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8/19/2019 Hugging the Bear Issue 20120212
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®
R ESEARCH ECH NVES FEBRUARY 12, 2016Vol16 Iss02
If it Looks like one… Walks like one… and Growls like one…(Technically – A Confirmed Bear Market)
4 Weeks Ending February 5, 2016
Federal Funds 0.40% 0.27% 0.38%30yr T-Bonds 2.97% 2.66% 2.67%
Gold (London PM) $1156.35 $1085.40 $1150.35
DJIA 16516.22 15766.74 16204.97 17338.84
DJUA 626.64 578.66 624.62 576.26NASDAQ 4685.92 4363.14 4363.14 4937.90S&P 500 1940.24 1859.33 1880.05 2040.81
S&P 500 P/E Current: 20.7 88 yr Avg: 17.0
High Low Last
High Low Last 200D M.A.
For more than 12 months, as technical warning flags have increased, we have been steering a more defensive course in both our strategy and portfolio allocation. In hindsight, our only regret was not fighting the “bullish headwinds” moredecisively. But the sirens of Wall Street have been compellingly convincing, even to the seasoned investor:
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Major bear market bottoms
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While 2016 opened with headline-grabbing weakness as the worst startto any year in history, it was the spike in day-to-day volatility thatcaught our attention. As we first noted in December 2014, a notableincrease in volatility would almost certainly accompany the onsetof the next bear market – just as it did in 2007 and in the late 1990s.
It might prove misleading or dangerous to extrapolate the first fiveweeks to a full year; however, there is little doubt that daily volatility(both large UP and DOWN days) is at extremes. This is a tug-of-war between the bulls and the bears… and, so far, the bulls are losing.As you’ll note in this issue, our Negative Leadership Composite islocked in bear market territory and warning flag divergences arenot improving. A market with narrowing participation and failingleadership is a market in trouble.
Yet at the same time that technical evidence of a bear market seems overwhelming, most leading economic indicatorsare resilient in not forecasting any recession on the horizon. So either this is a market-induced decline (or bear market)that might not have too many more months to run, or we should soon start seeing confirming negative signals on the
macroeconomic side that Main Street is heading for trouble too. Inside, we tell you where to watch…
EDITOR: JAMES B. STACK2472 Birch Glen ♦ Whitefish, MT 59937 ♦ 406 / 862-7777
COPYRIGHT 2016 INVESTECHwww.investech.com
MONEYSHOW ORLANDO ISSUEMONEYSHOW ORLANDO ISSUE S P
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Vanguard says bull market will keep sparkling in 2016MarketWatch – 12/2/15
U.S. Stocks Seen Rising Next year in Barron’s ‘Outlook’ SurveyBloomberg – 12/12/15
A Brighter Outlook for 2016: J.P. Morgan FundsBarron’s – 12/22/15
Bull market to stampede through 2016, Deutsche Bank predictsMarketWatch – 12/4/15
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84 mo.
55 mo. 44 mo. 40 mo.
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2007 Bear! ?1966 Bear!1987 Crash!
Longest Correctionless Bull Market Runs
Longest periods without a 10% correction since 1928
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Mar 2003 - Oct 2007: Oct 2011 - May 2015?: Oct 1962 - Feb 1966: Jul 1984 - Aug 1987:
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Bull Markets
6.9yrs (through 2/12/16)
5/21/15
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Recovery
Length of Economic Recoveries
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*through 2/12/160 1 2 3 4 5 6 7 8 9 10yrs
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The stock market leads the economy, yet bear markets donot always mean a recession is imminent. However, the bigger bear markets are accompanied by a recession – andthat’s why it’s helpful to learn early in a bear marketif recession warning flags start flying. It could proveparticularly important this time around since thiseconomic recovery has also turned into one of the longeston record [see graphic at right]. This leads one to question
if a “recession” might be somewhere on the horizon.
