Although you may not be able to tell from the pure performance numbers (see below), May was a month of extremes.  First, there were extreme market moves to the upside.   Stocks exploded higher in early May riding on the coat tales of Japanese Quantitative Easing and a feeling by the market participants that developed market Central Banks had to do likewise in stealth currency war between the world’s largest economic markets.

Then someone almost overnight flipped on the sell signal in Japan.  We woke up to an 8% down opening here in the U.S.  Japan is the largest component of the EAFE Index and continued weakness in this country really weighted on the overall index during May.  By the way, there still is no economic reason for the destruction in the Nikkei, literally someone decided to sell big on this index in thin overnight trading over several days.  This index has had historically low volatility, but I would say an 8% opening decline on the index puts the whole “safe haven” thesis to rest.

About the same time came conflicting stories between what the Federal Reserve Governors were saying in speeches before various groups about further Quantitative Easing and what the minutes to the recently completed Fed meeting stated.  In truth with borrowing down and economic activity up in the U.S., the Fed was already planning how it would taper back its QE to infinity.  This sent bond yield rising and bond prices plummeting in one of the biggest move in years.  The carnage even included high yield bonds, which typically trade with equities.  Of course, historically small yield spreads over treasuries didn’t help the high yield sector.

The result, a very bifurcated market as you can see below.

Stock-Signal Performance

The Stock-Signal individual index and sample portfolio performance really mirrored the market activity highlighted above.  As an example,  our equal weight sample portfolio had flat performance despite  the NASDAQ and S&P 500 indexes having fantastic months.  Unfortunately, the EAFE and High Yield indexes completely offset gains in those two indexes.

Our Global Opportunities sample portfolio was again the better performer this month due to big profits in our short (inverse) positions in gold and commodities.  The dollar even chipped in for the month with a modest gain.

On a year-to-date basis,  the Stock-Signal sample portfolios continue to make money.  However purely buying and holding the S&P 500 index continued to be the big winner for 2013.  Note, however, that Stock-Signal.com continues to outperform the CTAs trading similar trend following strategies.

Markets like these drive active managers crazy as they do not adequately compensate us for our risk process and any Tom, Dick or Harry can look like a genius just by holding the broad market index.  The truth however is that markets rarely go straight up and at some point you will be happy that risk management is important to active managers and to Stock-Signal.com.

Market Forecast – June

So with so much action in May, what does June have in store?

First, let me remind you that my forecast is just an educated guess and should not be relied upon.  It is just for educational purposes (and fun).

So enough with the disclaimers, here is what we see.  First, this market and the U.S. market in particular is very extended.  Markets tend to move up and down above and below a simple moving average.  If you looked at the S&P 500 relative to a simple 20 period moving average on a weekly chart, you would see it is very extended relative to the moving average of price.  This doesn’t mean that price cannot become more extended, but chances are there is a reversion to the mean for the S&P 500 in June.  My target is a drop to at least 1600 on the S&P 500 in the month of June.

Longer term, we would not be surprised if stocks took the summer off.  I could easily see a repeat of past summers where we decline in June, rally in July and August and get hammered in September or October.  So strap on your “big boy pants” because this summer could be a wild one!

I had told our subscribers to expect such a possible retest of the highs and that is just what we got.  What I did not expect is that we would find a way to put in new incremental highs.

Here is how the averages performed in April:

All three major indexes moved higher and surprisingly the NASDAQ led the way for the month outperforming the other indexes over the last few days of the month while playing catch up. 

Where we go from here is really anybody’s guess.  I would normally say that we are entering a soft season of the year for equities (May – October).  However, let’s face facts, markets are no longer being driven by fundamentals but by Central Banks.

This was no more evident than in Europe in April as member nations continued to produce weak GDP numbers and forecast slowing growth, but European markets instead of correcting (as the charts and our trend models seemed to indicate) rallied to new highs on the ECB’s perceived change of heart on austerity and the possibility of further easing in Euro land.  It was this technical weakness followed by strong anticipatory price moves against our inverse/short position that was the primary reason our sample model portfolios and our EAFE Index signals underperformed.

