Madison Letter Weekly Update

Since inception, our overall timing return is 81.47% versus 48.56% on the S&P 500 for excess return of 32.91%.

The range between the buy and sell points is now above average. As an example, the S&P 500 range was 68 points at the low and is now 153 points. As volatility rises, this expands. Witness at the October low the range was 169 points.

Also, in tracking the range between the 2 year and 10 year we have seen the spread narrow by 39 basis points since October. The spread is now 138 basis points. This is a big drop for a couple month period but has expanded recently. Short term rates are on the rise while long term have fallen. This needs to be watched. There are implications.

We began to offer a buy and sell strategy via our Madison Market Timing Indicator at the beginning of April of 2007. There are now 24 open and closed winning trades to 8 closed losing trades with our market timing results.  This column replaces the Morning Matters on Fridays.

madison market timiing

Weekly Charts Updated

Each week we highlight the SP500. We also track but do not show Russell 2000, NASDAQ Composite, UUP, EEM, TLT, HYG and LQD. The charts use the 50 day moving average slope indicator. When it is green we like the instrument we are tracking and when it is red we avoid the name/sector/asset class.

The S&P 500 is back above 0. Remember what matters is the slope of the 50 day moving average not the 50 day moving average itself.

All charts are created from www.erlangerchartroom.com and if interested in using this indicator in Chart Room please feel free to send us an email by using the Contact Us section from the home page. 

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Portfolio Update

The S&P 500 has moved higher for the fourth time in the last seven weeks. The Nasdaq Composite rose as well. The portfolio moved to 67% invested long, 0% short and 33% in cash, net long 67% with a new buy in the portfolio. We are now at a value of 999.12% from 979.26% from last Tuesday. We finished the year at a value of 951.10 up 29.86% for the year. Our current value is 999.12% which puts us up 48.02 or 4.81%.

Below are the year by year results on a cumulative and absolute basis: 

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The Week Ahead

1.Geopolitical and Fiscal Events. Monday sees President Obama speak to the governors of all 50 states. Tuesday sees Federal Reserve Chairman Yellen begin two days of Humphrey Hawkins testimony and ECB Head Draghi speaks in Europe. Federal Reserve Atlanta President Lockhart speaks on Thursday. Friday sees a confluence of Federal Reserve officials speak in Chicago.

2.Economic Releases. Releases of note this week include the weekly chain store sales, oil/gas numbers, mortgage applications and existing home sales, consumer confidence, new home sales, durable goods, CPI, Q4 GDP, Chicago PMI and Michigan Sentiment.

3.Earnings Releases. Notable releases include ESRX DISH CMCSA HD RY LOW BUD TD NRG POM.

Madison Letter Weekly Update

We began to offer a buy and sell strategy via our Madison Market Timing Indicator at the beginning of April of 2007. There are now 24 open and closed winning trades to 8 closed losing trades with our market timing results. We were left with one long position TRF from our original buys before launching with Uncommon Widsom Daily. This column replaces the Morning Matters on Fridays.1

Weekly Charts

Each week we highlight charts below of the SP500, Russell 2000, NASDAQ Composite, UUP, EEM, TLT, HYG and LQD. The charts use the 50 day moving average slope indicator. When it is green we like the instrument we are tracking and when it is red we avoid the name/sector/asset class.

The S&P 500 is in the green despite the chaotic volatility. All charts are created from www.erlangerchartroom.com and if interested in using this indicator in Chart Room please feel free to send us an email by using the Contact Us section from the home page. 

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Morning Matters Portfolio Update

The S&P 500 has moved higher for the third time in six weeks. The Nasdaq Composite rose as well. The portfolio moved to 58% invested long, 0% short and 42% in cash, net long 58%. We are now at a value of 979.26% from 961.11% from last Tuesday. We finished the year at a value of 951.10 up 29.86% for the year. Our current value is 979.26% which puts us up 28.16 or 2.96%.