Where are we on the Wall Street road map?Extended bull markets always create excesses. And those excesses can take many forms – in valuation, speculation,margin debt, and simply investor complacency. Historically, 5-10% corrections are a healthy part of every bull market.And the longer a bull market runs without a significant correction of 10% or more, the more likely the end result will bea [sizable] bear market.
We have repeatedly warned over the past 18 monthsthat this bull market could be getting long in the tooth. While bull markets never die of old age alone, most bullmarkets expire between 2-5 years [see shaded region ingraphic at left]. If the current bull market remains intactand new highs still lie ahead, then it would turn 7 yearsold next month. By summer, it would be the 2nd longest bull market in Wall Street history. That is, of course, ifthe bull market is still intact!
Citigroup urges investors to ‘be brave’ as it forecastsa 20% gain in global equities by end-2016
The Telegraph – 10/6/15
Last Oct
Citi: World economy trapped in ‘death spiral’CNBC – 2/5/16
Today
After more than 6 years of seemingly continuous rising stock prices, the “R” word was rarely mentioned in any discussionsor forecasts from economists and Wall Street analysts last year. But what a difference a volatile month of declining stockprices can make:
Over the next few pages, we explore the dichotomy between leading technical and economic indicators, and lay out our
strategy for navigating the current Wall Street conundrum…
In the table at right, we show the 5 longest bullmarket runs without a 10% correction, and this bullmarket’s recent run through last May falls right in themiddle – at 44 months. It has not been comforting to be “sandwiched” by bear market endings on both sidesof that ignominious record.
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1 SELLING VACUUM[-BULLISH-]: Thisconfirms the absenceo f n e g a t i v e o rdownside leadership.It is normally a verybullish signal sincea s tock ma rke twithout any downside
leadership is destinedto move much higher.
2 DISTRIBUTION[-BEARISH-]: Thissignals that investorsare anxious to sellstocks regardless ofwhether their positionis at a loss, or the stockmarket is tumbling tonew lows. It carriesbearish implicationsas it suggests investorswill use any rallies toget out of the market.
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The run up in margin debt has also become anincreasing concern in the past few years. Thisrepresents “hot money” borrowed to buy stocks onmargin… that will likely panic as selling in a true bear market progresses.
Note that past peaks in margin debt have
coincided with, or led, peaks in the stock market.That was also the case a year ago when margin debtpeaked a month before the blue chip indexes. Butas we’ve pointed out, the final peak cannot clearly be identified until margin debt falls enough to makenew highs or peaks unlikely. Based on the volatile,high volume down days we’ve experienced sincethe start of this year, we anticipate margin debtmay confirm a bear market when reported laterthis month by tumbling decisively through thesupport levels of the past 18 months.
Technical Evidence: Confirming a bear marketIt’s been 26 years since we developed our Negative Leadership Composite (NLC) to help identify the best buyingopportunities, as well as the highest risk markets. It’s pure common sense that broad upside leadership (and absence ofdownside or negative leadership) signifies or confirms a new bull market. It usually does the same for second or third bull market legs. This is shown when a bullish “SELLING VACUUM” [*1] appears in the NLC. Conversely, broad andincreasing downside leadership –shown by “DISTRIBUTION” [shaded region *2]– will always confirm high risk early ina bear market by dropping to -100.
Our challenge, at times like this, is distinguishing whether “DISTRIBUTION” might be caused by temporary factors,
which was the case three times in the current bull market – the Congressional showdown over the debt limit, themarket’s Fed “taper tantrum,” and the oil price collapse over a year ago. Judging by the depth, duration, and broadening sector contribution to the “DISTRIBUTION” in leadership, we must conclude that Wall Street is currentlyin a bear market.
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We also find little to cheer about inmarket breadth or participation. TheAdvance-Decline Line, which showeda bearish negative divergence with the
S&P 500’s secondary peak in November,continues to weaken with –or ahead of– the blue chip indexes.
