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Friday, January 10, 2014

Market Wrap - week ending 1/10/2014

This week the market moved sideways with very little gain. The market started the New Year with 3 sharp down days of approximately 1% and has since stayed within that 1% level … We have not fallen below that 1% and have not been able to get above it. There was some concern that investors that have been in the market for more than a year would start taking their profit off the table creating the start of a correction, but so far except for those first days, the market has been consolidating in a very orderly manner.

Volume has been quite high, which tells me that indeed there is lots of selling going on, BUT … obviously there is an equal amount of buying going on or prices would be dropping. So for now the market is holding up nicely and the decline that started on the first day of the year has been totally contained.

As you know, we implemented a small but critical change in “the One” strategy that has kept us in the market this week. We rolled out this change on the first day of the new year and as a result our exposure immediately went from 0% invested to 30% invested, and we have remained there since the first trading day.

Although we added this new component to the strategy, the actual core strategy had not fundamentally changed. It gets the same buy and sell signals as before, what has changed is that there is a new ‘trigger’ or ‘switch’ that forces us to stay invested regardless of what the other signals are saying IF and only IF the volatility is not out of the norm. So, if the market is acting in a relatively calm manner (as it has been over the past two weeks), we will not go to a full cash position even if there are other warning signs. But when a real correction finally arrives (as it will), this volatility switch will trip, allowing us to exit the market and be protected from the bulk of the decline.

This change specifically addresses the whipsaws that happened this past year, where we would see weakness and

defensively move to cash, only to see the market stabilize and continue higher, leaving us in the dust.

So, although we still see warning signs, we remain partially invested. The market is definitely overdue for some kind of correction, but as I’ve mentioned in the past … market tops can take months to form and so we remain invested with our volatility triggers protecting us for when that time comes.

Hope you have a wonderful and safe weekend.

Respectfully,

Randall Mauro

Resnn Investments, LLC

Our market wrap is published weekly, sent via email on Friday after the market close, with alerts sent occasionally mid-week in particularly volatile times. To sign up for this free service, please visit our website at http://resnnInvestments.com

Friday, December 27, 2013

Market Wrap - week ending 12/27/2013

This year has proven frustrating for short-term based strategies like our flagship “the One” strategy. The strategy is very quick to respond to weakness and protect your investments, but as we have seen this year as we have defensively moved to cash the market each time would stabilize and continue higher, leaving us in the dust.

Obviously these types of resilient markets do not come around often otherwise we would have no need for a defensive approach. It is important to remember this point and never get too bullish in your approach.

In fact, looking over the past 40 years, there were a handful of years where our strategy did exactly as we are seeing occur this year, but obviously over time those underperforming years are more than made up for when we are protected and the market proceeds to have massive declines. The two most recent examples of this were in 1999 when our annual return was less than 3% while the Nasdaq returned over 80% and in 2009 when the market returned 44% and we returned 15%. Both of these underperforming years over time were mitigated.

To use 1999 as an example, at the end of four years we ended up with a total gain of 4.8%, while the Nasdaq lost over 39%. If you had invested $100,000 in the Nasdaq during this period, at the end of 2002 you have been left with $60,907 while investing in Resnn’s “the One” would have grown to $104,798.00

1999 2000 2001 2002

Resnn’s “One” 2% 0% 7% -3%

Nasdaq 86% -39% -21% -32%

I realize this doesn’t make one feel much better when they miss out on the nice move we have had this year, but I have absolutely no doubt through the years of data analysis we have performed that even in these resilient times, it pays to remain defensively focused even if that means you miss a large up move.

The market remains incredibly elevated, but as I have mentioned previously … it can remain this way for months longer. Investors Intelligence reported this week that bullish sentiment was at an astounding 59.6% while bearish sentiment was at 14.1% bears. According to Investors’ Business Daily, “this indicator is signaling a market top, but sometimes the top comes weeks or even months after the signal occurs.”

For now, our “One” strategy signals caution as we continue to sit out of the market.

In light of this strong market, we are officially introducing two new strategies that are designed to catch the longer term trends. Where our “One” strategy is designed to catch shorter term “swing” trends in the market, these two new strategies are designed to stay invested longer and catch the medium and longer term trends.

