 Our offices will be closed next Monday, September 6th, in observance of Labor Day so that our hard-working staff can enjoy the three-day holiday weekend. The Market Hotline, along with Jerry Wagner's "In My Opinion" column, will return on Tuesday, September 7th.  Stocks Slip Despite Friday Rally The Dow actually closed below 10,000 on Thursday; fortunately, it regained that level, settling Friday at 10,150.65. The NASDAQ and S&P 500 also had slight weekly declines, respectively settling at 2,153.63 and 1,064.59 at week's end.1
(Source: CNBC.com, BigCharts.com, ustreas.gov, bls.gov, 8/20/10) 1,2, 3,4
Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends Bernanke Reassures Wall Street At the annual Federal Reserve summer retreat at Jackson Hole, WY on Friday, Fed chairman Ben Bernanke said that the central bank "is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly." Translation: we are ready to do what it takes to support the economy. Bernanke stated that the Fed still had plenty of tools to fight deflation, with buying more Treasuries a prime option. He did not mention buying private assets. The Dow rallied for a gain of 164.84 Friday.5,6 Breathtaking Drop In Home Sales In July, demand in the housing market is usually at its highest. So the July housing numbers were confounding even with the absence of taxpayer credits: new home sales down 12.4% from June, existing home sales down 27.2% from June. In year-over-year terms, the rate of new home purchases was 32.4% below July 2009 while sale prices were -4.8% from last year's median. (Analysts polled by Thomson Reuters had forecast July new home sales to be flat.) The National Association of Realtors said residential resales were down 25.5% from a year ago; however, the median sale price was 0.7% higher than in July 2009. 7,8 Slight Gain In Durable Goods Orders The 0.3% July increase underwhelmed analysts, who had expected a 3.0% gain. Excluding transportation orders, durable goods orders were -3.8% last month.7 Consumer Sentiment Improves The final August consumer sentiment poll is in from the University of Michigan and Reuters. The 68.9 index reading is an improvement from the final 67.8 mark in July; we are still a long way from seeing this index above 80, which was common before the recession.9 Gold & Oil Prices Rise In fact, gold was up for the fourth week in a row — futures gained 0.72% last week to settle at $1,236.00 Friday. Gold is up 4.60% across that four-week stretch. Oil futures advanced 2.47% on Friday to pull off a 1.83% weekly gain and settle at $75.17 per barrel on the NYMEX.10  This column will take a two-week vacation as I will be visiting my son in California. The Hotline and the computer programs will, however, continue in my absence. All the best... |
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 US equity markets had a rocky ride last week following continued weak economic news and Fed Chairman Bernanke's policy pledge to sustain the recovery. They ended the week mixed despite last Friday's strong rally. The S&P 500 Index lost 0.66%, the NASDAQ Composite gave up 1.20%, but the Russell 2000 rose 0.97%. With the exception of gains in the Utilities (+2.02%), Telecom (+1.23%) and Energy (+0.16%) sectors, all other seven S&P sectors declined last week, led by Information Technology (-2.06%) and Industrials (-1.47%). Overseas markets had larger weekly losses overall, with the MSCI Emerging Market Index (EEM) declining 1.29% and the MSCI EAFE Index shedding 2.77%. With the exception of some strength in International Treasury Bonds, fixed income asset classes from US Treasuries to US Corporate and High Yield Bonds declined modestly across