09/18/2011 Mousetrap

[Timothy Clontz]

Condition Bear Market
S&P Target 970
Hedge XLE -2.97%

Position Date Return Days Call
BKI 5/31/2011 9.64% 110 Hold
CFI 6/22/2011 -0.04% 88 Hold
SE 6/27/2011 -1.74% 83 Hold
AWR 7/5/2011 -3.64% 45 Closed
CLH 7/6/2011 4.05% 74 Hold
GCI 7/14/2011 -26.01% 66 Buy
AGO 8/5/2011 -6.86% 44 Hold
DISH 8/10/2011 18.82% 39 Hold
GTAT 9/8/2011 -15.43% 10 Hold
NA NA NA NA NA

Mousetrap Return -2.36%
S&P Return -5.02%
Hedged Return -5.00%

Mousetrap Annualized -13.86%
S&P Annualized -29.53%
Hedge Annualized -29.38%

Annualized Advantage 15.67%
Hedged Advantage 0.15%

Not a free moment today, so I’ll keep it short.

GCI is still the buy and XLE is the standing hedge.

Any new hedges, however, would likely be in XLF (financials).

In international stocks, India and China have a much worse money flow configuration than Latin America (this is not a part of the Mousetrap selection process, though).

The market remains as a Bear with a target of 970 on the S&P. The rally toward the long term moving averages will likely not happen yet, as the market appears to be stalling here.

Should be an interesting week.

Tim

[Timothy Clontz]

No changes to the Mousetrap:

Condition Bear Market
S&P Target 970
Hedge XLE -1.35%

Position Date Return Days Call
BKI 5/31/2011 7.93% 112 Hold
CFI 6/22/2011 -3.88% 90 Hold
SE 6/27/2011 -1.96% 85 Hold
AWR 7/5/2011 -3.64% 45 Closed
CLH 7/6/2011 3.34% 76 Hold
GCI 7/14/2011 -26.89% 68 Buy
AGO 8/5/2011 -11.14% 46 Hold
DISH 8/10/2011 23.21% 41 Hold
GTAT 9/8/2011 -22.81% 12 Hold
NA NA NA NA NA

Mousetrap Return -3.98%
S&P Return -5.86%
Hedged Return -5.18%

Mousetrap Annualized -22.77%
S&P Annualized -33.51%
Hedge Annualized -29.63%

Annualized Advantage 10.74%
Hedged Advantage 3.88%

But a word about Jackson Hole...

There is a large expectation of another round of quantitative easing. If operation twist is enacted, or something like it, I expect two things to happen:

1) the market to briefly spike upwards in anticipation of a repeat of last year.
2) the market to plummet because this is not last year.

Last year Bernanke lowered the dollar.

That lowering of the US dollar caused massive inflationary surges in the third world, destabilizing whole regions and causing the revolutionary "Arab Spring" from mobs who couldn't afford food and would rather face bullets than slow starvation.

More importantly for investors, however, the Bernanke put caused the Euro to rise in comparison, creating a deflationary imbalance that tipped debtor nations in Europe over the edge as the real value of their debts increased and their ability to compete in international markets plunged.

Europe IS the problem this year. Another round of quantitative easing -- or even a hint at it -- would cause the European dominoes to fall.

This is NOT last year.

Tim

[nickola.pazderic]

I agree with you tersely worded position. However, two things concern me, and both have been pointed out by EB:

1. How high can bond prices go? Considering there is usually an inverse relationship to stock prices...

2. Couldn't we conceive of our low volume recent period as consolidation before a blast off?

Oh well.

Many thanks for your updates all the same,

[Timothy Clontz]

There are plenty of classical TA indications of a bullish run to 1300:

1) The long term moving averages are just under 1290, and we normally have at least one good stab at it,
2) Sentiment is extremely bearish, even more so than last summer,
3) Simple breadth has advanced faster than the market rise.

My own indicators are so long term that all I can do with the Mousetrap is hedge and wait out the volatility. The Robots are infinitely more robust and can ride the smaller moves (and I have about twice as much money in the Robot trades as I do my experimental Mousetrap).

Jackson Hole COULD give the market a little blast off that causes everyone to cover their shorts -- but I honestly don't see any macro-economic sustainability to it. We've reached the end of Keynesianism, I suspect.

I think we live in interesting times...