As an example, our longer term strategy has only exited one time this year (in June) and as a result has caught the bulk of the up move during the year. These two new ‘longer term’ strategies in a sense move slower and require a little more effort to move in and out of the market, which can be good but also bad.

Year to date, the longer term strategy has returned over 32% while our medium term strategy has returned just under 25% and our shorter term “One” strategy has returned slightly less than 9%. In strong trending up markets like we have had this year obviously the longer term slower strategy will do better, since doing nothing has really been the best course of action, but these longer term strategies will be slower to move to cash when the market truly does correct and therefore will have a larger negative impact in those years.

Unfortunately, we can’t have one strategy that is the “Holy Grail” and can outperform in all markets. There are certain times where one strategy is optimal and other times where it will underperform. Yet, over time if you can wait out the frustrating moments, I think our “One” strategy is as close to a “Holy Grail” as you could find. It’s defensive nature will protect your investments when the next major correction occurs. With that said, if you would prefer to catch more of the up moves, at the expense of potentially catching more of the down moves, then a combination of our three strategies might serve you well.

I have already spoken to a number of you about our two newest strategies and will continue to introduce them to all of you via email and phone. They certainly are something you may want to consider adding, either putting 1/3^rd in each of the three strategies, or moving 50% into one of the two new strategies and leaving 50% where it is now.

I will send you more information in the coming weeks on the subtle differences between the three strategies, so you can make an informed decision as to where you will feel most comfortable.

In the mean time, I wanted to thank you for your continued support and look forward to protecting your investments in 2014.

Hope you have a wonderful and safe weekend.

Respectfully,

Randall Mauro

Friday, December 20, 2013

Market Wrap - week ending 12/20/2013

Hello everyone. This week proved interesting for sure. Everything looked dire in the early part of the week, until the Federal Reserve announced on Wednesday their decision to end the uncertainty about its quantitative easing strategy, which the market clearly applauded. The latter two days of the week resulted in big up moves.

As I mentioned previously a few times, uncertainly is the market’s biggest enemy, and having clarity on the Federal Reserve’s tapering plan removed a lot of questions on people’s minds, allowing the market to continue on its’ current trajectory.

Things certainly continue to remain frothy. In fact the latest Investors Intelligence survey shows just 14.3% of newsletter editors as still being bearish, the lowest level since March 1987. This is not an indicator that can be used to trade with, but it is unsettling the level of bullishness for sure. As I mentioned in the past few weekly emails, the market can remain elevated or ‘overbought’ for much longer than anyone can predict, so trying to argue or time the market based on overbought indicators tends to be a sobering experience.

Obviously, looking over history, we won’t continue higher forever, we are clearly overdue for a correction, and it is important to remember the historical facts and not get too bullish. The market will correct, but it might still have significant more upside before it does, time will tell.

The next few weeks will be interesting as most investors take the time off. The markets can move very easily and manipulation is usually highest in these low volume time periods. I look forward to seeing if we can continue this upward directory through the end of the year. It certainly seems like that is the path we are on with so much bullishness.

Hope you have a wonderful and safe weekend.

Respectfully,

Randall Mauro

Friday, December 13, 2013

Market Wrap - week ending 12/13/2013

Hello everyone, as you know from the mid-week update I sent, we moved fully to cash on Tuesday and have remained there the rest of the week. The market has fallen 1.73% since we exited.

Although the underlying issues that we track look quite weak at this moment, we have been in this situation a few times prior this year and the market stabilized and continued higher. As in previous times, we are seeing a calming in the decline and in fact, not much panic at all, which is obviously keeping the market a float.

Market sentiment is still at an all time high, which although we do not use in our trading algorithms, is notable. If no one thinks the market will fall, then we likely will not see panic and for awhile this will keep the market in a controlled sideways move. This doesn’t work forever, but it can for a few months if no new money comes in.

Time will tell if this time it will be different from the previous declines this year. Certainly this year has been an anomaly, in fact one of the triggers that we use has triggered more times this year alone than over the last 40 years combined … showing that we have a strange market that isn’t acting according to the historical rules. Moves like this usually end up badly, but there’s no reason that the market can’t continue higher from here for a time.

The next few weeks will prove trying as the big dogs take leave and volume dries up. The last few weeks of December are usually good ones for the market, but with such a huge rise already for the year, who knows what we will see. Certainly with the lower volume, it is really easy for market makers to move the market at their whim, which will make things interesting I'm sure.

