Last week’s market action was the most unsupportive since the dark days of March 2009. Negative trends now exist for nearly all market segments as the swift declines of the past several weeks have impacted all of the short-term trends we monitor. Click here to access our current view of the markets – our five-year ETF charts with both their respective short- and long-term trend-lines.
All of our firm’s managed portfolios continue to hold significant cash and defensive positions. Presently, our Appleton Group Portfolio holds approximately 80% cash and only 20% equities. The same holds true for our PLUS strategy; however, this strategy also holds a net 30% exposure to bear market securities which are helping to neutralize the negative effect of our remaining invested positions. Lastly our Tax Managed Growth strategy has the identical allocation as our PLUS, but with an additional 20% exposure to large dividend-paying U.S. equities.
Our remaining invested position consists exclusively of U.S. commercial real estate (20%). That’s it. Our bear market positions (designed to rise when the markets are falling) are comprised of foreign emerging markets (China, India, Russia, Brazil, etc.), and to commodity-based equities. Cash positions are either held in money market securities or simply in cash.
The markets are clearly in a downward trend right now, and as such our defensive posture is certainly warranted. It is important to know that in a downward trending market it is absolutely normal to see significant daily bounces, with upward moves of 5% or more not unheard of. I find it interesting to note that the overwhelming majority of big up days consistently occur in the context of falling market, not a rising market. You’d think that most big up days happen in a bull market- they simply don’t. Several years ago we published a study in our market commentary that showed that from 1980 – 2005, more than 62% of the biggest days for the Dow Jones Industrial Average came in the bear market of 2000-2002! Certainly, the bear market of 2007-2009 demonstrated more than its share of big up days as well, just like the past few weeks. Fact is, bull markets often go kicking and screaming, with investors consistently holding out hope that the bottom is near. In the end there can be only one true bottom, and paying close attention to the prevailing trend can help separate daily noise from market truth.
Big Ben Bernanke speaks at his annual Jackson Hole Wyoming conference later this week. Expect soothing words…