Stock-Signal Performance

Stock-Signal.com performance was generally strong for the month.  The two exceptions being our EAFE models which, as explained earlier, hurt us in April.  The other exception was our Long signal in the U.S. dollar, which took a break in April as equity markets rallied and the dollar resumed its negative correlation to such markets.

Our strongest Stock-Signal performances were in the DB Commodities Index and the London Gold Index.  Our models had subscribers inverse (short) both indexes and we cleaned up as a result.  On a technical basis both markets appear to have further downside after the current counter trend bounce in each is completed.

Our sample Equal Weighted portfolio returned a solid +.59% before commissions, fees or other trading costs.

Our sample Global Opportunities portfolio returned 1.88% before the same costs.  Both portfolios were negatively impacted by our EAFE signals for the month, however, the Global Opportunities portfolio was able to overcome this loss with large gains in gold and commodities as mentioned previously.

Overall, we made money, which is always the goal!  The S&P 500, however, has clearly been the winner and has left our sample portfolios in the dust for the year-to-date period.  This kind of disparity between index performances rarely lasts forever and I would expect that our other index signals will pick up in the coming months.  However, I would also like to state this is no normal market.  In all my years of investing, I have never seen a market so tied to Central Bank intervention as now.  It is like a bunch of junkies looking for a fix and the Central Bank is the glad supplier!

Market Forecast – May

We broke to new multi-year highs on all the major indexes in April.  I would have bet you “dollars to donuts” we would have seen a top at the end of April, but we did not.  So now the million dollar question is where will stocks go from here.  My guess is we continue to grind higher.

I watched Carter Worth on CNBC explain how he thought the divergence in sector investing between low volatility sectors and higher beta/volatility sectors would eventually lead to a nasty shakeout.  He made the point (that we have seen in our managed accounts and are exploiting) that money has flowed to lower growth, low volatility sectors in excess.  While at the same time higher growth sectors continue to struggle in terms of growth expectations and money flows.

Now Carter may be right, but it seems to me we are in a bubble environment and bubbles tend to go much farther than anyone would expect.   Low volatility just seems to be the bubble de jour!

Speaking of bubbles…is gold the most recent bubble to pop?  I have a good friend who keeps warning me about an impending short squeeze in gold and a new move to highs based on buying by the hard metal suppliers.  However, when I look at the charts all I see is a counter trend bounce and the possibility for more weakness over the balance of the year.  We will have to see who is right!

So bottom line:  this is a very exciting market, but it is fraught with danger!  Make sure you know where the exit signs are and that someone is paying attention because these upward bubbles could burst at any time.  May I suggest to you a Free Trial to Stock-Signal.com.  We will help you stay on track and out of trouble, especially if this raging bull turns to bear.

The good news is February is behind us.  Although I believe we could see some weakness to start the month of March (post the first few trading days), I believe global stock markets will move higher into March and possibly April.  Of course, this is just an educated guess and anything could happen in this Fed induced market.

So what went right in February?  Obviously, the S&P 500 made money which is a  good thing.  This benchmark was pushed higher by strength in utilities, consumer staples and health care.  These are all defensive names and should be enough to tell you how professional investors viewed the month that just ended.

You can also see that the S&P 500 easily led the mid and small caps and the Nasdaq to the upside during the month.  (I apologize the returns don’t quite match up, but the best I can fine turn this chart is for the period of January 28th- February 28th.)

Stock-Signal Performance

The performance of our Stock-Signal.com indexes were mixed in February as you might expect by viewing the chart above.  Note how the Nasdaq Index (QQQs) underperformed again in February.  The only glimmer of hope I see is this index did outperform in last week of the month, but still its performance has really hurt our sample portfolios.

