Year-to-Date Strategy Stats as of today:
+ 34.22% : Turner Quant Advantage (TQA)
+ 11.30% : Tactical Growth (TG)
+ 2.24% : Diversified Income (DIS)
+ 15.99% : Leveraged Index (LI)
+ 9.74% : S&P 500
Before I get into what I need to be clearer about, let's talk about this market.
First the obvious... While the data are not conclusive after two days (I prefer to have at least a week's worth of data before drawing any strong conclusions), it certainly 'looks' like the market is in a rotation out of growth stocks (I'll bet that doesn't last long) and into "broader market plays". It is beginning to look like growth stocks are rapidly going on sale and my guess is they won't be on sale for long.
It also looks like the announcement that the world will soon return to normalcy once we have all lined up at the local vaccine dispensing site and got our one or two shots to fend of the "long dark winter" of COVID that was predicted just a few days ago by... well... you know who. Now, the sun has come up and the long dark winter is just a passing shadow of the past, not to be brought up again in polite company. Hopefully, the vaccine will soon be available to the great unwashed and stores and shops will open and we can all feel comfortable to go out and actually mingle with friends and family.
It is this potential of a 'return to normalcy' that seems to have triggered the so-called sector rotation now in play. I'm willing to play along, but a two-day trend does not quite meet my definition of a real trend that can be trusted. With the Dow up and the S&P 500 in neutral and the Nasdaq getting hammered, I don't see (algorithmically) a clear trend in "the market". As such, my bias is to rotate into cash as we stop out this week and stay there until a better trend develops. As such, I raised stops to 0.5EMs today and am not putting new capital to work until I can see a better trend develop.
The last couple of days cost us a couple of percentage points and is not something I like to see, but the damage has been minimal. Don't get me wrong, though. I hate losing any percentage, but not every day can be an up-day.
This leads me to my other point... I need to be much clearer. Yesterday, as you may recall, I wrote (quite elegantly, I thought) about how we calculate stops and used, as an example, a stock that we held (at that time) in the TQA model. But, alas, I had a very attentive new client write me that he couldn't understand how TQA could lose 17% in one day. To say the least this very fine gentleman was in a panic. The stock in my example did drop 17% (over a two-day time period) and it stopped out today. But, that was for a 5% investment in the position. 5% of -17% is only 0.85%... that less than a 1% impact on the entire Turner Quant Advantage portfolio. 0.85% is not insignificant, I admit, but it is a far, far cry from a 17% loss that my client was interpreting from yesterday's blog.
I will endeavor to do a better job of clarifying total return of a portfolio compared to a gain or a loss in an individual holding should such a need arise again in the future.
My apologies to those of you who thought the example I was discussing about how stops are managed in our holdings, was referring to the entire portfolio. I was merely attempting to explain how our stop loss algorithms work and differ from one portfolio model to the next.
And to put a final thought into the current sector rotation in the market... I do not see any indication, yet, that the market is in a bear trend. I am not convinced the market is in a bull trend either. It is more in a transition (rotation in this instance) and that is the best time to step to the sidelines and take a wait-and-see position. I have raised all stops significantly and am looking for exits when they come available. The market has an uncanny ability to tell us when it wants to move higher or wants to move lower or can't make up its 'mind' which way it wants to trend. Right now, it looks more indecisive than anything else. When in doubt about a direction, cash is king.
Now is not the time to be guessing. I'm not. I am more than content to let the market tell us which way it wants to go and it's not doing a lot of talking right now. We will just wait a while... the market always, eventually, tells us (algorithmically) where it is and what direction it is in. That is the beauty of our approach. We do not try to figure out what the market will do. We react to what the market is doing and what the market is reacting to. It is a much better way to make money in the stock market, imho.