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We exited cash and went 100% long on stocks on June 17, following our signals. These signals are still very solidly in the long position despite the recent ugliness. As a result, the portfolios look pretty ugly for the MTD - down about 2-4%, and would look a little uglier if we did not catch a nice lift in CarMax (KMX) after being added to the S&P 500 index today. In addition, we got a new signal at the close yesterday -- to switch out of "high-quality" stocks and into "low-quality" stocks. The last time we got such a signal was on July 21, 2009 on a back test, and that "low-quality" long switcheroo lasted 14 trading days until August 7, 2009. During that time, the market rallied 6.24% from 951.13 from the close on July 20 to 1010.48 at the close of August 7, and our unleveraged "low-quality" model portfolio appreciated 15.11%. Currently it looks like our models are suggesting a 3-day long trade into low-quality stocks.
There are a lot of ugly news reports out there. While our technical models do not jive with what we are reading and listening to on the news, we have learned that it rarely pays to be dissuaded away from the consistent approach that we have spent thousands of man hours developing. Currently we are trying to figure out the optimal number and type of stocks to do this trade; it will be somewhere between 20 and 50 stocks, equal weighted.
Disclosure: KMX
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