This Week’s Strategy Lesson: Model Said There’d Be Weeks Like This
This was a rough week for the ETF Sector Plus model. It was a rough week for the markets in general. The SPY and the DIA took out the 50 day moving average and the IWM made it all the way to the 200 day moving average with the QQQ trying its hardest to follow suit. The selling pressure was the greatest in some of the high beta technology and biotechnology names that have been market leaders for quite some time.
The ETF Sector Plus Model took its fair share of punishment from the downdrafts in the market. We had already lowered our beta exposure by transitioning into DRN, but SOXL (semiconductors) and CURE (healthcare) had severe selloffs in the later half of the week.
Overall, the model was down 6.1% for the week, giving up about half of the gains for the year but still leaving us up 6% for the year and outperforming the SPY by almost 8%.
Some of the wild swings from holding leveraged ETFs should be ignored. They represent “noise” --the volatility of the instruments as they head up or down on their way. But were the wild swings this week more than just noise?
The reasons for the selloff were myriad--a cocktail of global tensions over Ukraine, concern about FED policy becoming ineffectual, corporate earnings coming in light, and insiders and funds aggressively selling stocks that have outrun their valuations.
While we might not have all the ingredients in place for a recession, by most calculations we are long overdue for a market correction. Could this be the start of a serious correction or just another one of the numerous minor corrections we saw sprinkled throughout the bull run of 2013? Time will tell.
Best wishes for your trading,
James Kimball
Trader & Analyst
MarketGauge