When the majority of “troops” are in retreat,it can become increasingly difficult for the“generals” to stand their ground. Withouta measurable improvement in breadth, we believe this market will continue to strugglein the coming weeks and months.
Two (almost three) major U.S. indexes already qualify as bear markets…
Globally, one of the safest places to be has been in solid blue chip stocks in the U.S.The S&P 500 Index and Dow Jones IndustrialAverage are approximately 13-14% off theirpeaks last May. Meanwhile, the Nasdaq Indexis within several percentage points of hitting the-20% threshold of qualifying as a bear market.
By comparison, the Dow Jones TransportationAverage is already in bear market territory witha loss of -24%. And the premier small-cap
Russell 2000 Index has tumbled over 25%.
In summary, the bear market damage tomany investors’ portfolios has alreadyproven significantly more severe than what isportrayed by the more resilient blue chip DJIAand S&P 500. Even within the S&P 500 Index,over 60% of component stocks are down 20% from their 12-month highs, while 37% are downmore than 30%!
Investors might be surprised to learn that mostforeign stock markets –including London’s FTSE(Financial Times Stock Exchange) Index, theGerman DAX, and Tokyo Nikkei– are all offmore than 20% from last year’s highs. China’sShanghai Composite has tumbled 46% from itspeak last June.
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Unfortunately, the Coppock Guide is generally not as useful in identifying market peaks. One reason is that bull markettops are usually slow, rounding formations in which momentum –and the Coppock Guide– peak up to a year or moreahead of the market. Yet there are certain instances when it has proven invaluable at a market top…
In the late 1960s a technician named Don Hahn observed another phenomenon about the Coppock Guide. When adouble top occurs without the graph falling to “0” –a phenomenon that Hahn referred to as a “Killer Wave”– it confirmsan extended bull market where psychological excesses can reach extremes. In those situations, the appearance of a secondpeak generally means a bear market has just begun or is not far off (see red dashed lines). The late 1990s was an exception.
Killer Waves are rare, and they can be dangerous. This is only the 8th bullmarket in the past 95 years to see a double top in the Coppock. The table atright shows that in 5 of the previous cases the second peaks were associatedwith the start of the more notorious bear markets of the past century: 1929,1969, 1973, 2000, and 2007.
The Coppock Guide is now projected to drop through “0” in February, whichin the past carries over a 75% probability that a bear market has taken hold. Of course, that does not mean the bear market will soon end, and it would befoolish to attempt to second guess when or where the Coppock might bottom.But the more important message for defensive investors is this: Once theCoppock Guide does hit bottom and turns upward –by even 1 point– we will bepresented with one of those historical buying opportunities that comes around
only once or twice a decade. We can’t rush it… and we certainly can’t forecast it… but we can look forward to it and quicklyrecognize it when it does occur. So be patient, stay defensive, and remember that there is light at the end of the tunnel.
The Coppock Guide, which has been weakening for almost 2 years, is now confirming a bear market. That’s bad news forthe market in the near-term, but has positive implications down the road. This important indicator was developed morethan 50 years ago by Edwin S. Coppock and has often been described as “a barometer of the market’s emotional state.” Assuch, it methodically tracks the ebb and flow of equity markets, moving slowly from one emotional extreme to the other.By calculation, the Coppock Guide is the 10-month weighted moving total of a 14-month rate of change plus an 11-monthrate of change of a market index. While that sounds complicated, it’s actually an oscillator that reverses direction whenlong-term momentum in the market peaks in one direction or the other.
Historically, the value of the Coppock Guide lies in signaling or confirming low risk buying opportunities that emergeonce a bear market bottom is in place (black dotted lines on the graph below). And since market bottoms are typicallysudden V-shaped reversals, it works amazingly well – as it did shortly after the bottom in 2009.
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More bad (but also good) news…
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Unfortunately, the next CEO
survey will not be available untilearly April.