the board. As a result, the total bond market indexes were slightly lower over last week. The US Dollar Index inched down 0.17% last week, while the Dow Jones Commodities Index rose only 0.2%. However, Oil prices added 1.88%, Gold gained 0.87% and Silver rallied 6.3%. The Evolution All-Cap Equity Fund was fractionally lower last week. At the end of the week, the Excel, ROE, and Harvest baskets had leading portfolio weightings of 12.8%, 8.6% and 8.4%, respectively. Among the domestic equity sector distributions, Information Technology tied with Consumer Discretionary as the portfolio allocation leaders, each at a portfolio weight of 13%. Financials followed at third with a portfolio allocation of 9%. The All-Cap portfolio cash level rose from 31% to 36.6% by the end of last week. The Fund's daily pattern trading of S&P 500 futures accumulated a 15% long position by last Friday's close. The TVA-based futures position ended the week with a 30% short position in the Russell 2000 index futures. The Evolution Market Leaders Fund rose last week. The portfolio held on to all positions throughout the week, including equities sector ETF holdings in Materials, Real Estate and Telecom. The Emerging Markets asset class stayed as the top leader in the portfolio with an allocation of 32%. Style-based Small-Cap Growth and Mid-Cap Growth equities followed as the second and third leading asset classes with portfolio weights of 22% and 18%, respectively. At the end of last week, the individual ETF positions with leading portfolio weightings were iShares-S&P Small-Cap 600 Index (IJR), iShares-S&P Small-Cap Growth 600 Index (IJT), IDS Mid-Cap 400 Cash Index ETF (IDX) and iShares-MSCI Malaysia Index ETF (EWM) at 7.5% portfolio weight each. Within the Evolution Alternative Investment Fund, the Long/Short Market Neutral sub-portfolio reduced its holdings in the Permanent Portfolio Fund (PRPFX), but increased allocations to the Managers AMG FQ Global Alternatives Fund (MGAAX), the Sierra Core Retirement Fund (SIRRX) and the DWS Disciplined Market Neutral Fund (DDMAX) over last week. The Precious Metals sub-portfolio added holdings in the Franklin-Gold and Precious Metals Fund (FKRCX) to increase its portfolio weight from 3.4% to 4.6%. The Materials/Metals sector sub-portfolio trimmed positions in the iShares S&P GSSI Natural Resources ETF (IGE) from 2.5% to just 0.5%. The Emerging Regions/Countries sub-portfolio reduced holdings in the iShares MSCI Chile ETF (ECH) and the iShares MSCI All Country Asia excluding Japan Index Fund (AAXJ). The Currencies sub-portfolio moved one-third of the positions in WisdomTree Dreyfus Brazilia (BZF) to CurrencyShares Swiss Franc (FXF). As with the All-Cap Fund, the daily pattern trading of S&P 500 futures in the Alternative Investment Fund initiated a long position during the week and ended at an 8.4% portfolio value at last Friday's close. The cash level within the Alternative Investment Fund increased to about 22.8% to end last week. The Evolution Managed Bond Fund ended lower over last week. The fund's two leading bond index ETF holdings, the iShares-Barclays Aggregate Bond Fund (AGG, -0.16%) and the Vanguard Total Bond Market Fund (BND, -0.10%), both declined slightly. Over the week, the Bond Fund portfolio cut positions in iShares Barclays MBS Bond (MBB) by half and SPDR Barclays International Treasury Bond ETF (BWX) by 25% for portfolio weightings of 2.6% and 4.1%, respectively. On the other hand, portfolio allocations to the iShares iBoxx High Yield Corporate Bond Fund (HYG), iShares-GS $ InvesTop Corporate Bond (LQD) and the iShares-Barclays 7-10 Year Treasury ETF (IEF) were raised during last week.
