December 1961 (followed by 28% market loss over 6 months)

January 1973 (followed by a 48% collapse over the following 20 months)

August 1987 (followed by a 34% plunge over the following 3 months)

July 1998 (followed abruptly by an 18% loss over the following 3 months)

July 1999 (followed by a 12% loss over the following 3 months)

December 1999 (followed by a 9% loss over the following 2 months)

March 2000 (followed by a 49% collapse in the S&P over the following 30 months)

The defining characteristics of these instances were:

1) price/peak-earnings multiple above 18

2) 4-year high in the S&P 500 index (on a weekly closing basis)

3) S&P 500 8% or more above its 52-week moving average (exponential)

4) rising Treasury and corporate bond yields

Depending on how we define the interest rate trends, we can include two additional historical instances of these conditions: October 1963 and May 1996, both closely followed by 7-10% corrections.

One more instance completes the list: July 2007.

Read the rest at www.hussmanfunds.com.

Wow!

I am going to give the floor to Trader Fred who is always working tirelessly on ways to improve the TSP Trader System.  He has been working on relative strength trends of the TSP funds to see if there is a way to determine which stock fund is best to be when the system is on a buy signal.  Here goes...

Relative Strength Trends of the TSP Funds

The TSP Trader system uses the allocation principle when investing in the market. This spreads the investment risk over three TSP funds (C, S & I). The different percentage of investment in each fund (25%, 40%, & 35%) optimizes the investment by how the three funds have done relative to each other over the recent past. If there has been great variability in the strengths of the three funds, relative to each other, then the recent past is the last six months or so. If there has not been a great deal of relative strength variability between the three funds, then the recent past could be a year or two. Therefore, the question becomes, what has been the relative strength variability between the three funds. The answer is graphically shown below (green dotted circle where C Fund Strength < S Fund Strength < I Fund Strength).

There are three things to note in the chart above. The first is that five TSP Funds are presented (G, F, I, S & C).  The second is the funds sometimes show relative strength (above the dotted green line), and sometimes show relative weakness (below the dotted green line). The vertical Weakness---Strength axis is centered at zero. The G Fund (solid green line) has a constant strength value of +0.60. 

The last thing in the chart above is since mid-2004 the relative strengths and weaknesses of the funds have varied from plus ten (maximum strength) to minus ten (maximum weakness).  However, in general, the strength of the I Fund has exceeded the S Fund’s strength, and both are stronger than the C Fund. The relative strengths and weaknesses of the three funds since mid-2004 to the present yield the TSP Trader system allocation percentages (C Fund at 25%, S Fund at 40%, & I Fund at 35%). The chart below shows the relative strengths and weaknesses of the five funds for H1, 2007.

The above chart shows the funds are beginning to recover (green circle) from a period weakness that started in April-May. The C and F Funds are still in a position of relative weakness, while the S and I Funds are in a relative strength position. Recall, the baseline of constant strength is the G Fund (solid green line at +0.60). The bar chart below shows the relative strength and weakness of the four funds has been increasing over the last two weeks. This bar chart will become a regular feature in the close of business Friday update for the TSP Trader system.

-- Trader Fred


Trader Fred's TSP Trader System is still on a sell signal.  Read more from Trader Fred on the system page.

The EbbChart System is on a roll and in the I-fund today.  But where will it be tomorrow?  Read more on the ebbchart page.

See you tomorrow.