For now, we stay on the sidelines protecting our capital.

Hope you have a wonderful and safe weekend.

Respectfully,

Randall Mauro

Friday, December 6, 2013

Market Wrap - week ending 12/6/2013

Hello everyone, not much has changed since our last update. We are still 55% invested in the market (45% of the portfolio is safely in cash), obviously no margin use these days.

Although we are still flirting with 52 week highs, the market continues to flash very conflicting messages. For the week, the market basically broke even from a performance perspective, so we are holding up which is good. Volume continues to be a problem on the up days, which is nothing more than a warning signal, low volume by itself is not an excuse to exit the market, but rather just something to continue to monitor along with other signs of potential weakness. We just do not see much strength behind the up days.

Leading stocks also are sending a mixed bag, while some are acting well, most have broken and are basing which most times would be considered productive, but with the weaker stocks leading the stronger ones, caution is certainly warranted.

Market sentiment is again at all time highs and although we do not use these indicators in our trading decisions here at Resnn, this level of euphoria is certainly not sustainable over the long haul. I have spoken about this in previous emails, so I won’t bore you further on this topic.

For now, we stay invested with slightly more than half our portfolio at work and the other half sitting safely on the sidelines … a bit of caution goes a long ways.

Hope you have a wonderful and safe weekend.

Respectfully,

Randall Mauro

Friday, November 22, 2013

Market Wrap - week ending 11/22/2013

Hello everyone, a nice calm week in the market. Although volatility has increased a bit, the market spent the week acting in a very orderly manner. On Tuesday we added to our position, going from 55% invested to 100% invested, so now we are fully in the market with no margin use.

Not much has changed in our analysis since last week, although leading stocks are starting to look a tad better than in previous weeks. I'm still cautiously optimistic that the market will continue its’ upward direction for awhile longer.

Clearly the market is showing strong resilience, every time we start to see a break it quickly stabilizes and continues higher.

Next week is obviously Thanksgiving, which means light volume and most times sleepy trading since the big boys are taking the week off. Yet, historically many new trends start during holiday weeks particularly this one and the upcoming one in December. Since volume is so low during these periods, it is really easy for a large player to move the market and of course, once the market breaks free from a previous trend most other players jump in and happily follow. So, although I expect low volume, it would not surprise me if we get a strong move in one direction or the other.

Until then, we stay invested and watch closely. Hope you have a wonderful and safe weekend.

Respectfully,

Randall Mauro

Friday, November 15, 2013

Market Wrap - week ending 11/15/2013

Hello everyone, we waded back into the market this week with a 55% exposure. Although we are still seeing a slow breakdown of quality stocks, the market reversed is sharp decline last week and moved higher at the end of this week. A classic “fake-out” yet again.

We have seen our share of fake-outs this year with markets sharply dropping for two to three days, then sharply reversing and moving higher. Fake-outs are quite normal in the market, but what I don’t like here is the level of intensity in the drops. We’ve seen a number of times this year a relatively stable quiet market, then a very volatile sharp drop which is out of character, then a sharp rise (again out of character) after which the market settles down and goes sideways for a few weeks before doing it again.

Looking back at history, this pattern is not normal and certainly won’t continue forever. Generally when we get a sharp one day decline of 2% or more (like we had last week), investors get really freaked out and panic and although we usually get a small bounce up from there, the bounce fails quickly. Here we are seeing sharp drops with an immediate sharp counter bounce up.

The behavior doesn’t make a lot of sense. We have extreme panic one day, then extreme euphoria the next. Makes me think the computers are running the show where the buying is literally turned off for a few days, then a switch is pulled and tons of buying occurs … OR … the market is being supported by the Federal Government, just as panic sets in they step in and start buying to calm everyone’s nerves again.

I’m not a believer in conspiracy theories, but something out of the norm is causing this eccentric behavior in the market for sure. So far the best course of action this year has been to just close your eyes and ignore the daily movements, a ‘Buy and Hold’ strategy, yet as we all know this type of strategy eventually bites you when there finally is a clean break and we drop 20+%, which we are obviously overdue to do.

