Our Market Crash Indicators Support Fly’s Move To Lots Of Cash

Our process has returned 36.88% since inception while the S&P 500 has gained 18.64%. So far this year we are up 5.60%. This is published each Friday or Thursday if a shortened week on http://www.buttonwoodclub.com.Four weeks ago we added a new component to our process. If we are 100% invested then we own the Ultra S&P 500 Proshares (SSO) which returns 2X the S&P 500, 75% we own the S&P SDRS Unit Trust (SPY), 50% invested S&P Powershares Low Volatility(SPLV), Cash is Cash and 100% short we own the S&P Ultrashort S&P 500 Proshares (SDS) which returns 2X the downside of the S&P 500. 

SPLV returned 1.62% last week. This week we remain 50% invested, so are holding SPLV for a third week out of four. The model has returned 3.39% against the S&P 500 return of 3.18%.

Market crash/correction indicators remain DEFCON 3 50% invested.  Our DEFCON ratings are from 1 to 5 with five being the most severe.

The Madison Letter remains in cash this morning but our scores moved into the black this week on the rally. Scores on the major indexes are moving above 20 so we will remain with cash for the time being and hope for a better entry point. Overall Madison signals have returned 45.73%  while the S&P 500 has returned  10.00% since 4/2/2007 through yesterday’s close for outperformance of  35.73% since 4/2/07.

Next the Erlanger Big Barf Indicator moves to 0.93 from 3.00 on a daily basis. We note the daily had moved below 0 which was a confirmed sell signal. We are now back to a buy. The Weekly EBB remains above zero as does the Monthly Indicator.

The EBB is only available in Erlanger Chart Room but we report on it once a week in this column. If you want to see it daily or intraday, which is killer, then we suggest signing up for Erlanger Chart Room where you will never look at a chart the same.

Next,the proprietary advance/decline measure for NYSE/NASDAQ stocks remains a buy on the market but barely. Since inception this signal is up 113.06% while the S&P 500 is up 124.44% since 3/2/2009 for underperformance of  -11.38% on an  absolute basis. This indicator is either buy or sell. Sell signals have generated positive returns in addition to our buy signals. This morning we show cumulative returns.

Simon Economics Greed & Fear Index (GFI) moves from 96 to 92 this past week, as we now are in “el feugo” mode.

Last, our Weekly Chart on the 50 Day moving average slope of the S&P 500 remains positive for the eleventh week in a row.

We added a sixth indicator in the summer of 2012 that is a measure of risk and it is extremely proprietary and will remain as a black box indicator. It remains underweight from overweight beta.

What is interesting about these various market crash/correction indicators is they are independent of each other and use different methods but all arrived at similar conclusions at or around the September lows. These indicators also will allow some give and not provide a ton of false signals. The bottomline is these indicators will capture drops of 5% or more on a very consistent basis.

We have assigned a percentage of the portfolio that is invested based on our DEFCON indicators. We have been publishing this in Superstock investor and will add to here. A rating of DEFCON 1 equals 100% invested. DEFCON 2 equals 75% invested. DEFCON 3 equals 50% invested. DEFCON 4 equals cash. DECON 5 equals 100% short.