Economic Outlook: Not (yet) confirming a recessionThe investing dilemma today is that leading economic evidence is not pointing to an imminent recession. In fact, forthe most part, economic indicators are showing no recession on the horizon. The U.S. Leading Economic Index [see the January 29, 2016 Interim Bulletin] has barely turned down, and is considerable distance from falling under its 18-monthmoving average – a warning flag that typically occurs 4-12 months prior to the start of recession.
Consumers also commonly provide early confirmation of an imminent recession with a drop in confidence. There aretwo gauges for measuring this – from the Conference Board (top graph) and the University of Michigan/Reuters (bottomgraph). Both are holding up surprisingly well.
The two caveats we have in tracking these gauges are:• Sometimes consumer confidence doesn’t fall significantly until the recession is well underway (1981 and 1990).• Even though consumer confidence leads the start of recession, that does not mean it leads the stock market. Very
often confidence will start falling after the peak on Wall Street.That makes the upcoming reports on consumer confidence and sentiment particularly important.
It is also rare to see a recession startwithout a deterioration in outlook for
the housing sector. A downturn in theNAHB Builder Confidence Surveyusually leads both the peak in thestock market and the start of recession.
Our caveat here –other than thelimited historical data– is that perhaps builder confidence is being artificially buoyed by the perpetually low(attractive) mortgage lending rates.
One area of confidence that is NOT holding up lies in the Conference Board’s survey of corporate CEO confidence.This recent drop is significant, and unrelated to political showdowns in Washington like the previous two drops inthis recovery. More importantly,that December quarterly surveydoesn’t include the effects of themarket rout since the start of theyear, or what CEO’s are revealingin their earnings calls:
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NEXT ISSUE: March 11, 2016 MODEL FUND PORTFOLIO
PERCENT FUND SYMBOL 52-WEEK INIT. RECOMMENDED RECENT ALTERNATE FUNDSHi Low Date Price PRICE
19% T-BILLS/ CASH/ MONEY MARKET ------------------------------------------------------------------------------------ Money Market Fund
5% CONS. DISC. SELECT SECTOR SPDR XLY 81.43 70.16 11/18/11 35.54 70.16
14% CONS. STAPLES SELECT SECTOR SPDR XLP 51.24 45.07 7/1/11 27.82 49.63
7% ENERGY SELECT SECTOR SPDR XLE 81.02 51.77 7/1/11 69.13 55.94
2% FINANCIAL SELECT SECTOR SPDR XLF 25.29 20.85 6/8/12 13.21 20.95
17% HEALTH CARE SELECT SECTOR SPDR XLV 76.61 64.01 7/1/11 33.28 64.40
9% INDUSTRIAL SELECT SECTOR SPDR XLI 56.94 48.01 7/1/11 34.48 50.04
16% TECHNOLOGY SELECT SECTOR SPDR XLK 44.34 37.34 11/18/11 23.34 39.50
3% MATTHEWS ASIAN GROWTH & INCOME MACSX 18.48 14.90 5/8/09 9.52 15.53 iShares MSCI Pacific EX-Japan (EPP) 8% PROSHARES SHORT S&P 500 SH 23.31 20.38 12/15/15 20.91 22.54
Cons. Discr.5%
Cash19%
Technology16%
Industrials9%
Health Care17%
Financials2%
Energy7%
Cons. Staples14%
International3%
Bear Fund8%
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RECESSIONS
Institute for Supply Management
ISM Purchasing Managers Index80%
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CHANGES SINCE THE LAST ISSUE: We have reduced our net long exposureto 65% and hold minimal exposure to the two riskiest sectors, ConsumerDiscretionary and Financials. On the January 15 Financial Hotline, we recommendedincreasing the position in ProShares Short S&P 500 ETF (SH) from 3% to 8% in theModel Fund Portfolio. That changes the overall invested position from 76% to 81%(73% long plus 8% short) but, due to the inverse relationship of SH to the market,lowers the net long exposure to 65%. The remainder of the Portfolio (19%) is heldin short-term Treasuries or a money market fund. Continue to monitor the FinancialHotline for important strategy updates.
