The Element of Surprise: An Investor’s Worst Enemy?

FOR YOUR AMUSEMENT
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SYNOPSIS
This past week was a totally uneventful one from the perspective of price moves on the indexes. Nasdaq still leads on a trend basis.

ProfiTrend Portfolio… The annualized growth rate for the ProfiTrend Portfolio has improved to +88%… well above the benchmarks (S&P 500 +32%; S&P/TSX +30%). We had a rare set-back for two weeks, but we’re back on track once again.
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State Street Investor Confidence Index… The latest results (for January) continue to favour stocks over lower risk assets. While there were declines across all of the region indexes, the Global ICI is still at 106.6.

Seasonality… We sum up expectations for March. It’s generally an up month. Depending on the stock index, it ranks 4th (S&P 500, S&P/TSX Composite Index) to 6th (DJI, Nasdaq) relative to the other 11 months. The historical fraction of the time that March ends higher ranges from 59% to 66% (again depending on the index). Average gains for the month are about 1%.

Topic of the Week… The Element of Surprise: An Investor’s Worst Enemy?
Ever been surprised that a stock you just bought soared ahead 5-10% in a week or two? Ever been surprised that a stock you just bought tanked by the same percentage in the same timeframe? Psychological research shows that you’ll hurt more with the loss than you’ll feel pleasure from the gain. And, what about those earnings surprises… positive or negative? You’ll sell faster on a negative earnings surprise than you’ll buy more, when there’s a positive earnings surprise. All this, in spite of the fact that “analysts’ expectations” are wrong most of the time anyway. Psychologists and neurologists know what’s going on in our brains during these various surprises… right down to the specific brain cells involved. Can we do anything about that? You’ll find out in this week’s report.

When It’s Cold, Think About How Natural Gas Keeps You Warm!

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SYNOPSIS
On a one-week basis, the week belonged to Nasdaq with its 3.1% gain. The other major indexes that we follow also had gains from 0.4% (Venture) to 2.0% (S&P 500). All trends are positive (if only slightly in the case of S&P/TSX Venture Index).

ProfiTrend Portfolio… The annualized growth rate for the ProfiTrend Portfolio has improved to +25%… although that’s still behind the benchmarks (S&P 500 +35%; S&P/TSX +38%). It clearly takes more than a week to undo the damage that we reported last week.
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State Street Investor Confidence Index… The latest results (for January) continue to favour stocks over lower risk assets. While there were declines across all of the region indexes, the Global ICI is still at 106.6.

Topic of the Week… When It’s Cold, Think About How Natural Gas Keeps You Warm!
We’re staying with the Energy Sector this week, but instead of oil, we’re going to talk about natural gas. While gas and oil normally track each other in terms of commodity prices, natural gas presents investment opportunities that may not have occurred to you (and we’re not talking about inverse, leveraged ETFs this time!) When you think in terms of distribution, rather than drilling and production, the picture changes dramatically. More on that below.

Oil Volatility Blues!

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SYNOPSIS
On a one-week basis, it was major gains across the board with the major indexes we track. All trend values are now positive except for the S&P/TSX Venture Index. One-week advances ranged from 1.7% to 3.8%.

ProfiTrend Portfolio… The annualized growth rate for the ProfiTrend Portfolio declined dramatically to +10%below the benchmark indexes for only the second time ever! The story behind that is this week’s Topic of the Week.

State Street Investor Confidence Index… The latest results (for January) continue to favour stocks over lower risk assets. While there were declines across all of the region indexes, the Global ICI is still at 106.6.
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Topic of the Week… Oil Volatility Blues!
The story of the week (for us especially) was the sudden advance in the price of oil, in spite of all fundamentals remaining negative. Within the ProfiTrend Portfolio, a leveraged inverse ETP had been reaping abundant profits for us. That trend reversed sharply, as oil gained over 20% in a little over a week. We didn’t act quickly enough. The net result is a staggeringly low PTP AGR value for this past week (10%). What happened? A flaw in the relative trend analysis™ (RTA) framework? Operator error? Some of each? You find the answer in this week’s discussion.

Seasonality… The calendar results for February (from Thackray’s book) are re-posted. He has apparently decide not to do his monthly videos once again, and we haven’t seen his newsletter for February either.

Featured Video… Philippe Jordon’s Capital Asset Management Fund was up 23% last year. This video will leave you with one of two conclusions… (1) This is the stupidest hedge fund manager on earth, or (2) he doesn’t have a clue what his staff are actually doing. He speaks total gibberish for the entire interview. Listen to find a single sentence that makes sense. I couldn’t find one.

Revisiting Volatility… It’s More Complicated Than You Might Think!

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SYNOPSIS
For the week, our regularly reported indexes declined almost as much as they rose the previous week.

ProfiTrend Portfolio… The annualized growth rate for the ProfiTrend Portfolio is now at +75%… well above the comparable numbers for the S&P/TSX Composite Index (+16%) and the S&P 500 (-14%).
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State Street Investor Confidence Index… The latest results for January are included in this issue, hot off the presses from the January 27 release date. The latest reading continues to favour stocks over lower risk assets. While there were declines across all of the region indexes, the Global ICI is still at 106.6.

Topic of the Week… Revisiting Volatility… It’s More Complicated Than You Might Think!
Why is it that most people (including quite a number of experienced investors) consider volatility to be a dark cloud on the horizon? After all, with no volatility there can never be any profits! We dissect this enigma in this week’s edition. The media are obviously to blame for creating some of the unfounded hysteria, but part of the problem also resides in how volatility is defined. There are two quite different perspectives on volatility, and quite often they are confused. Understanding the difference will go a long way toward making volatility your friend.

Seasonality… Now that January is behind us, we have another look at the January Barometer. This is one of a small handful of conditional calendar effects. Most seasonality effects tend to repeat on a regular basis… annually, monthly, every four years, during repeating holiday periods, etc. A conditional calendar effect essentially says… If X happens during a certain time period, then Y happens during a different time period. The January Barometer says that if stocks end lower during the month of January (as measured by DJI or S&P500), then stocks will end the year lower. The January data are in, and we’re ready to report what the results might mean for the rest of the year.