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 Why Utilize Only One Strategy In A Changing Market... When You Can Have Strategic Solutions For Any Market? US equity markets had a volatile week and the major stock indexes ended mixed. The Dow, S&P 500 and NASDAQ Composite all moved lower over the week, while the Russell 2000 Index gained. For the month of August to date, all the major indexes are down, ranging from -3.01% on the Dow to -5.25% for the Russell 2000. Overseas shares declined further last week, and for August to date the Morgan Stanley EAFE Index gave up 4.25% and the MSCI Emerging Market Index (EEM) lost 2.2%. The broad bond market indexes moved slightly to the downside last week; however, they have been rising in August to date, as long-term US Treasuries rallied despite weakness in High Yield Corporate Bonds. The Commodities Index inched up last week as Oil recovered nearly 2%. However, Oil has fallen 5% since the end of July. The US Dollar strengthened modestly in the four weeks of August, while Precious Metals, such as Gold and Silver, rallied over 5%. About 40% of the strategies at Strategic Solutions were higher over last week. Managed Income Aggressive (MIA) reclaimed the weekly leadership at Strategic Solutions with an impressive 7.52% gain. Self-adjusting Trend Following (STF) gave up 1.92% for the week, lagging at Strategic Solutions. For the month of August to date, over one-third of the strategies at Strategic Solutions gained, again led by MIA (+5%), in contrast with the Political Seasonality Index (PSI) strategy’s 6.58% loss - the most at Strategic Solutions for the period. Nevertheless, PSI is down about 3% year to date, on par with its benchmark Dow Jones Industrial Average’s year-to-date losses. The most aggressive SAS portfolio (SAS32, with a potential maximum drawdown of 32%) gained 0.9% during the week, while the most conservative SAS portfolio (SAS5, targeting a maximum drawdown below 5%) lost 0.2%. For the four weeks in August, SAS32 lost 0.8% while SAS5 rose 0.92%.
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 Why Buy The Whole Market, When You Can Own The Market Leaders? Even though the major market indexes completed their third down week in a row last week, it was not the case for Market Leaders. Remember that the major indexes are capitalization weighted; therefore, the largest companies (those with the biggest capitalizations [market price x number of shares outstanding]) have the biggest influence on most of the indexes we see and read about daily. In fact, last week was a positive week for the small capitalization stocks. The Russell Small Cap Growth Index rose .97% and the Russell Small Cap Value Index was next in line with a .72% gain. Both small growth and value are current positions in all three Market Leaders strategies (Tactical, Strategic and Dynamic). However, the current leading asset class within all three Market Leaders strategies is Mid-Cap Value. While it did not perform as well as the small caps, giving up just .03% for the week, it did perform better than the S&P 500, which fell .66%. The S&P better represents the Large Cap Indexes, Growth and Value, which have clearly been laggards for some time. As a result, the Large Caps have been avoided in building the portfolios of leaders that the Market Leaders strategies strive to create. The broad-based Market Environment Indicator remains in bullish territory. It is based on thousands of stocks drawn from 100-plus industry groups and is not capitalization weighted like the popular market indexes. Source: Fasttrack, Russell Small Cap Growth (IWO), Russell Small Cap Value (IWN), S&P 500 (sp-cp) and Russell Mid Cap Value (IWS)
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 Why Use 20th Century Technology For 21st Century Investments? Over last week, there were no allocation changes in the core portfolios of the Next Generation Asset Allocation (NGAA) strategies. The NGAA strategies adjusted their hedging through the double-beta inverse ProFunds/Rydex Funds from 40% at the beginning of the week to end the week at 30% hedging for all suitability-based risk profiles. For the week, the NGAA strategies returned from -0.25% to +0.10% for the Conservative to Aggressive profiles, including a positive contribution from the 20% allocation to the Select Alternatives strategy (see further discussion below). For August to date, the NGAA strategies had returns from +0.52% to -1.1% for the Conservative to Aggressive profiles.
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 Momentum Investing Works! There were no transactions for the core equity and fixed income portfolios of the Lifetime Evolution strategies over last week. The portfolios recorded marginal losses in both the fixed income and equity holdings. For the week, the strategies declined around 0.1% for all suitability profiles, including a positive contribution from the 20% allocation to the Select Alternatives strategy (see further discussion below). For August to date, the Lifetime Evolution strategies returned from +0.44% to -1.3% for the Conservative to Aggressive suitability profiles.