So, although this has been a frustrating market for defensive strategies like ours, I still have no doubt that over the long run we will win out by far. The bull market of 1999 is a great example to compare to today’s market, it mirrors the moves almost exactly, and looking at 1999 we peaked late in the year and had a massive decline that lasted 3 years afterward (in 2000, 2001 and 2002) which wiped out all the gains and then some. I'm certainly not going to try and imply what the future holds for us here, but I do know that this forgiving, constantly rising market cannot go up forever and we still have a lot of weak underlying issues that I mentioned in last week’s email that have not been resolved.

For now we stay invested cautiously and wait for more directional clues.

Hope you have a wonderful and safe weekend.

Respectfully,

Randall Mauro

Friday, November 8, 2013

Market Wrap - week ending 11/8/2013

What a crazy week for the market. The first three days was very sleepy, but yesterday and today really woke up everyone. We started the week fully invested, and on Wednesday reduced our position to 30% invested, then today we exited fully in the middle of the day.

On Thursday we saw a dramatic drop in the market where the market finally broke out and below its’ most recent trading range. It had been sitting very calmly for about 2 weeks with very little progress on either side, then suddenly we had an aggressive sell off.

Although yesterday caught many investors by surprise, under the surface we have been continuing to see weakness which we notated in our last few end of week emails. This weakness caused us to reduce our exposure (to 30% invested) on Wednesday before the large drop yesterday.

Early in the week we saw a number of leading stocks continue the trend of the past few weeks .. breaking down, we also saw the continuation of larger cap DOW stocks outperforming the smaller more risky stocks.

I can say that Thursday’s decline did not surprise me … we definitely are seeing a growing negative sentiment in all stocks. It appears that large institutions are moving their assets out of riskier smaller cap stocks and in to larger (safer) positions. And I said last week, leading stocks are supposed to lead … and when we see them one by one fall out of favor and not able to recover, usually the larger cap stocks and indexes follow suit shortly after.

In the last two weeks we are also seeing negative market breadth. Looking at a comparison of advancing vs. declining stocks … we see a negative divergence where fewer stocks are advancing than price would imply. I also see the same results looking at up/down volume. Clearly there is more volume on the selling side.

The Russell 2000 index broke key support lines this week and although they recovered those lines today they did so on weak volume.

Today’s action on the other hand, quite honestly surprised me. With such a large break yesterday, I was surprised to see such a strong comeback. I certainly expected a bounce up today since yesterday’s decline was so extreme (hence the reason we waited to exit the market until today instead of yesterday), but was surprised by how strong the bounce was. With that said, leading stocks as a whole are still struggling and the pattern of larger, safer outperforming smaller company’s continues.

I really think the market is getting ready for a much larger correction, but it might not become evident for a few more weeks. I expect to see another bounce up, and unless leading stocks recover their previous leading roles, I expect to see a sharp drop from there.

The data will lead us in or out of the market, but for now we stay in a defensive role.

Hope you have a wonderful and safe weekend.

Respectfully,

Randall Mauro

Friday, November 1, 2013

Is the stock market showing signs of an impending correction?

Happy November! I hope everyone had a safe Halloween. I hope by now everyone has come down off of their sugar high’s from the festivities. I know in our house, today’s was much more ‘sluggish’ than normal, with the boys having little energy for anything.

Although we are clearly still in an uptrend, I am continuing to see a lot of evidence that we might be forming a longer term top. Although none of our indicators are showing enough weakness to act defensively as of this moment, every day our analysis shows more and more weakness. But … what is interesting is that the process is taking a long time which is most likely indicating that the next correction that occurs will be stronger than the last few.

The reality is that we haven’t has a strong correction since April 2011 when the market dropped over 20% in 2 months. In 2012, we had two 12+% corrections, but both recovered relatively quickly, and 2013 has seen very little downside. Looking over history we generally have a strong correction (20% or larger) every 2 – 5 years, so we certainly could be due for one.

We do not use seasonal or calendar based indicators in our decision process, but rather look at the data and how the stocks are acting at that particularly time … but I do think we are overdue given the complacent views right now. In fact, all surveys of investor confidence are excessively bullish. We have a very frothy situation right now where most investors are extremely confident that the only place for the market to go is up. As I’ve mentioned in the past, usually when all parties feel the same way, a change is not far off.