FOR NEW SUBSCRIBERS: Purchases after our initial recommendation must be madeat your discretion. We currently advise bringing your portfolio in line with our recommendedallocation by phasing into the market over approximately two to three months.
In Summary…Technical evidence is confirming that we are in a bear market that will likely take blue chip indexes to at least a 20%loss. However, the most leading economic evidence is not signaling a recession on the horizon – which Fed Chair JanetYellen confirmed this week in leaving the possibility of further interest rate hikes on the table.
Our Model Fund Portfolio shown below is already the most defensively positioned since the start of this bullmarket – in both cash allocation and sector weighting. If technical evidence continues to deteriorate, or leadingeconomic indicators finally confirm the possibility (probability) of recession, then we will take increasingly defensivesteps in our Model Portfolio.
The Institute for Supply Management (ISM) surveys are also not confirming a recession – yet. The ISM PurchasingManager’s Index for manufacturing has dipped below 50. But that is not uncommon in mid-cycle slowdowns of pasteconomic recoveries.
However, in what might be“a warning shot across thebow” of the economy, theISM Service Sector surveyexperienced a serious dropin last week’s release. It isstill in expansion territoryabove 50 and new orders
(not shown) did not see asignificant decline.
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The INVESTECH RESEARCH newsletter is published 13 times per year and includes access to the weekly InvesTech Financial Hotline, as well as Online Interim Bulletin available between issues. Thispublication is not a solicitation to buy or offer to sell any of the securities listed or reviewed herein. The contents of this letter have been compiled from original and published sources believed to bereliable, but are not guaranteed as to accuracy or completeness. James B. Stack is also President of Stack Financial Management (SFM), a registered investment advisor, and a separate company fromInvesTech Research. Clients of SFM and individuals associated with InvesTech Research may have positions in, and may from time to time make purchases or sales of, securities mentioned herein.
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performanceof any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by InvesTech Research), made reference to directly orindirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to variousfactors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion orinformation contained in this newsletter serves as the receipt of personalized investment advice from InvesTech Research. Please refer to our website at www.investech.com for full disclosure information.
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PERSONAL PERSPECTIVE
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S&P 500 Bull Market Gains“Repossessed” by Subsequent Bear Market
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EXPERT ADVICE ON INVESTING
Jan. 4, 1988USA TODAY
From his office overlooking Whitefish Lake in theRocky Mountains of Montana, Jim Stack foresawthe stock market crash of Oct. 19. On Sept. 30,his InvesTech newsletters told stock investors tomove to 94% cash.
One of the most valuable lessons I have learned in over 40 years of Wall Street experience is that investingopportunities always come around again. There is no “last train” out of the station. And even if one misses theinitial launch of the next Apple, Netflix, or Facebook, there will always be attractive reentry points at the next bear market bottom.
Wall Street pundits spend an extraordinary amount of time and resources trying to convince John Q. Investorthat the only strategy is to stay fully invested 100% of the time. They use games like showing how poorly yourportfolio would have done by missing “the xx most profitable days of the past XX years.” Anything other than astrict buy-and-hold is called market timing. And no one, they say, can forecast where the stock market is headed.
While that last claim –for the most part– is true, it is possibleto measure market risk and recognize historical warning flagsof past bear markets. Wall Street and economic cycles neverexactly repeat themselves, but they do experience similaritiesin both rhyme and reason. Bear markets do not drop out ofthin air. Neither do market crashes – which we can attest to asone of the few who recognized the warning flags prior to the1987 Crash. ➞
Choosing Your Own Investment Odds
Although that might sound scary, it’s also important to know that: 1) We are defensively positioned, and ourportfolio is currently holding up much better than the broad market. And 2) We’re fully prepared to move more
defensive if evidence reveals this bear market will turn into a bigger one. And lastly, on an encouraging note,we want to re-emphasize the message conveyed by the 95-year Coppock Guide graph (inside) that this bear willultimately lead to the best buying opportunity in this decade.