Our best performing index signal was short (or inverse) gold, which produced a +4.59% return in February.  Our worst performing index was our high yield signals which produced a monthly loss of -1.12% while the underlying benchmark gained +.49%.

Our equal weighted portfolio (see below) lost (.18%).  While our very broadly allocated Global Opportunity portfolio (see below) gained just .22%.

Here is the Stock-Signal.com performance for the period, year-to-date and prior two annual periods.  Please keep in mind this has been a tough period for trend following strategies, like Stock-Signal.com, and if you have a contrarian mindset, now is the time to start following our signals as they are bound to take off as the markets likely top out sometime in 2013.

Market Forecast – March

I hinted above that I believe the powers that be continue to juice this market higher into April after some possible weakness to start the month of march.   It is possible we head lower over the next few weeks and the test 1460-1475 on the S&P 500 before charging higher into the end of March and April.

Of course, events in Europe or even political indecision and fighting here in the U.S. could derail a perfectly good melt up.  In any event, if you are a subscriber, we will attempt to keep you on the right side of the trade no matter what happens around the globe or here at home.

Maybe now is a great time to get a Free 30 day trial of Stock-Signal.com?   You can cancel at anytime without your credit card being charged during the trial.

If you recall this same thing happened last year.  It began in Mid-December and despite my feelings that markets were too rich in January, the rally lasted all the way to the end of April.  Quite frankly, as I learned last year with in our advisory firm, if you are sitting on the sidelines waiting for the right time to get in, you may never get it.  I also learned to follow the trend until it ended, don’t try to pick a top.  These moves tend to go further than anyone would imagine!

As I reviewed this current period in comparison to that period, here is what I see.  This current rally began earlier than last year’s by about 1 month (mid-November 2012).  Last year’s rally lasted four full months.  Assuming history repeats, that would give this one the possibility of lasting through February and into mid to late March.

So how did the markets do in January?

Well the S&P 500 finished the month up 5.04%.  Not a bad way to start the new year!  The Nasdaq finished up 4.06%, while the EAFE index finished up 3.73%.

Our Stock-Signal index signals generally performed in line with market indexes.  The significant exception was the Nasdaq index model which started the month net short (inverse) before finally moving net long at mid-month.  This needless to say was a drag on performance for that index and for any sample or actual portfolios holding the Nasdaq signal model.

You can see this drag’s effect in our sample  Equal Weighted Portfolio of the Nasdaq, S&P 500, EAFE and High Yield indexes (below).  This portfolio returned 1.98% vs. the 5.04% you would have received by buying and holding the S&P 500.  However, lest we forget, this same portfolio beat the S&P 500 over the last quarter of 2012 by +1.5%.  So it was due a period of underperformance!

Our sample Global Opportunities Portfolio returned 1.38%.  The portfolio holds 15% of all our indexes excluding the U.S. dollar (a 10% holding).  This portfolio’s returns were held back by positive, but lower returns for gold, the U.S. dollar and commodities in January.

Please note the disclaimers related the sample portfolio and index returns below and remember that past performance is now always indicative of any future returns.

Stock-Signal Performance

Market Forecast – February

I think I already hinted at what I expect in February and March above.  As much as it pains me to admit, we could well see a continued melt up over in February and March.  Why pain?  It just means that traditional indicators (other than price) become less dependable.

Now having delivered the possible good news, here is the bad news.  I do envision is much greater volatility of returns during this period.  In fact, I would not be surprised to see the market string together periods of decline only to miraculously recover to even higher highs.

This possible rally continuation also lines up with the likely period in early April where Congress has to again take up austerity, budgets and the debt ceiling.  This now annual right of Washington is traditionally a drag on the markets.  If you factor in strong seasonality that traditionally ends in April, you have the makings for a rally continuation (like last year).

