%. The best December for the R2K 2008 (+19.8%) following a November that was1983, down 2.1%. The best December for the R2K 2008 (+19.8%) following a November that was
ddddown 12.1%, the worst 1983 (own 12.1%, the worst 1983 (own 12.1%, the worst 1983 (own 12.1%, the worst 1983 (----2.1%)2.1%)2.1%)2.1%)
Since 1885 the Dow Jones Industrial Average (DJIA) has been up 70% of the time in December with anSince 1885 the Dow Jones Industrial Average (DJIA) has been up 70% of the time in December with anSince 1885 the Dow Jones Industrial Average (DJIA) has been up 70% of the time in December with anSince 1885 the Dow Jones Industrial Average (DJIA) has been up 70% of the time in December with an
average gain of 1.2%. During the 3average gain of 1.2%. During the 3average gain of 1.2%. During the 3average gain of 1.2%. During the 3rdrdrdrd year of the Presidential Cycle the DJIA has been up 77% of theyear of the Presidential Cycle the DJIA has been up 77% of theyear of the Presidential Cycle the DJIA has been up 77% of theyear of the Presidential Cycle the DJIA has been up 77% of the
time in December withtime in December withtime in December withtime in December with an average gain of 1.3%. The best December for the DJIAan average gain of 1.3%. The best December for the DJIAan average gain of 1.3%. The best December for the DJIAan average gain of 1.3%. The best December for the DJIA waswaswaswas 1903 (+10.7%),1903 (+10.7%),1903 (+10.7%),1903 (+10.7%),
the worst 1931 (the worst 1931 (the worst 1931 (the worst 1931 (----14.6%).14.6%).14.6%).14.6%).
Given the statistical history and the fact we have sold off quite dramatically with the short term charts
oversold, the odds favor a market rise over the short term (next 4-6 weeks). Those utilizing a shorter
term trading account may want to enter long positions near current levels.
Given any rise in the short term will probably move the weekly charts back to bullish, those who are in
cash may want to consider a 50% cash/50% equity positioning on any significant move in the short
term.
Given the monthly charts are bearish, unless the SPX can close above 1273 (10% above current levels)
those that are currently fully invested may want to consider moving to a 50% equity/50% cash position
on any short term strength over the next few weeks.
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