Buy—Don’t Hold:

This week’s blog will be in two parts.  The first part will cover the market action this past week, and the second part will cover the 2012 performance.

Part I.  Market Review

The stock market had one of its best weeks in years, mostly due to the elimination of the ‘fiscal cliff’ scenario for now.  Of course, much more difficult negotiations on the extension of the debt limit, cutting programs, and sequestration remain on the short-term horizon in February and March.  Those discussions will again roil the markets as these deadlines approach.  For now everything is rosy.  Interestingly, both the small- and mid-cap stocks closed at all-time highs this past week.  Enjoy the ride as long as it lasts.

For the week the NASDAQ Composite was up a whopping 4.77% closing at 3101.66, well above critical support level of 3000.  The S&P 500 Index closed at 1466.47 up 4.57 % also well above critical support at 1400.  Lastly, the DJIA closed at 13435.21up 3.84% for the week; also well above critical support 13000.

Indicator Review

This week Indicators #2 and #5 simultaneously issued BUY signals.  This is quite rare, but not unexpected based on the large upside move on Wednesday.

Indicator #2 NASDAQ Composite and 100-dma.  This indicator remains on its JANUARY 3 BUY signal.   (Refer to upper chart).

Indicator #5 NASDAQ Composite with MACD.  This indicator also had a BUY signal on Wednesday. (Refer to upper chart).

Indicator #6 AAII Weekly Investor Sentiment Survey Bullish Percentage. The latest January 2, 2013 bullish reading of 38.7% was well below that of the December 26^th bullish reading of 44.4%. Investors had a much less bullish outlook caused by the uncertainty over the resolution of the ‘fiscal cliff’ situation. Next week’s reading will most likely be much higher.

Indicator #8 NASI Summation Index and MACD.  The index crossed back above the 5 day-ema thus this indicator remains on its Buy signal (refer to second chart).

Dashboard on “4”BUY signal

 Dashboard-V2-January 4 2012

A chart of the Dashboard BUY and SELL signals is presented here:

 http://stockcharts.com/h-sc/ui?s=$COMPQ&p=D&yr=2&mn=0&dy=0&id=p50034199149&a=250074893

Top 5 ETFs          

The Top 5 ETFs had a solid week, but a number of the international ETF did not perform as well as the domestic ETF.  So far this portfolio has gained 4.41% compared to the average benchmark’s gain of 3.72% since the November 28^th Dashboard BUY signal. The link to the current portfolio and statistics is here:

Top-5-ETF-Tracking-January 4, 2013

Make sure to check on EPI during the week to see if it drops below rank #10, as it is currently ranked 10^th.  Also, EFA’s rank has weakened to 8^th and should be watched daily for a breach of the 10^th ranking.  Please note that I do not post changes to the ETF Top 5 portfolio during the week.  It is your responsibility to check the Decision Page daily to see if any ETFs should be sold and replaced if they fall below rank 10.  Any changes will be reported in the weekend blog. There were no changes this past week.

Additionally, make sure a Stop Limit order is placed on each position according to your risk tolerance.

Dark Liquidity

www.dark-liquidity.com/BDH2new.php provides the BDH strategy results performance for the year 2012 of 14.40%.  This compares favorably to the 7.30% gain for the DJIA, the 13.4% gain for the S&P 500, and 15.9% gain for the NASDAQ Composite.

Conclusion

The market experienced a very powerful advance this week in response to the outcome of the “fiscal cliff” situation.  This momentum could continue going forward, but most likely not at the same pace.  We’ll have to wait and see what develops.

Be patient and let your profits run, and do not make emotional decisions on your investments based on news reports.  That is the sure way to make mistakes that you’ll regret.

Part II.  2012 Dashboard Performance

The Dashboard signals performed well in 2012 compared to the market averages.  For the year the Dashboard produced a gain of 14.40% as measured by www.dark-liquidity.com compared to 7.30% gain for the DJIA, 13.4% gain for the S&P 500, and 15.9% gain for the NASDAQ Composite.  These figures are all without dividend reinvestment.  Be aware the BDH strategy was out of the market in cash or short-term bonds for 133 days or 36.3% of the year.  Therefore, on a risk-adjusted basis the BDH strategy did better than the benchmarks which are always 100% invested (assuming an investor uses an index mutual fund or ETF).  The average stock mutual fund gained 14.6% in 2012 with dividends reinvested according to Lipper, as reported in USA Today, page 2B, January 4, 2012 in article titled “Fund haters are only hurting themselves”.

Interestingly, the average Hedge fund performance was much worst at 5.5% in 2012 as tracked by HFR (page R4 WSJ, January 2, 2012).  The market’s ups and downs were not handled well by most Hedge funds. And don’t forget that the typical Hedge fund charges 2%/20% which means 2% of assets under management and 20% of profits.  So if you thought that Hedge funds have the edge in investing your money, you may want to rethink that premise.

During the year an adjustment was made in the number of ETFs purchased for the portfolio. Beginning on May 2, 2012 the BDH strategy began using only the ‘Top 5’ ETFs based on 6-month relative strength instead of the top 15 to simplify the process, reduce trading commissions, and provide a more manageable portfolio.

During 2012 there were 4 Dashboard initial BUY signals (3 or 4 reading) and 4 Dashboard initial SELL signals (0 or 1 reading).  Duplicate consecutive signals in the same direction were not counted. Refer to Dashboard Weekly Results table for the details.