Switching from Wealth Preservation to Wealth Accumulation

Switching from Wealth Preservation to Wealth Accumulation: Wall Street Sector Selector

Hi, Friends,

Like a fast moving hurricane, this violent stock market correction that started in mid-July tore through the world’s stock markets and erased nearly 11% of wealth from investors as measured from peak to valley by the U.S. Total Market Index.

Since putting in a bottom on August 16th, the U.S. Total Market Index has rallied 4.8% off its lows and the S&P 500 now stands with a 4.4% gain Year to Date.

At Wall Street Sector Selector, we now stand with a net gain of 6.69% Year to Date and 4.9% realized and unrealized gains for all initial trades since our first public trade on April 2, 2007.

This has been a period of historic volatility, of central bank intervention in economies and stock markets around the world, and volatility and wild price swings not seen since the September 11th attacks on the United States.

And now it may almost be time to switch from wealth preservation to wealth accumulation. Our indicators tell us that very likely we’re on the brink of what appears to be a unique buying opportunity, in fact, one of the best buying opportunities since 2003.

And we’ll be ready to capitalize on this switch from wealth preservation to wealth accumulation when, and if, this new leg upward gets underway.

But first, these recent wild swings in the market offer us a perfect opportunity to review the Wall Street Sector Selector trading methodology and better understand how and why it works and why we’ll be ready for the next phase of market activity, whatever it may be.

During up market periods, the system is designed to identify and invest in sectors that are outperforming the general markets and so make greater profits than we could by just investing in an index or a random basket of stocks or Exchange Traded Funds.

And we do this by deploying a combination of measurements like relative strength, momentum, trend and capital flows that add up to what we call the “Greed and Fear Index.” When greed is in control, we buy, and when fear is control, as it has been these last two months, we sell.

Conversely, during market declines, we will either step aside to cash positions or attempt to “short” the market and profit during declines so that we can protect our capital from significant declines or even profit when the market goes down.

During July and August we were able to do both of these things with some success, although as we mentioned in last week’s letter, the volatility in August impacted our performance and success on the “short side.”

But the key thing to understand here is that this system can and will take occasional losses but is designed to limit maximum monthly losses to -5 to -6%. Nobody likes to lose 5%, and some people might ask, “Why not just ride it out; it will come back?” but this is where we part company with the general media and the conventional wisdom constantly touted in the financial press.

People who practiced buy and hold in March, 2000, are still just slightly below break even 7 years later as measured by the S&P 500. They are approaching a lost decade of their investing lives!

And, to us, as active investors, this is simply unacceptable, especially since it didn’t have to be that way.

Because an active trading system, like Wall Street Sector Selector, could have stepped aside, stepped out of harm’s way when the market rolled over in March, 2000, and then when the bear market was confirmed, profited on the way down as the S&P declined more than 40% from top to bottom.

Doesn’t this just make a lot more sense than losing a decade of your investing life?

However, for now, it does appear that the fast moving correction of July and August is blowing over and we’re setting up for the next leg upwards. This recent correction turned out (in hindsight) to not be “the big one,” and so we suffered a small loss in August to protect ourselves from what could have easily turned into double digit losses in a wealth destroying bear market. And this will always be the case during market “corrections” because it’s impossible to tell ahead of time if it’s a market correction or the start of a new bear market.

But make no mistake. One day, maybe sooner, maybe later, there will be another bear market that will destroy trillions of dollars of wealth and devastate the hopes and dreams of the millions of investors who won’t be prepared for its overwhelming, destructive fury.

My job is to make more money for my subscribers than we could make in the general market during up times and lose less, or even make money, during down times. In other words, when times are good, we will focus our efforts on return on investment, and when times are bad, we will focus on return of investment.

We’re on the threshold of a great opportunity

As I said a moment ago, right now, all of our indicators point to the strong likelihood that the market has put in a bottom and that this was just a correction in an ongoing bull market. It’s very likely that the market will test the lows of August 16th at least once, if not twice, and that the volatility we’ve seen recently will continue for a few more weeks.

But if this is indeed a bottom, we’re definitely nearing the best buying opportunity we’ve seen in many years in terms of risk/reward, and we stand ready to deploy our capital into those sectors which show the greatest promise relative to the overall market.

Sector Spotlight

Nearly all sectors continue to be in short or long term downtrends with Treasury Bonds being the only notable exception with the usual flight to quality that we always see during periods of market stress. Interesting upstarts this month include the financial and real estate sectors which have been severely beaten down so far all year but now are showing signs of returning to solid performance.

The Way Forward from Wealth Preservation to Wealth Accumulation

Our plan, as always, is to stick to our plan. We will wait patiently for our indicators to confirm that the market has, in fact, put in a bottom and is ready for a new leg up.

When that happens, we will immediately alert you.

Wall Street Sector Selector generally only establishes new positions at the beginning of a new month, but at a crucial turning point like this, it might become necessary to establish new positions at some other point during September.

And so our tactical trading strategy is this:

We will not establish any new position during the last week of August since it’s a holiday shortened week leading into a three day weekend and there are a number of important economic reports due out late next week.

Over Labor Day, we will reanalyze our indicators and complete our usual monthly portfolio rebalance which you will receive in an email on Monday, September 3rd. Hopefully, that will take care of us for the month.

However, if our indicators do not indicate a “buy” on September 3rd, we will remind you next weekend to carefully watch your email every weekend during the month of September for any mid-month additions to our portfolios. Should confirmation of a new uptrend occur at any time during September, we will send you a weekend position update with the new positions the system has identified.

Again, this is not our usual practice, but these are not usual times, and it’s important that we don’t miss this next uptrend, if and when it is confirmed.

We will remind everyone of this again next weekend and make sure we all fully understand our strategy moving forward.

Today, I’m flying back from Florida today with my family after a delightful week on Bonita Beach in the Naples/Fort Meyers area. As I mentioned last week, we’ve been going there for more than 30 years and this visit was as much fun as always.

We “chilled” on the beach as my 14 year old likes to say and we were “hanging” in the pool as my 19 year old says. We spent a wonderful day fishing offshore for the “wily grouper” and I caught one that was just ¾ of an inch too short to be a keeper.

But nevertheless, we ate well, too well, and my wife and I will be hitting our diets hard in September as we indulged in live lobster, fresh fish we caught ourselves, mussels marinara and at least three trips to Royal Scoop, a small, out of the way ice cream store that has the best ice cream I’ve ever found anywhere in the world. If you’re ever in Naples, Royal Scoop is a must stop.

I hope you enjoy the rest of your weekend, the last week of summer and the holiday weekend that lies ahead.

Your partner in prosperity,

John Nyaradi
Publisher
Wall Street Sector Selector
http://wallstreetsectorselector.com