A few items that are causing concern for me are …

1) The most important issue is that leading stocks are continuing their 3 week long pattern of breaking down. One by one we are seeing the 2013 leaders breaking down and losing value aggressively. It may be obvious, but leading stocks generally ‘lead’ the market, so if they are breaking down … it usually isn’t long before the indexes follow.

2) As I’ve mentioned previously, we are continuing to see defensive sectors take on a leadership position and outperform the smaller cap stocks. This week was no exception with the Dow Jones index eking out a 0.29% gain for the week while the Russell 2000 small cap declined 2.13%. if you stretch that out longer term a similar situation enfolds, over the past two weeks the Dow gained 1.4%, vs. the Russell losing 1.79%, and three weeks ago with the Dow gaining 2.5% while the Russell gaining only 0.96%.

So, over the past three weeks we’ve seen the Russell (smaller caps) rolling over from an uptrend to a decline while the Dow spent half the time in a strong uptrend to being flat this week … as if the Dow is following the leading smaller cap stocks off the cliff…

This is normal ‘topping’ behavior where the big guys start selling their riskier investments and move their money in the more defensive larger cap stocks that generally take less of a hit in a correction.

From a technical analysis perspective we are definitely seeing more selling pressure with volume much stronger on down days and key inflection points being broken particularly in the small cap realm. The other area of concern technically is that the majority of stocks are overextended … stretched far from their averages and like a rubber band when it stretches too far … the stocks need to snap back. Granted, when stocks get overextended a correction doesn’t have to occur to fix the problem, time can solve the problem if the stocks sit in a healthy manner not gaining price, but also not losing.

So far this is what we are seeing with the market as a whole is holding up well with little gain, but also little loss, creating a 3 week long “Doji”. Doji’s simply signify indecision in the market, where price does not go up or down. There are small battles going on between the bulls and bears, but no side has won as of yet.

With that said, each week we are seeing more and more volume, meaning the battles are getting more intense.

For now, we stay invested and continue to watch closely for further signs of a large scale breakdown. I would imagine next week will provide clarity as to the direction of the market through the end of the year. Until then, I hope you have a wonderful and safe weekend.

Respectfully,

Randall Mauro

Resnn Investments, LLC

http://resnnInvestments.com

Wednesday, October 9, 2013

How will the Government Shutdown affect the stock market?

Hello everyone. I hope you know that I try not to bombard your inbox with emails, yet in particularly volatile times I feel it is important to keep you abreast of any portfolio changes or important analysis.

As you already know, we have been lightening our position over the past two weeks and we continue to do so. Today we are only 30% invested in the market (70% in cash), clearly moving defensively.

My personal feeling is that we are a very critical crossroad in the financial markets. The financial ramifications of a Government shutdown are incredibly far reaching and with each passing day of no resolution we get closer to the point of no return.

I certainly don't want to create fear and think it is premature to even think in a fearful way, but the data we analyze certainly is starting to show fearful patterns.

I am still optimistic that we will have resolution in the coming days and the markets will stabilize.

Yet, unfortunately we don't have the privilege of knowing the future and I think you will agree with me that this situation has the potential to become much, much more serious. The reality is that we could be setting up for a significant drop in the market similar to what we saw in 2008.

Although selling stock now could prove to be a mistake if the market stabilizes and continues higher (as I personally feel will happen), having a defensive approach to me is the only approach given the risk involved here.

As you know when we analyze our data, the goal is to find the answer to one question, "Is the market healthy or not?" The answer to that question helps us to decide whether we need to be aggressive or defensive in our exposure to the market.

If the market is healthy, our goal is to maximize growth ... to increase our risk with the goal of profit.

But, if the market is not healthy, we have only one goal, and that is to protect your investments. To me, you can’t achieve both at the same time. You either focus on growth or focus on protection, one or the other … and our models are geared to switch quickly from one to the other as the climate changes. So, our only priority is to protect you.

The situation is obviously changing rapidly, which will make for some wild swings over the coming few weeks I'm sure. We will continue to monitor every tick in the market, watching for signs of strength or continual weakness and will adjust the portfolio accordingly, but for now we stay on the defensive.

I will continue to update you of any future changes in the near term. And, as always … If you have any questions, PLEASE feel free to email or call me at any time, day or night.

Respectfully,

Randall Mauro

CEO - Resnn Investments, LLC