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Can You Handle the Risk?

This past Friday, we put about 20% of our clients' money to work in the market. We bought some broad market ETFs, some Asian stock and a little Japanese stock. But, 20% in the market and 80% in

This past Friday, we put about 20% of our clients’ money to work in the market. We bought some broad market ETFs, some Asian stock and a little Japanese stock. But, 20% in the market and 80% in cash is about all the risk I want my clients to handle right now. You should seriously consider how much exposure you want in this market when looking at totally uncharted waters we are having to deal with right now in regard to the debt-ceiling, so-called crises.

For my CycleProphet Trades subscribers, I plan to wait until we see what happens in Congress this week. Frankly, I happen to believe that the debt-ceiling should be raised.. but that is not the real issue…

The REAL issue is something has to be done about our government’s runaway spending. Unfortunately, the only way the liberals in Congress can be controlled and forced to deal with their ‘buy-any-vote-at-any-cost-and-to-hell-with-what-it-does-to-our-country attitude, is for the conservatives’ to hold the debt ceiling as hostage. My best guess is a deal will be worked out. It may occur by the time you get this newsletter. My concern is not whether the debt-ceiling will be raised… it will be… My concern is that the spending reductions being offered by both sides of the aisle are pitifully and embarrassingly small compared to our national debt.

A very good friend and client of mine sent me a link to a visually staggering representation of the size of the current US debt. Here is the link if you’re interested…. Another fascinating visualization of the debt and the real level of unemployment, among a host of other data can be found at There is a lot to take in on this site and well worth your perusal.

In an era of ‘kick-the-can-down-the-road’ politics, the debt reduction bills sloughing their way through Congress will do just that… kick-the-can-down-the-road. But it just may be a tiny step in the right direction. The market appears to be taking all the political posturing and demagoguery in stride for the most part. The market (DJIA) is down a few hundred points for the week. This is not trivial, but it is not a crash. Being in cash most of the week kept us out of the selloff.

As I mentioned in last week’s letter, I believe a deal gets done on the debt-ceiling and the market could have one of its best days in months when that happens. The only reason to not be long this market right now and heavily long… is that there is still an outside chance that the US could get its financial rating downgraded and the debt-ceiling might not be raised. If either or both of these events occur, the market could be roiled lower and maybe much lower. This has, in my opinion, a low risk of occurring, but that does not mean that it can’t happen. Being in the market right now carries a LOT of risk. There is plenty of risk in a ‘normal’ market… this stuff going on in Washington is way over the top in potential risk. And since the primary control in Washington is not represented by the sharpest knives in the drawer, who knows what can happen.

At this writing, the futures are up about +1.2%, but falling off the highs of the day. Perhaps my tiptoeing into the market on Friday will prove the correct move. Regardless of what the market does on Monday, however, keep an eye on what Congress does. And, be very wary of a big bounce up and then just as quick of a reversal. The next few days could be a rollercoaster kind of ride.

SuperCycle Update…

I am pleased to report that our first full month of SuperCycle trading has completed and the results are in…

We had a total of 7 SuperCycle trades in FXI, IWM, QQQ, SPY, GLD, SLV and SH.

  • Total winning trades: 7
  • Total losing trades: 0
  • Most profitable winning trade: SLV for +25.99%
  • Least profitable winning trade: SH for +1.16%
  • Average hold time: 5.29 days
  • Average return per trade: +14.41%

We made all of these trades in our managed account portfolios and some in the CycleProphet Trades portfolio. Keep in mind that in some cases we used options for our trading vehicle and sometimes we used shares.

Speaking of our managed account portfolios… We are opening a new, SuperCycle-ONLY portfolio as of August 1, 2011. If you are interested in following this portfolio, give Tammy or Tom a call. Minimum account size is $100,000. This is NOT a fund. The concept is simple… You open an account with our broker (TD Ameritrade), fund your account with any amount of $100,000 or more. You stay in 100% control of the account. You give us limited trading authority where we trade the portfolio using our SuperCycle trading strategy. You can start/stop the process at any time. You have 24×7 access to your funds. You pay nothing for trading fees. You only pay us a management fee. We can email you details. Give us a call and ask about our “Sabinal Growth & Income Portfolio”. Our Sabinal number is: 888-349-1118.

Also, it is important to not lose sight of the fact that one month of historical trades is a very poor indication of trend or performance. But, we are off to a very good start. Real trading is a far cry from back-testing and at least for this first month, the real trading significantly outperformed the back-testing. Just to reiterate… One month of good trades does not prove a whole lot. Likewise, one month of bad trades does not prove a whole lot either. Given the choice, though… I think I prefer the month of good trades.

My Trading Plans for the Upcoming Week…

I have two market segments that look reasonably attractive: Financials and Gold Miners.

Both of these market segments could get hammered lower if things fall apart in Washington. Be very careful with your money in the market this week. Cash is the place to be unless you want to elevate risk in your portfolio.

I will NOT be sending our any CycleProphet Trades today. I will wait until the issues in Washington are settled. Could be tomorrow.

 What the Technicals have to say…

The Turner CrossOver Oscillator provides an indication of the over-bought or over-sold condition of the market. The red line (New Short Sell Index) shows a technical direction and strength (or lack thereof) of investors to push stock prices lower, triggering new Short Sell Signals. The higher the Short Sell Signals line, the more Bearish the market. The black line (Composite Index) is the combined impact of both the new Short Sell Signals and the new Buy Signals and is an indication of the degree of oversold or overbought condition of the market. Buying opportunities exist when the Composite Index is moving higher. The higher this line moves, the more Bullish the market. Market bottoms are represented by a change in direction of the Composite Index from moving lower to moving higher. Market corrections become much more likely the Composite Index crosses the Short Sell Index from above the Short Sell Index to below the Short Sell Index. The market is represented by the green shaded area.


The Bull-to-Bear ratio has dramatically shifted more Bearish. This results in a Bull-to-Bear Rating of [ – 1 ]. The Turner CrossOver Oscillator Composite of Signals (black) line has moved back below zero but is still trending higher, which is Bullish. The Short Sell (red) line is trending lower but shifted significantly higher, indicating the market may be somewhat oversold. Although the current data indicate a Bearish situation, conditions are becoming more ripe for a Bullish rally.

What I find fascinating about the data is that even though the Bull-to-Bear ratio is more than 5-to-1 in favor of the Bears, the Turner CrossOver Oscillator is still indicating the trend is actually quite Bullish. The Composite (black) line has dropped down from where it was a week ago, but is still trending higher. This is Bullish. The Short Sell (red) line has jumped considerably higher which is a Bearish indication, but continues to trend lower and is often an indication of the market becoming over sold. The bottom line is this… the market looks poised to move higher but the risk of a sudden sell-off is increasing. It’s never easy…

Have a great week in the market!

Your anxious-to-get-into-the-August-SuperCycle-trades portfolio manager,

The astronomer Carl Sagan said, “It was easy to predict mass car ownership but hard to predict Walmart.”