August 26th, 2010
This blog is becoming password-protected and its commentaries will be made available exclusively for clients of Shell Capital Management. We are pleased to announce a new blog that will serve as a resource for active portfolio management, tactical asset allocation, trend following systems, and active risk management, and other beliefs involved with the objective of creating an asymmetric return profile and absolute returns. Asymmetric Investment Returns offers a Resource Center with a vast collection of independent research papers. It is open to anyone interesting in sharing and gaining new knowledge of the concepts behind active asset management. Posts on the blog will be written primarily by Mike Shell, a thought leader on the topics of behavioral finance and investor behavior, tactical asset allocation, trend following, technical analysis, dynamic asset allocation, investment risk management, and other adaptive strategies designed toward creating a positive imbalance between risk and reward. If you are interested in the concepts and beliefs behind our investment methodology, you can learn more at:
www.AsymmetricInvestmentReturns.com
Neither this blog nor the Asymmetric Investment Returns blog are personalized investment advice. Thoughts and concepts posted in these commentaries are for sharing of ideas and information only. You should be aware that you are responsible for yourself and what what you read is interpreted by you and you may not interpret it accurately. If you are in need of personal advice or portfolio management, please contact your advisor or contact us. If we are unable to help you, we may know someone who can. Please click here for important disclosure.
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July 29th, 2010
We are pleased to announce that the Asymmetry Investment Program® managed by Shell Capital Management, LLC is now on the Charles Schwab Institutional separate managed account platform. Schwab Managed Account Marketplace® is offered exclusively through Schwab Institutional, and is Schwab’s most flexible managed account service. The Schwab Managed Account Marketplace® managed account platform allows investment advisors who custody their accounts with Schwab to negotiate fees and contractual agreements directly with Shell Capital and choose from either transaction- or asset-based pricing for Schwab’s brokerage and custody services.
The Asymmetry Investment Program® is available though the Schwab managed account platform via a direct agreement between the investment advisory firm and Shell Capital Management, LLC. Investment advisors that custody with Schwab who are interested in the Asymmetry Investment Program should contact Shell Capital by clicking here. The Asymmetry Investment Program® is also available through the Shell Capital’s Turn-Key Asset Management program, Asymmetry Capital Partners, at Trust Company of America.
Tags: Asymmetry Investment Program, charles schwab institutional, managed accounts, schwab managed account marketplace, shell capital news
Posted in Asymmetry Investment Program, News Announcement | No Comments »
July 11th, 2010
So says David Wilson at Bloomberg in his recent article: Extreme Pessimism Sets Stage for U.S. Stock Rally: Chart of the Day
He offers a nice chart showing two sentiment polls and explains:
The CHART OF THE DAY displays the results of weekly surveys by the National Association of Active Investment Managers and the American Association of Individual Investors since the beginning of 2009. Each appears in a separate panel.
This week’s reading for the manager index was 13.47, the lowest since March 2009, when the latest bear market in stocks ended. Survey responses can range between 200, indicating that managers are borrowing to profit from stock-market gains, and minus 200, showing the use of leverage to bet against shares.
The top panel tracks the active-manager readings, and the bottom panel shows the percentage of bulls among respondents to the survey of individual investors. The latter dropped this week to 20.9 percent, also the lowest level in 16 months.
Source: Extreme Pessimism Sets Stage for U.S. Stock Rally: Chart of the Day, Bloomberg.
Of course, investor sentiment is a topic I’ve mentioned a lot the past few months since it has swung from one extreme to another. Back on April 27th, before the -17% decline in market indexes, I posted Crowd Sentiment is Optimistic: No Surprise to See at Least a Short Term Price Decline. Investor optimism had hit an extreme optimistic level, and sure enough it preceded declining stock prices. As evidenced by sentiment polls like those in the chart, since stocks have now fallen the optimism changed to pessimism. We’ve also seen a lot of magazine covers with bearish tones, for example, the one I mentioned in Magazine Cover is a Bullish Signal for Crowd Sentiment.
As I’ve mentioned before, in order for prices to reverse back up to a new rising trend, buying demand simply needs to overcome selling pressure. These sentiment polls continue to show that investors, both professional and individuals, feel negative about the direction of the market. As their sentiment gets to an extreme they tend to over-react, eventually driving prices low enough to attract buying demand from those of us who raised cash when the crowd was extremely bullish.
However, there is no better measure of investor sentiment than the current direction of prices. As I’ve stated previously, sentiment alone isn’t the best signal. The crowd can be right for some time. Sentiment can always get more extreme. Sentiment is confirming evidence of price action – don’t fight the tape. The actual price direction is the judge and the jury, so that’s our main guide. It appears in the days ahead we’ll likely see if sentiment is negative enough to set the stage for a continuation to the upside, or if prices need to go lower to attract sustained buying interest.