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 The Select Alternatives strategy maintained all positions throughout last week. The nine fund holdings had a near split for the week: five funds moved lower (the DWS-Emerging Markets Fixed Income Fund (SZEAX) had the worst return at -0.97%), while four fund positions rose, led by the Rydex-Precious Metals Fund (RYMPX, +3.25%). As a result, the Select Alternatives strategy gained 0.29% for the week. The strategy also gained 2.62% for the month of August to date.
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What is interesting about the current conditions is that STF could either be a week away from shorting the NASDAQ 100, remaining long or going to cash. This type of directionless market challenges the strategy. It is like running around a track at a high school - you may go for quite a while, but in the end you've gone nowhere. The market has been narrowly moving between 1900 at the top of its price range and the high 1700s at the bottom, leaving no trend for STF's rule set to follow. While no market is a repeat of prior conditions, the closest analog is 2005. Then, as now, the long-term moving averages began to oscillate between positive and negative, often in contradiction to the underlying short-term direction of the market. Currently, the moving averages look better positioned to initiate a trend — positive or negative — than that tough year. As always, time will ultimately tell. We take comfort in knowing that, historically, the market rarely moves sideways for more than a few quarters.
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 Our time-tested econometric model remained in positive territory on equities throughout last week. As a result, the SIMCO Growth and Classic accounts at Strategic Solutions stayed 100% in equities and SIMCO DAAP maintained a 20% equity and 80% money market fund allocation throughout the week. The Classic strategy at Strategic Solutions was flat last week and is down 4.46% in the month of August to date.
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 The Political Seasonality Index (PSI) strategy sold 100% into money market funds last Wednesday (8/25), and will quickly buy back into equities at the close today (8/30). The strategy moved 1.73% lower for the past week.
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 Representative Service Guide To further assist our Reps in doing business with Flexible Plan we have added a Representative Service Guide to our website which can be found under the Services drop down menu. Clients can set up their own username and password to check out daily account values at www.ontargetinvesting.com (not available for group retirement accounts). Strategy descriptions are also available there or by following the links in the boxes above. Call Customer Service at extension 1 to be added to our e-mail list for future editions of the Hotline. If you have any comments about our new Hotline format or subject matter please email them to me at jerry@fpi.flexibleplan.com. Please feel free to forward this article to family, friends, or colleagues. If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will contact them and ask for their permission to be added.
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Citations. Disclosures: Past performance does not guarantee future results. The opportunity for profits carries with it the possibility of losses. A complete list of all of our recommendations over the last 12 months is available upon request. Evolution Asset Allocation rankings reflect only the price action of the funds in each family, rather than the indexes reported herein. Such rankings are shorter term and utilize diversification among different funds. Therefore, they may appear to conflict with the longer term, single asset readings of our market indicators. In fact, the differences merely reflect the contrasting objectives and time horizons of each. Index returns are provided for informational purposes only; they are not meant to be applied as benchmarks since the statistical risk and volatility of client portfolios may materially differ from the indexes displayed. Rafferty Asset Management, LLC serves as the Direxion Funds' Investment Adviser and Flexible Plan Investments, Ltd. serves as the Funds' sub-adviser. Read the Direxion Funds Prospectus and Flexible Plan Investments' Brochure Form ADV Part II carefully before investing. In deciding whether to invest in the Funds described, you should carefully consider the investment objectives, risks and the charges and expenses of the investment company before investing. Read the prospectus carefully before investing. The Prospectus and Funds' SAI contain information regarding the above considerations and more. You may obtain a Prospectus and SAI by calling Direxion Funds at (800) 851-0511 or writing Evolution Managed Funds, P.O. Box 1993, Milwaukee, WI 53201-1993 or download the PDF from http://www.flexibleplan.com/files/docs/EVProspectus.pdf. This is provided for information purposes only and should not be used or construed as an indicator of future performance, an offer to sell, a solicitation of an offer to buy, or a recommendation for any security. Flexible Plan Investments, Ltd. cannot guarantee the suitability or potential value of any particular investment. Fund Performance can be found at www.direxionfunds.com/evolution. |