An important consideration today is to recognize that you have total control over your own investment odds. Following a blind 100% invested allocation in the 7th year of a bull market is a high-risk strategy. That is why we
have been gradually, yet methodically, moving towarda more defensive position when the first technicalwarning flags started appearing early last year.
We also recognize the potential downside risk of this bear market if economic evidence starts to confirma probable recession. In that case, it would mostlikely not be just the 20-25% decline that one mightanticipate. Over the course of the past 85 years, bear markets have typically repossessed one-half or
more of the previous bull market’s gain. The tableat left –which we have shown several times overthe past year– is another important reminder to notunderestimate the risk of this bull market if bearishevidence continues to mount. Based on the S&P 500gain during this bull market from the March 9, 2009low to the May 21, 2015 peak, if the next bear marketrepossessed half of that gain, it would equate to a-34.1% bear market.
8/19/2019 Hugging the Bear Issue 20120212
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8/19/2019 Hugging the Bear Issue 20120212
10/12InvesTech Research ◆ 2472 Birch Glen ◆Whitefish, MT 59937 ◆ 1-406-862-7777 ◆ www.investech.com
2007 2008 2009 2010
2007 2008 2009 2010
S&P 500
ProShares Short S&P 500 (SH)
1600
1400
1200
1000
800
600
$110
100
90
80
70
60
50
40
-56.8%
+92.3%
+57.4%
-43.5%
Bear Market Bull Market
$1,650$327
$254$126
$2,100$268$320
Bear Market Funds
ETFETF
ETFMutual FundMutual FundMutual FundMutual Fund
Fund NameNet Assets
($MM)Type
Inverse S&P 500Inverse DJIA
Inverse NasdaqInverse S&P 500Total ReturnTotal ReturnTotal Return
Jun 2006Jun 2006
Jun 2006Jan 1994Jul 2006Jun 2000Dec 1995
FundInceptionFund Objective
ProShares Short S&P 500 (SH)ProShares Short Dow 30 (DOG)
ProShares Short QQQ (PSQ)Rydex Inverse S&P 500 (RYURX)PIMCO StocksPLUS Short (PSSAX)Grizzly Short Fund (GRZZX)Federated Prudent Bear (BEARX)
Source: Charles Schwab & Co.
InvesTech Research
Fund may have front load
Can you provide a list of bear fund alternatives?We’ve assembled a list of some of the larger funds that have longer track records, including both ETFs and mutual funds.Before purchasing any on the list, you should perform your own due diligence to determine the suitability for yourportfolio. Reasons for providing theseadditional choices include:• Some retirement accounts are limited to
mutual fund investments only.• When using a passively managed
fund, it’s best to choose one based onan index that most closely matches yourportfolio holdings.
• If you are willing to accept the added riskthat comes with an actively managed fund,you may want to consider one of the totalreturn alternatives.
If a passive bear fund offsets the market on a daily basis, whathappens over a longer period of time?Due to the compounding of daily returns, performance over periods longer thanone day will likely differ from the inverse of the target index. To demonstrate, let’slook at an exaggerated example of how compounding affects returns.
Assume that both ProShares Short S&P 500 (SH) and the S&P 500 start with a valueof $100. On Day 1, the S&P 500 loses 10% causing SH to gain 10%. The S&P 500,therefore, ends Day 1 with a price of $90, while SH has grown to $110. If on Day 2the S&P 500 loses 10% again, its price drops to $81 and SH increases to $121. Whileachieving perfect correlation on a daily basis, after two days the S&P 500 is down19% and SH is up 21%.