Tags: Investor Sentiment
Posted in Investor Psychology, Investor Sentiment, Tactical Trading, The Market Trend | No Comments »
July 1st, 2010
The following chart is from my friend Ed Easterling at www.CrestmontResearch.com. I’m proud to say I was one of the very first to read and comment on Ed’s book back in 2005: "Unexpected Returns". Prior to 2005, we had completed extensive research on historical Secular and Cyclical Bull and Bear Markets. Primarily, I had studied the trends going back over 100 years and tested tactical systems across those various trends. Our conclusion was that long term (Secular) Bull and Bear market’s had occurred over and over throughout history. When Ed came out with his research in his book, we compared notes. His work was more focused on why Secular trends occur and under what circumstances. "Unexpected Returns" is a necessary study to understand the big picture. I can tell you that it was my understanding of market trends that motivated us to create the money management systems we benefited from the past five years. You can probably see how the timing of Secular situation correlates with our tactical asset management style – we built the Ark before the flood.
Though we studied and tested decision-making systems on much more detailed data, I thought I would show what these trends look like. Clearly, the U.S. stock market has been in a Secular Bear Market for a decade. Based on history, the current Secular Bear could last as long as another decade. Notice this chart goes back to 1900.
Below we show what the last Secular Bear Market looked like. This chart appeared in 5 of our quarterly portfolio commentaries before the waterfall in 2008. We continued to discuss these cycles so our investors were prepared for the possibilities. The last Secular Bear Market was about 16 years. We call the cycles oscillating up and down over time Cyclical Bull and Bear Markets. They typically last 1 – 4 years. At this point, the U.S. stock market has been in a defined Cyclical Bull Market since March 2009, however it is currently under pressure.
You can probably see the risk of a passive strategy and the potential value of actively managing risk and dynamically adapting to these systematic directional price trends. It doesn’t require perfection.The average uptrend was 38%, the average decline was -25%. It was 343% cumulative peak to trough drifts, an average of 21% a year.
From this wisdom, we have some understanding of what is possible. Sadly, investors who do not actively control their risk may experience more waterfall losses and possibly panic selling before the current Secular Bear is over.Of course, just "being" tactical isn’t enough. Portfolio management is a craft that requires wisdom, skill, and experience. Like any craft, it’s learned over time.
"Those who cannot remember the past are condemned to repeat it"
- George Santayana
Tags: Active Risk Management, cyclical bull market, secular bear market
Posted in Active Risk Management, Cyclical Market Cycles, Secular Market Cycle, The Market Trend | No Comments »
June 29th, 2010
In a post titled Golden Cross Goes "Dark". Barry Ritholtz over at The Big Picture, points out the "Dark Cross" signal has occured on the NYSE Stock Index. It is sometimes called a "Death Cross". A Dark Cross signal means the 50-day moving average has crossed below the 200-day moving average on a major stock index. He quotes a comment from Mary Ann Bartel regarding the current status:
June 23, 2010 marked the 1-year anniversary of last June’s bullish Golden Cross of the 50-day moving average above the 200-day moving average. This Golden Cross signal preceded a 12-month return of 22.4% on the S&P 500. The average 12-month return for the 42 Golden Crosses that have occurred since 1928 is 9.6%. More importantly, the June 23, 2009 signal occurred during the NBER recession that began in December 2007 and Golden Crosses associated with recessions show a much stronger average 12-month return of 19.5%. The average 12-month return for the S&P 500 over the same period is 7.2%.[...]
The bearish counterpart of the Golden Cross is called a Dark Cross. This signal occurs when the 50-day moving average crosses below the 200-day moving average. For the S&P 500, Dark Crosses are not all that bearish. The 42 Dark Cross signals that have occurred since 1928 have generated an average 12-month return of 2.4% for the S&P 500 vs. the average S&P 12-month return of 7.2%.[...]
Below we show that the NYSE Composite Index has indeed signaled a Dark Cross.
Chart courtesy of eSignal
However, we point out that the S&P 500 index hasn’t yet crossed. We also point out that the current price is "at" the point we previously called "the line in the sand" we most recently discussed here. The current price range has been supported by buying interest at the February low and the more recent lows in May. So, I will suggest this index is at an important spot. If it does indeed move below the support line, it changes the short term trend to lower highs, and lower lows (a down trend). If the price continues to drift much lower, it could also signal a Dark Cross. Though the signal itself isn’t a "cause" for futher systematic price decline, it would be evidence that suggests a reversal of the rising trend over the past year has ended, as defined by the Golden Cross (50 > 200) and then a Dark Cross (50 < 200). What does history tell us about these signals? Keep reading…
Our friends Ron Griess and Mark Cremonie over at www.thechartstore.com did some analysis on the S&P 500 Composite from 1930 and present the following two tables. The first table shows the performance of the S&P 500 Composite for the time periods listed when the 50-day moving average is falling and crosses the 200-day moving average while the 200-day moving average is still rising.
The second table shows the performance of the S&P Composite for the time periods listed when the 50 day moving average is falling and crosses the 200 day moving average and the 200 day moving average is also falling.
Like many things in life, success has nothing to do with predicting the future. It’s more about responding and adapting to things as they unfold. At this point, it seems there’s a good chance this price level will hold since investor sentiment is rather negative (which is a positive). But if it doesn’t, this will define a trend change. It’s how we adapt to it that makes all the difference…
Tags: dark cross, death cross, golden cross
Posted in Cyclical Market Cycles, The Market Trend, Uncategorized | No Comments »
