The SmarTrend Global Portfolio had a rebound in Uptrends last week, consistent with the rise in equity markets. The number of Uptrends vs. total trends rose to 56%, up from 47% in the prior week. A continuation of this rise will be necessary for the markets to break above resistance at 1100 in the S&P and 10,300 in the Dow. The average Uptrend now stands at 108 days, down from 125 while the average return ticked lower to 38.5%, down from 41.5% in the prior week. This suggests that a rotation is occurring where some winners in the prior up cycle were sold and laggards are now being picked up. Check our Morning Call newsletter for insight as to which sectors are leading this rotation and keep an eye out for new trend alerts in those sectors.
Last week was a bit of a transition week as the number of stock in a Downtrend, surpassed the number of stocks in an Uptrend. Just over 47% of stocks in our global portfolio are now in an Uptrend, down from 53% in the prior week. The number of our Uptrends calls that are profitable has ticked up from 75% to 81% suggesting investors are still hanging on and rewarding some of their best winners. The performance of Downtrends has declined which is typical during periods of distribution as institutional investors lighten up but are then briefly lifted by retail investors. We’ve seen up days in the market accompanied by low volume and down days in the market occurring on higher volume. This is a theme that often implies a shift of equities from stronger hands to weaker ones. We expect the market to continue to test its upper bound (~ 1100 S&P) and will be watching for higher lows on any future retracements to confirm that the intermediate uptrend remains intact. In order to break above resistance on meaningful volume, we will need to see far more Uptrends vs. Downtrends each day - something we did not receive last week. If and when this occurs, readers of our Morning Call newsletter will be among the first to find out.
What a difference a week makes. Readers of our Morning Call newsletter were forewarned of the 4-5% correction in the market which indeed occurred as the S&P 500 closed the week sharply bouncing above and below its 50-day moving average. The percentage of stocks in an Uptrend fell sharply to 53%, down from 73% in the week-ago period. The drop to 53% is notable as it is lower than levels reached during prior corrections and may be indicative of a near-term top forming. Holders of equities may be looking to cash in on some of the extraordinary gains realized since March as volatility, as measured by the VIX, has reached levels not seen since June of this year. The return of the average Uptrend has declined with our Downtrend calls picking up steam - moving from an average of 0.9% decline three weeks ago to more than a 7% decline currently. Also expected, the number of Downtrends that are now ”in-the-money” has also risen to 84%, up from 65% last week. As these numbers point to a topping process, whether or not this is merely a leveling off after an incredible run or the start of a much larger correction remains to be seen. In either case, readers of our Morning Call will be among the first to know which scenario is playing out.
Below are the updated statistics for all trends issued by SmarTrend over the past two weeks.
As you can see, there were a significant number of stocks that moved from a Downtrend into an Uptrend over the past week. This correlates to the near 7% rise in the S&P 500 last week. The % of Uptrends that are currently trading above the alert price (profitable) has jumped to almost 88%. Conversely, the % of Downtrend that are trading in the money has fallen to around 38%. It is important to note that this does not mean only 38% of our Downtrend calls were profitable. There were a large number of profitable Downtrend calls that have shifted to Uptrends and are no longer tabulated in the Downtrend row below.
This is why it is very important to add stocks to your watchlist, wait for the trend alerts, and then trade the trend. You can then be sure that you are trading only when the momentum is in your favor. As markets ebb and flow, so do the number of Uptrends vs. Downtrends, and the relative outperformance of each. When we had the S&P in a Downtrend, our Downtrend alerts outperformed. Now that the S&P is in an Uptrend, the total number of Uptrends has increased as has the % of those that are in the money. There will be bumps along the way as the trade term trend shifts from oversold to overbought, but you can stay one step ahead by reading our Morning Call newsletter where we provide insight as to when broader markets are beginning to turn across multiple time horizons.
Q: Over the last twelve months how successful and accurate has your company “Trends” on any stock. To help, give me your comanys trends on “S”
-Lee
A: Thanks for the email. We get this question often. With trend trading, you should be able to outperform other startegies by not being in a stock during massive drawdowns, and by catching the big uptrends, when they occur. Will there be whipsaws? Sure - but one large trend pays for them all and then some. That is the essence of trend trading and why it has been one of the most successful trading strategies. We at SmarTrend think our trend calling system is the best in the business. As for your specific inquiry on Sprint, see below our calls over the past few years. Was every call a winner? No. They don’t have to be and I would be skeptical of any system that claimed 100% accuracy. SmarTrend, as with any system-based trading system, relies on statistics. You only need a small % more winners than losers so long as your average winning trade is greater than your average losing trade. Over time, that combination is a recipe for success. About 64% of the calls on S were winners, with an average win/loss of 1.4x. That translates into a more than 88% return if you invested $1,000 at the start of 2007 and traded our trends (much better than the market and if you just bought and held). Further, we think of our trend alerts as position initiation calls. Meaning, even better results can be achieved if you close the position before the opposite trend alert is made, after you have achieved profits that align with your objectives.
Q: Chip:
I learned of your company while following IBOC, which I’m following closely. I’m interested in learning more about your product. Could you please send me performance details on your calls?
Regards,
Tony
A: Thanks for the email. Below please find some stats for the past two weeks. The Win % column represents trend calls that are trading above the trend alert price in the case of an Uptrend, or below the alert price in the case of a Downtrend. The average length of the Uptrends is approaching the outer limits of our historical average and, as we have seen, more Downtrends are starting to be called. We called a large number of Downtrends in early June in anticipation of this corrective phase as the Uptrend cycle has reached a fatigue point. The higher average return of the Uptrends is largely due to the massive rally we have had since March. Downtrends should start to outperform as the market turns and heads lower, as was the case early this year and all of 2008 when the total # of Downtrends well exceeded the total # of Uptrends. As these numbers reach extremes, it is usually a sign that a reversal may be in the offing. You will notice the average return of the Downtrends is starting to accelerate. Follow our Morning Call to have a better idea as to whether Uptrends or Downtrends will outperform on any given day or week.
