Both ETF Country models outperformed their benchmark on the way down this week. After looking like they might spring back to life on Monday, Asian markets, with the exception of Japan, spent most of the week selling off.
The U.S. markets, gapped down on poor Greece news up to open out the week, managed to claw back a small portion of those losses but still closed fairly deep in the red. The fate of Greece remains very much on the table and there are a number of deadlines and a key referendum in the coming days and weeks.
We had one position change this week as FXI hit its breakeven stop in the Stops and Targets model. This position will remain in cash until we either get a fresh signal or a re-entry signal.
We had a live coaching webinar on July 1st. If you were unable to attend, the recording should be posted to the website soon.
This Week’s Strategy Lesson: Half-Time Report
We are now half-way through the year. Happy 4th of July to all of our U.S. members. We thought we would take this opportunity to review the performance of the models so far this year.
Side-ways Chop
2015 has been marked by a large sideways range-bound market. While the indexes have been able to put in marginal new all-time highs this year, so far, every time they have pulled off of those highs, usually in violent fashion.
Most recently, concerns about Greece have weighed down markets. While there is some light at the end of tunnel on that issue in that it looks likely to resolve itself one way or the other in the next couple weeks, which way it will resolve is still an open question.
Currently the SPY, depending on the day you measure has been between flat or up a couple percent for most of the year. The TSI also recently went negative in the last few days (lower blue line on chart above). With this six-month period of basically side-ways action, many of our ETFs now also have very low or negative TSI, which can cause more rotations than normal.
Performance of the ETF Models
Like the markets, most of our models have been in a side-ways chop this year.
All of the models (and the SPY) had a rough June, tracing lower. The Country Models remain bright spots, outperforming the broader markets, but even they weren’t immune from the recent sell-off particularly in Asian equities. A number of the models took recent hits from sharp sell-offs in semiconductors and solar energy.
(It should be noted that the performance data displayed is for all the currently deployed models. Actual YTD performance will be marginally different if it included the phased-out version of Sector Stops & Targets).
The Sector Aggressive has been the most volatile, as is evidenced in the chart, where it shot up to a great return to start the year and has sold off from their in volatile fits and starts.
While we would love to see better performance out of these models, historically, relative strength rotation models will have trouble outperforming in these types of market conditions. And one just has to look back through the equity curves of each model to see that they have had similar periods of sideways performance before.
The models are designed to get it right over the long-term. They have built in components and rules that should allow them to make money in both bull and bear markets. With the recent extended period of compression in the indexes, many technical traders would predict a strong breakout from this range. It will be interesting to see how the rest of the year unfolds.
If history serves as any guide, it only takes a few good months for our models to have a very good year so we’re optimistic that there is plenty of time for a good year. We’re also comforted by the fact that the models will turn even more defensive if the markets’ sell-off continues.
The Current Condition of the Model
Our three positions are FXI, EWH, and EWJ. The Stops and Targets model is only in EWH and EWJ and FXI was stopped out at no-loss on the remainder after already reaching a profit target.
Stay tuned to daily updates for any position changes.
Here is a summary of the weekly performance of all the ETFs that the strategy monitors:
Best wishes for your trading,
James Kimball
Trader & Analyst
MarketGauge