If the stock market continues to decline after purchasing a bear fund, gains can bemuch more than you might expect due to progressively larger dollar changes basedon the increasing value of the investment. On the other hand, if the stock marketrises persistently after a bear fund is purchased, the daily percentage changes resultin progressively smaller dollar changes as the value of the investment decreases.
Hence, investors lose less than they might expect when the fund’s return over thecourse of the rally is calculated.
This point is illustrated in the graphs above, which show the S&P 500 and SH after the stock market peak in October 2007.Clearly, bear funds can serve as valuable “insurance” in a declining market, even if the position is held past the market bottom. One important note: bear fund performance in trendless, volatile markets is less predictable than in marketspersistently trending up or down. In fact, due to compounding effects, an inverse index fund may even decline as themarket remains flat.
Why don’t you use a leveraged bear fund?A leveraged bear fund is designed to go up two or three times as much as its benchmark goes down on a daily basis.“More” might sound better to the average investor; however, trying to time bear markets or corrections rarely works, andone can easily get burned with leveraged funds if the market doesn't move as anticipated and the compounding effect is
magnified. With this in mind, we’d avoid the leveraged bear market funds due to the increased volatility and risk.
SummaryBear market funds should be used to neutralize portfolio risk and help you sleep at night – not as a tool for speculativeshort-term trading. With a safety-first investment strategy, an inverse index fund can serve as an effective, low costinsurance offering an efficient way to offset rising market risk and reduce portfolio volatility. When considering a bearfund, the following guidelines should be helpful:
• Use bear funds as an insurance to offset a portion of your portfolio investments.• Stay with the passively managed bear funds that inversely correlate with the broader indexes.• Choose the larger more liquid funds with longer track records.• Gradually implement a bear fund position as a bear market becomes more likely.• Do not use leveraged funds.
If bear funds are not an option for your portfolio, the alternative is to reduce your long positions to reach the target “net”allocation and hold the balance in cash.
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O f f e r E x p i r e s S o o n !
25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 01 03 04 05 06 070200 08 09 10 11 12 13 14 15
25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 01 03 04 05 06 070200 08 09 10 11 12 13 14 15
25000
20000
15000
10000
8000
7000
6000
5000
4000
3000
2000
1500
1000
800
600
500
400
300
200
150
100
80
70
60
40
50
30
20
10
25000
20000
15000
10000
8000
7000
6000
5000
4000
3000
2000
1500
1000
800
600
500
400
300
200
150
100
80
70
60
40
50
30
20
10
16
15
14
13
12
11
10
9
8
7
6
4
3
2
1
0
16
15
14
13
12
11
10
9
8
7
6
55
4
3
2
1
0
+14
+12
+10
+8
+6
+4
+2
0
-2
-4
-6
-8
-10
-12
-14
+14
+12
+10
+8
+6
+4
+2
0
-2
-4
-6
-8
-10
-12
-14
}
Source:The World Almanac The Century World History Factfinder
Penn SquareBankdeclared insolvent byFDIC
Record Fed easing11 Discount Rate cuts in 12mos
Terrorist attackson WTC &Pentagon
Nasdaq hits5048Internet "bubble" pops!
