Momentum Myths Dispelled

SYNOPSIS
There was a major rally in Canadian stocks last week, but it wasn’t large enough to raise the ranked trend values of our three Canadian indexes above the bottom of the chart. The S&P/TSX Small Cap Index actually gained 3% from a week earlier. The Nasdaq remains the trend leader.

ProfiTrend Portfolio… The annualized growth rate for the ProfiTrend Portfolio is now at +85%… still well above the comparable numbers for the S&P/TSX Composite Index (+22%) and the S&P 500 (+39%).

Seasonality… We continue our discussion of the US Thanksgiving trade, since this is the week to put it in place.
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State Street Investor Confidence Index… The latest results for November and the revised data for October have just been released. The November reading continues to favour stocks over lower risk assets. While the global index fell slightly, due to declines in the North American and Asian markets, institutional investors jumped right back into more European equities, after reducing their holdings in October. Apparently, they know something that we don’t. The European index is at an all-time high, since the publication of the SSICI indexes began. We’ve updated our chart and you’ll find more detail below.

Topic of the Week… Momentum Myths Dispelled
Our relative trend analysis™ (RTA) framework, as you know, falls within the realm of momentum investing. The simple premise is that “the trend is your friend”. In other words stocks with an established trend (up or down) are more likely to continue in the direction of the trend, then stocks without an established trend. We add to the old slogan “a consistent trend is less likely to end”. That is not to say that there are detractors to the momentum approach. There are many. This week we begin an examination of 10 challenges to momentum investing, and expose all of them as myths… using plenty of academic research and hard data to back this up.

RTA Extension: Intra-Week Trend & Consistency Calculations

SYNOPSIS
Gains continued on most of the major indexes we follow. New record highs on the S&P 500 or DJI still keep popping up on a regular basis. But the Canadian indexes still lag behind.

ProfiTrend Portfolio… The annualized growth rate for the ProfiTrend Portfolio is now at +118%… considerably above the comparable numbers for the S&P/TSX Composite Index (+4%) and the S&P 500 (+33%).

Seasonality… We summarize the US Thanksgiving trade once again, as that holiday is coming up soon. Of all seasonality trades, this is one of the most consistently profittable. Details below.
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State Street Investor Confidence Index… We continue to include the October results. The Global ICI decreased to 115.1 in October, down 8.8 points from September’s revised reading of 123.9. 100 is considered the neutral point in the balance between risky assets (i.e. stocks) and low risk assets (i.e. bonds). The regional breakdown shows a reduction in European equity exposure after several months of solid gains there (contrary to media reports).

Topic of the Week… RTA Extension: Intra-Week Trend & Consistency Calculations
One of the core strengths of relative trend analysis™ (RTA), as it is used within the ProfiTrend Advantage framework, is that you can achieve excellent results with only a weekly review of your current holdings and a weekly scan of potential opportunities. For some, that may not be enough, so this week we present a relatively simple but effective way to calculate intra-week adjusted trend and consistency values for the stocks you are tracking or holding. It may be overkill for some of us, but it might come in handy at least on an occasional basis. More detail below.

A Closer Look at Correction and Rebound

SYNOPSIS
Last week was generally more subdued than the previous two weeks of exuberance (for US stocks at least). New record highs are appearing again for the DJI and S&P 500.

ProfiTrend Portfolio… The annualized growth rate for the ProfiTrend Portfolio is now at +100%… considerably above the comparable numbers for the S&P/TSX Composite Index (-10%) and the S&P 500 (+40%).

Seasonality… Brooke Thackray, our typical source for calendar effects, is back to posting his monthly videos on YouTube after a two-month absence. We’ve embedded those videos below.
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State Street Investor Confidence Index… We continue to include the October results. The Global ICI decreased to 115.1 in October, down 8.8 points from September’s revised reading of 123.9. 100 is considered the neutral point in the balance between risky assets (i.e. stocks) and low risk assets (i.e. bonds). The regional breakdown shows a reduction in European equity exposure after several months of solid gains there (contrary to media reports).

Topic of the Week… A Closer Look at Correction and Rebound
By way of looking closer at the most recent correction and surprisingly robust rebound, we also walk you through an alternative simple charting tool that shows the big picture at a glance.

Dow Theory Revisited

SYNOPSIS
The major US indexes surged ahead again last week, as did the S&P/TSX Composite (to a lesser degree). Meanwhile Canadian small caps continue to move dramatically lower.

ProfiTrend Portfolio… Our PTP annualized growth rate is now at 79%, down considerably from the previous week. That still compares favourably with +28% for the S&P 500 and -10% for the S&P/TSX Composite companies.

Seasonality… We continue our discussion of what November might have in store as far as calendar effects go.
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State Street Investor Confidence Index… We include the October results. The Global ICI decreased to 115.1 in October, down 8.8 points from September’s revised reading of 123.9. 100 is considered the neutral point in the balance between risky assets (i.e. stocks) and low risk assets (i.e. bonds). The regional breakdown shows a reduction in European equity exposure after several months of solid gains there (contrary to media reports).

Topic of the Week… Dow Theory Revisited
For fun this week, we decided to revisit one of the earliest forms of technical analysis… Dow Theory. It dates back to editorials written by Charles H. Dow (1851-1902), the first editor of the Wall Street Journal and co-founder of Dow Jones & Company. If this were just an historical oddity, we wouldn’t have bothered with this; but Dow Theory is still widely followed by many analysts today. We run through the basics and try to unravel what Dow Theory is telling us about current market conditions.