[Timothy Clontz]

Condition Bear Market
S&P Target 970
Hedge XLE -0.72%

Position Date Return Days Call
BKI 5/31/2011 5.28% 112 Hold
CFI 6/22/2011 -5.69% 90 Hold
SE 6/27/2011 -2.19% 85 Hold
AWR 7/5/2011 -3.64% 45 Closed
CLH 7/6/2011 3.77% 76 Hold
GCI 7/14/2011 -30.12% 68 Buy
AGO 8/5/2011 -12.67% 46 Hold
DISH 8/10/2011 23.07% 41 Hold
GTAT 9/8/2011 -28.92% 12 Hold
NA NA NA NA NA

Mousetrap Return -5.68%
S&P Return -6.00%
Hedged Return -6.32%

Mousetrap Annualized -32.47%
S&P Annualized -34.32%
Hedge Annualized -36.12%

Annualized Advantage 1.85%
Hedged Advantage -1.81%

The Mousetrap advantage has now been completely consumed by the Solyndra debacle’s effect on GTAT. The fundamentals remain strong, and the money flow has not supported the downward price move. So, there’s nothing to do but wait.

The only opinion that matters tomorrow, of course, is Bernanke’s – but only for the short term. Long term I don’t think there is any positive move he can make.

But my opnion doesn’t count tonight or tomorrow.

It’s Ben’s move now. I’m hedged, so it doesn’t much matter what he does either way…

Tim

[Timothy Clontz]

Condition Bear Market
S&P Target 970
Hedge XLE 3.46%

Position Date Return Days Call
BKI 5/31/2011 2.02% 113 Hold
CFI 6/22/2011 -4.85% 91 Hold
SE 6/27/2011 -5.10% 86 Hold
AWR 7/5/2011 -3.64% 45 Closed
CLH 7/6/2011 0.17% 77 Hold
GCI 7/14/2011 -34.24% 69 Hold
AGO 8/5/2011 -18.07% 47 Hold
DISH 8/10/2011 18.73% 42 Hold
GTAT 9/8/2011 -31.63% 13 Buy
NA NA NA NA NA

Mousetrap Return -8.51%
S&P Return -8.49%
Hedged Return -5.44%

Mousetrap Annualized -48.00%
S&P Annualized -47.88%
Hedge Annualized -30.65%

Annualized Advantage -0.12%
Hedged Advantage 17.22%

Today was a classic example of why I don’t do discretionary trading, and also why I don’t time the small moves. My gut is always wrong. I was pretty sure we’d get an immediate jump up after Jackson Hole, when instead we got a 3% drop.

The good news is that the hedged position pulled ahead, and the portfolio made a few dollars today. As far as the portfolio was concerned, it was a boring day.

Before I get too excited I need to note that on my sector rotation model the rotation is starting to break down – as it does in bear rallies or bull corrections. It hasn’t broken yet, but we are 2/5s of the way through a bear market rotation, and the 3rd position is no longer aligned with the 2nd. According to the model, then, we are still due that rally before the bear plummets. And while the market is never perfectly average, the average behavior of bear markets indicates that a rally is far more likely after today’s action than it was before.

Since I don’t know when and I have horrid instincts, I’m staying hedged. It’s boring – but these days boring is good.

Tim

[Timothy Clontz]

Condition Bear Market
S&P Target 970
Hedge XLE 8.90%

Position Date Return Days Call
BKI 5/31/2011 -1.35% 114 Hold
CFI 6/22/2011 -8.69% 92 Hold
SE 6/27/2011 -7.03% 87 Hold
AWR 7/5/2011 -3.64% 45 Closed
CLH 7/6/2011 -4.13% 78 Hold
GCI 7/14/2011 -37.18% 70 Buy
AGO 8/5/2011 -19.12% 48 Hold
DISH 8/10/2011 14.80% 43 Hold
GTAT 9/8/2011 -35.71% 14 Hold
NA NA NA NA NA

Mousetrap Return -11.34%
S&P Return -11.11%
Hedged Return -3.43%

Mousetrap Annualized -63.07%
S&P Annualized -61.81%
Hedge Annualized -19.07%

Annualized Advantage -1.26%
Hedged Advantage 42.74%

The hedged position is pulling ahead, of course, but the most important issue is the hedge itself – XLE will be changing to XLF.

The money flow potential of XLE has degraded to the point that it should start tracking the general market, rather than falling against it. XLF has the worst long term money flow relative to the general market and will be the new hedge.

Unless there is a very large gap in opposite directions in the morning, I plan to do a simple swap with two quick market orders at their opening prices. That is, if XLE were to gap up and XLF gap down more than 1% relative to each other, I’ll wait for those gaps to close during the day before making the swap.

All in all it’s been a boring two days in the portfolio, which is most refreshing.

Tim

[Timothy Clontz]

Covered XLE at the open for a 9.96% profit.

Converted the hedge to XLF.