Thursday, September 30, 2010

Capitulation: Famous bear (Eliades) seems about ready to give up, for now

From MarketWatch:
A famous bear, who hibernated very profitably through the Crash of 2008, seems about ready to concede that the market’s next move will be up.

For some time, Peter Eliades’ Stockmarket Cycles has been in the position, unusual for any other letter, of expecting a big move to happen — but being frankly unsure of the direction. But it voted for down. ( See Aug. 9 column.)

Stockmarket Cycles doesn’t just employ extraordinary complex cycle theories, but it also uses them to call turns, or junctures, in the market.

There’s a lot of reason to suppose that trend-following, which means by definition that you miss highs and lows but comfortingly catch the middle of moves, is more effective on average, besides being easier on the nerves. ( See Mark Hulbert’s column March 17.)

But one of the lessons we’ve learned from three decades of Hulbert Financial Digest monitoring is that literally every method can work in the right hands.

And there have been times when Stockmarket Cycles has had a very hot hand indeed. It was one of the very few letters to make significant money during the Crash of 2008. ( See Dec. 17, 2008, column.)

StockMarket Cycles was also doing really well earlier this year. And it was still holding on over the year to date through August: Its portfolios were up an average of 0.5% by Hulbert Financial Digest count compared to negative 3.9% for the dividend-reinvested Wilshire 5000 Total Stock Market Index.

But betting on that break through an unusually strong September has been very costly. HFD monthly monitoring won’t be complete until the weekend, but I’m told that Stockmarket Cycles is down about 3.5%, a spread of some eight points below the market.

Still, dodging the Crash continues to do wonders for the letter’s longer-term performance. Over the last three years, it’s up 3.6% annualized versus negative 8.13% annualized for the total return Wilshire 5000.
Over the past ten years, Stockmarket Cycles is up an annualized 3.53% against a 1.07% annualized loss for the Wilshire....MORE