As a Bull market starts an upturn from a bear market low (red cells), you’ll see that the price first crosses above its 50 day MA (brown cells), then crosses above its 200 day MA (green cells). Next, the 50 day MA will cross above its 200 day MA (Golden Cross), and the price is above both the 50 and 200 day MA’s (blue cells).
A Bear market down turn is the inverse, but when the 50 day MA crosses below the 200 day MA it is called a Death Cross.
This is combined with the performance ranking, which looks at total return over short/medium/long periods. The better the return, the better the grade. Also, note that each of the MA stages can have any one of those 5 grades. A full blown bear market is usually associated with a Red/F tag (0% invested), while a full blown bull market is usually associated with a Blue/A tag (100% invested). As the market improves, allocation increases. As the market comes under pressure, allocation decreases through the 20 table rows.
So let’s look in more detail the transition to that 2008 bear market using the above strategy. The primary stages are illustrated by the vertical lines. The ranking is on the far right side, and annotated by the dashed horizontal lines. It should be noted that the Death Cross occurred on 21 December 2007 with the S&P 500 at 1484.
Strategy #2: Diversity, Not Diversification:
There is a sector rotation among funds and what might perform well last year, might underperform the next year. While the chart below might be difficult for some to read, the colors depict different sectors of the market, and displays those sectors on a Best (top) to Worst (bottom) scale on a yearly basis. For instance, International (yellow) performed best the first two years, but then dropped to the bottom of the scale the next four. It would be optimal to stay in those top sectors, and that is what we strive to do. In order to accomplish this, we look at these sectors on a daily basis and not just at the end of the year or each quarter. We then look at each of these sector's performance over four different time frames ranging up to a year, place more weight on the shorter period's performance, and come up with a Performance Ranking for each of the sectors. They are then sorted "Best to Worst" and we'll stay invested in the top 20% of those sectors if subsequent criteria is met. This criteria is a set of a two moving averages, different from the 50 and 200 day moving averages in Strategy #1, which varies dependent upon the strength of the Performance Ranking.
By using the Trending Investment Portfolio Strategies (TIPS) and the three supporting strategies, we feel that it is possible to outperform the overall market based on the dissertation analysis. Bottom line is that at the end of the day, or closing bell, a stock will reflect its market price. This is due to the law of supply and demand, i.e., what someone will pay and sell for a share of stock. If you can react quickly to these price changes, and make your investment decisions based on those changes, you have the opportunity to make money. Looking at this reaction comment in another way, say the weather report calls for good weather and you see that it's raining outside. You're probably going to grab an umbrella or put on a raincoat because that makes sense. The same holds true for the market. If a stock is going down, why be in it? Find those sectors that are performing well and get into them. Never fall in love with a stock and remember that making money takes time, patience and persistence. The "Notable Quotes" are the lessons I have learned over the years, and when combined with the TIPS, form a very sound investment platform.
Strategy #3: Trending Investment Portfolio Strategy (TIPS) Models:
Using the S&P 500 closing price along with a 50 and 200 day moving average, there are six distinct market stages.
Strategy #1: The Trend Is Your Friend:
We also feel that you can not push a rope. During the dissertation study period, it was found that if you bought the S&P 500 index when it's 50 day moving average crossed above it's 200 day moving average, and sold when it crossed below, there would have been four winning trades with an overall gain of 35.6%. For the same time frame, the S&P 500 had a loss of 2.32%. More recently, the S&P 500's 50 day moving average crossed below it's 200 day moving average on 21 December 2007. This was a bearish sign and remains so as of the end of December 2008. During that time, the S&P 500 has lost over 40%. You might not get in at the exact bottom, or sell at the exact top, but it will get you in for the majority of the gains and stairstep you're way up, you'll be well ahead. Don't forget that if you lose 50% of your money, it will take you approximately 6 years to recover those losses at 12%, or 12 years to recover at 6%. If you're interested in what the S&P 500 is currently doing, please click on the below link.
Trending Investment Portfolio Strategy (TIPS) is the cornerstone of Weisert Investment Services. It is based on technical analysis using two components. The first is a Crossover which tells us “WHEN” to invest. The second is Performance Ranking which tells is “Where” to invest. We then combine them into a model matrix for different families of mutual funds. The basis for TIPS goes back to my early days of investing back in 1974 and has evolved over the years. The TIPS also matured as a result of the analysis that was done in conjunction with my Ph.D dissertation titled "Investment Strategies: Buy and Hold versus Market Timing and the Relationship to Portfolio Performance". Phase 1 of the dissertation tested the feasibility of using a "Trading Strategy" on a single mutual fund or index to improve performance. Phase 2 leveraged the Phase 1 findings by combining those Trading Strategies with a ranking methodology to determine if portfolio performance could be improved over that of a traditional Asset Allocation Model. Overall, the dissertation findings supported the hypothesis that utilization of a Portfolio Strategy could result in improved performance and below is a high-level synopsis.
Trending Investment Portfolio Strategy
Over the next 15 months, the markets continued downward. Then it started a transition to a bull market in the spring of 2009. The Golden Cross occurred on 23 June 2009 with the S&P 500 at 895, about 600 points below the Death Cross. It should also be noted that we were slowly increasing the market allocation before the Golden Cross.