Below are the year by year results on a cumulative and absolute basis:

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It appears for now that 2050 on the S&P 500 has become support and 2100 is resistance. We are now at 2100. Can we break through?

Remember these returns are total returns with the average change for all winners and losers is 8.82% per idea. Our batting average of closed winners and losers is 72%. The portfolio is up to a value of 979.26 and from inception when it began at 0% in April of 2008. We began 2013 at a value of 478.60% so we had a very nice gain for 2013 ending at 732.40%. For 2014 we were up 218.70 points or 29.86%. The performance on the Uncommon Wisdom Daily Portfolio Tracker is a bit higher due to dividends which they add in. We have never added in dividends so our weekly results are understated since 2008.

The Russell 2000 is beating the S&P 500 on a daily basis. The Madison Letter still invested and the A/D line signal is now back to invested.

This is a perfect time to sign up for a our newsletter, Superstock Investor, as new ideas will be forthcoming as we reduce cash.

The Week Ahead

1.Geopolitical and Fiscal Events. Tuesday sees Federal Reserve Philadelphia President Plosser speak. Bank of Japan latest statement is out on Wednesday along with the latest FOMC announcement.

2.Economic Releases. Releases of note this week include the weekly chain store sales, oil/gas numbers, mortgage applications and housing starts, PPI, industrial production and leading indicators.

3.Earnings Releases. Notable releases include MDT DVN ACT EOG WMT PCLN ENB DE.

Weekly Charts Updated

Each week we highlight charts below of the SP500, Russell 2000, NASDAQ Composite, UUP, EEM, TLT, HYG and LQD. The charts use the 50 day moving average slope indicator. When it is green we like the instrument we are tracking and when it is red we avoid the name/sector/asset class.

U.S. Equity indexes are mostly in the green despite the chaotic volatility. The S&P 500 is still below 0 with the NASDAQ Composite now at 0 and the Russell 2000 still positive. Remember what matters is the slope of the 50 day moving average not the 50 day moving average itself.

All charts are created from www.erlangerchartroom.com and if interested in using this indicator in Chart Room please feel free to send us an email by using the Contact Us section from the home page. 

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Locking In Gains On Costco (COST) and Raising More Cash

We recommended Costco (COST) over a year ago on February 5, 2014. A year later the stock has moved up from $110.22 to $148.22. Plus the company declared a one time dividend payment of $5 that had a record date of Monday and will be paid on February 27th. Even if we sell shares now, we get the dividend.

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As such, our gain is exactly $43 through Tuesday’s close. That is a return of 39.01%. We will take that to the bank and more important it is booked as a long term capital gain for those with taxable accounts.

The stock is now above both its Superstock Scorecard price target and upper limit so with a technical pattern that is off the charts we will move on to new names.

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Last week we took gains on Dunkin Donuts and now with this sale we have 7 open positions and 5 positions in cash. Is this a market timing call?

You bet it is. We will probably get to 50% cash by the end of the week. Why? The recent volatility is telling us that something wicked this way is coming. How do we know this? 28 1/2 years of work on Wall Street.

The fact that so far this month each positive day, of which there have been 4, have returned greater than +1% is unprecedented. Last month we had four moves of greater than +1% and four moves that dropped more than -1%. December saw two moves of greater than +1% and three moves that dropped more than -1%. So the current three month stretch, there have been more than 17 days that have seen moves of +/- 1% or more.

This action is not normal and only resolves itself to the downside not upside. Until proven wrong, I am sticking with this belief. My pain tolerance to cash will be closing above 2100 on three consecutive trading sessions.

A 10% drop with 50% cash would probably hit us about 5-7% because our names have a beta higher than one. That said, at the low we will be able to add new names that will have outsized returns as the market begins a new up cycle. Cash may go higher than 50% as I am prepared if needed to go to 100% cash.

This may seem dire but it is grounded in statistics that quite simply do not make sense. You have been warned.