Author: Joel Nance, TruePath Financial
Covestor model: Archipelago
Disclosure: None
In June, sentiment data from advisers, as measured by Investors’ Intelligence, finally shifted toward a bullish reading. Sentiment can always go lower with the market, but when many investment professionals are bearish, we have more reasonable prospects for profits going forward.
It appears to me the market wants to give the pure market-timers another rough year by pushing the S&P 500 below its 200 day average before it takes off again. I still believe the S&P 500 can get to 1400 or higher this year.
Because sentiment dropped back into bullish territory, we sold off the hedging positions (iPath S&P 500 VIX Mid-Term Futures ETN (NYSE: VXZ), ProShares UltraShort Euro (ETF) (NYSE: EUO), ProShares UltraShort MSCI Europe (NYSE: EPV)) and invested in US microcaps, which are currently showing more strength than emerging markets small caps. When emerging markets are no longer oversold (according to my own risk-adjusted return computation) we will sell them and shift entirely to US microcaps.
The market looks like it may just make another push toward the 200 day moving average. If we do drop below the average, I expect sentiment will drop dramatically, giving us a green light to take on a bit more risk. The easiest way is to buy the more volatile micro cap etfs such as Rydex S&P SmallCap 600 Pure Value ETF (NYSE: RZV), or simply buy a small position in a highly volatile equity ETF such as VelocityShares Daily Inverse VIX Short Term ETN (NYSE: XIV), Direxion Daily Emr Mkts Bull 3x Shs(ETF) (NYSE: EDC), or Direxion Daily Small Cap Bull 3X (ETF) (NYSE: TNA).
Sources:
“Investors’ Intelligence Poll: Bullish Sentiment Higher” The Wall Street Journal, 7/6/11 http://online.wsj.com/article/BT-CO-20110706-708197.html