The Stock Trader’s Almanac tends to back up this possible bullishness with its statistical case for a strong 2013 based on a strong January, three consecutive January gains and the fact the market returned north of 5% for the month.  You can read their analysis called the Curse of Round Numbers if you want more information.

I would caution you to not just “set it and forget it” as Ron Popeil says about his now famous Ronco roaster.  You need to stay vigilant!

I still believe we could see a top for the market in late April or May and as I said earlier, the easy money has been made in the short-term.  Any additional returns from here will likely carry a few more sleepless nights and a more volatile trend.

If you are subscriber of Stock-Signal.com, you have it easy.  Just sit back and wait for the signals.  We will keep you out of trouble.

If you are not a subscriber, why not give us a try?  We offer a free 30 day trial!

So now it is your turn?  How long do you think this current rally will continue and why?

Well they got it done!  Have you ever seen so much drama, discourse and pure incompetence in all your life?  Of course, I am speaking of the President and Congress’ dance over the past 60 days that finally ended with a last minute, but late, deal that “saved us” from the so called “fiscal cliff.”

As a active trader, I can tell you this whole discourse created havoc over the past two months that made it tough to trade and even tougher to profit.  Day after day markets moved up or down based on the news that was mysteriously leaked out from behind closed doors.   Both sides worked the financial and non-financial press to paint a picture that they are doing everything they could, but the “other guys” were blocking further progress.

No matter how you slice it, this drama cost us market returns in what has historically been one of the best trading months of the year.  And oh by the way, we did have a positive month, but it took an extraordinary day on the last trading day of the year to make it happen.

Here is how we finished up the month:  The S&P ended up .71%, the NASDAQ Composite returned .31% and the EAFE Index finished up 3.25% (the clear winner for the month).

Overall our strategies worked pretty well!  If you were invested equal in our core four indexes (S&P 500, NASDAQ, EAFE and High Yield indexes), you earned a nice .99%.  You would have even felt better about this prior to the last trading day as this portfolio easily (and with less risk) out distanced just buying and holding the S&P 500 index.

If you held a portfolio of all our index stock signals, you faired a bit worse.  Our model portfolio (called Global Opportunities) returned .13%.  Returns for the portfolio were again negatively impacted by an ongoing consolidation in gold and a monthly loss in the DB Commodities index.

The yearly return for each index and for those sample portfolios are below.  Overall, we are very happy with the sample portfolio returns for 2012 versus both the broad indexes and other trend followers.  We look forward to 2013 as we believe this will be the “Year of the Trend Follower.”  More on that later.

Stock-Signal Performance

As I stated above, this was a very good month for foreign securities.  Smart money continued to rotate into international equities and away from the U.S. throughout the month.  Both U.S. and International markets now look a bit rich, but its pretty tough to tell what that means right now given macro undercurrents.

We are seeing some possible stabilization in both the commodities and gold indexes.  It looks possible that the commodity index will break to the upside and out of its downwardly trending trading channel, although it has not done so yet.  It also looks like gold is ready to perk up here as Central Banks continue to print money and national governments continue to formulate bad policy (see fiscal cliff bill as exhibit A).

Here is the performance by index and sample portfolio:

Market Forecast

If you have not seen our 2013 Stock Market Forecast Video, here is a link.  Both Wayne and I believe that this fight over revenue increases and spending cuts is far from over!  In fact, we think markets will manage to sidestep higher through continued debate on the former and the Congressional debate on increasing the U.S. debt limit, but when May/June comes, we could see traditionally tough market months turn even tougher.

The good news is that trend following strategies like Stock-Signal are not positively correlated to the overall stock markets.  In English this means that they do well (after a brief adjustment period0 when markets do poorly.

My suggestion is that you take a look at a video we did on our sister site, InTrust Advisors, called How to Get Rid of Your Investment Worries Once and For All and see how trend following really compliments traditional strategies, like buy and hold.

Remember, we offer a Free 30 day trial.  You can cancel at any time without even picking up the phone!