World War II
Vietnam War
Korean War
SuezCanalseizedbyEgypt in
MiddleEast War
Bayof Pigs
Cuban missilecrisis
6-DayMiddleEast War
British/Argentineconflict in Falklands
PaulVolcker appointedFederalReserveChairman
U.S. invadesGrenada
U.S. bombsLibya
U.S. launchesOperation Desert Storm
Collapseof Germanbanking system
Lindbergh makesfirst solo
transatlanticflight
Smoot-HawleyActTariffsrise44%
Roosevelt declares"BankHoliday"
Securities&ExchangeAct
InvestmentAdvisorsAct
of 1940
Rome-BerlinAxisformed
GermanyinvadesAustria
Fallof France
PearlHarborU.S. declareswar
D-Day- AlliesinvadeNormandy
Germanysurrenders
Hiroshima/NagasakiJapan surrenders
WarsawPact
USSR launchesfirstsatell ite- Sputnik1
Alaska/Hawaiibecomestates
Nuclear disasterat Chernobyl
AT&T divestiture
Gramm-Rudman"balanced budget" bil l
ChineseTiananmenSquareincident
Berlin Wallfalls
USSR dissolves
RepublicanscontrolSenate&House
first timein 40yrs
S&L bailoutestimated to exceed
$350 bill ion
Housevotesto impeachPres. Clinton
Russiadefaultson foreign debt
Clinton $500 bill iontaxincreaseapproved
Japan experiencesseveral1930s-style
"run-on-banks"
CongresspassesNAFTA
Mexican Pesocollapses
-40% in 2 wks
SpaceshuttleChallenger explodes
Pres. Kennedyassassinated
Armstrong walkson moon
WatergatescandalPres. Nixon resigns
ThreeMileIslandnuclear accident
Pres. Reagan shot
Reagan 25% taxcut approved
Berlin Wallbuilt
Battleof Midway
United Nationsestablished
NATO established
BlackTuesday(market falls-11.7%)
1987 Crash"BlackMonday"
Market falls-23%
GorecontestsPresidentialElection
outcome
FederalReservearrangesbailout ofLTCM hedgefund
Asian financialcrisisRecord 1-dayDJIA pt. loss
Enron bankruptcylargest in history
Nasdaqloss= -78%
Iraq War
Ben BernankeappointedFederalReserveChairman
$787 bill ion EconomicStimulusBill
JPMorgan Chaseacquirescollapsed
Bear Stearns
Lehman Brotherscollapses
U.S. takesover AIG in
$85 bill ion bailout
FederalGovt takesoverFannieMae&Freddie Mac
Alan Greenspanappointed
FederalReserveChairman
Iraq invadesKuwait
SocialSecurityAct
Worst year forstockssince1931DJIA drops-34%
GM filesforbankruptcy
2010Flash Crash
Superstorm SandystrikesNortheast
StockMarketsclosed Oct. 29-30
BP oilspill inGulf of Mexico
$700 bill ion TARP Bailout
Japan 9.0 EarthquakeTsunami/nuclear disaster
S&P downgradesU.S. credit
Log Scale
AffordableCareAct
16-DayGovt Shutdownover Debt Ceiling
Janet Yellen appointedFederalReserveChair
Alibaba$25 bill ionrecord-breaking IPO
DISTRIBUTION(high danger)
SELLING VACUUM(very bullish)
Log Scale
2000
2500
1500
1000
800
600500
400
300
200
150
100
60
80
50
S &P 500
0
0-50
-100
604020
626364656667686970717273747576777879 808182838485868788899091929394959697989900 010203040506070809101112131415
Negative Leadership Composite
Stock Market •
Inflation •
Interest Rates •
InvesTech ResearchAmerican Economy
WallChart 1925-2016
Afghanistan War
Dow Jones Utility Average
Dow Jones Industrial Average
U.S. abandonsgold standard
Gold fixedat $35/oz Wage/pricefreeze
IMFand World Bankestablished
Gold priceraisedfrom $35/oz
Arab oilembargo
Becomeslegalto owngold in U.S.
Gold hits$850/oz
OPEC "quarrels"Oildropsfrom
$30/bblto $13/bbl
Oilhits$77/bbl
Oilhits$145/bbl
Oilhits$44/bbl
Gold hits$1000/oz
Gold hits$1895/ozConsumerPriceIndex
(%annualrate ofchange)
Stack Financial Management2472 Birch Glen, Suite A Whitefish, Montana 59937
(800)790-5001 www.StackFinancialManagement.com
SFM
AAACorporateBond-%
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DiscountRate- %
Recessions
Fed revisesDiscount Rate
calculation
Peak in Real Estate Prices(Housing “bubble” pops)
Fed Funds RateTarget Range0% to 0.25%
Key Interest Rates
Inflation
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