The trend momentum remains a strong 70% uptrend.
Overall, the AK strategy remains bullish, while hedged with a small amount of TZA and TVIX, with the odds of a royal melt-up landing similar to a bull ending peak and reversal.
The first chart below shows monthly average returns for each of the four phases of the Bull-Bear Cycle, with the current situation an expected High Risk blow off bull phase, thus the NASDAQ (black line) should be tracking the orange one.
The maroon line can start at any time, once the bears score a big win.
If the bulls can ward off such a big win for the bears, the black line is expected to follow the orange to new highs by year end.
Since this is the second longest bull market on record, chances are the bears will strike and succeed on pulling off a bull ending dive during one of the expected corrective dives this year.
Think of it as the ultimate financial version of game of chicken, where the winner takes all.
The next chart is the weekly view of the above monthly orange line, showing the usual trading pattern when in high risk blow off bull years, overlaid over some past blow off bull years, with the white lines to the left of the chart the NASDAQ for 2017.
As the chart shows, the prime question is whether we are in the peaking area of the starting rally - where a swoon and corrective churn lands right here – versus the rally will push to the 20%+ gain area for the NASDAQ on the year, which would put us in the middle rally position sooner than we expected.
Such a continuation of the rally would be great for us, though brings forward the financial day of reckoning to the spring/summer, rather than the expected fall.
From a short and intermediate term trading perspective, the trend remains up – thus holding longs remains the optimal trade – while the VIX Hedge Cycle signals danger that requires hedging those longs with a small amount of TZA and TVIX.
The 401K portfolio remains fully invested in a stock index mutual fund.
On the performance front, no change to the big picture performance chart of the Index and 401K since the last closed trade – with the chart going back to when the NASDAQ started trading, in 1972.
Both the 401K and Index lines are slated to hit new all-time highs once current trade performance is added to the chart. We will wait for those trades to close before adjusting performance on that bigger picture view.
The second performance chart below has been adjusted to represent performance through this week for 2017.
The black line in the first chart shows buy and holding the NASDAQ index since 1973.
The purple line shows 401K performance, which trades 100% on new buys, then reduces to 50% on trend trading indicator extremes, cash on sell signals.
The solid green line shows the AK bull/bear cycle adjusted performance. That bull/bear cycle indicator divides the stock market into four phases based on risk – low risk (new bull markets,) moderate risk (sideways churn that ends well,) high risk (blow off bull destined to end badly,) extreme risk (major bear market underway.)
The current stance is a high risk blow off bull (orange arrow upper portion of chart below) that is destined to end with a major bear market, though the gains seen between now and then could be spectacular.
Current positioning for the Index/Hedge/VIX portfolio remain 94% QLD, 5% TZA, 1% TVIX.
The 401K portfolio is in a stock index mutual fund, with QQQ used for performance tracking purposes.
Performance-wise, the 401K portfolio rose 0.58% on the week, and is currently up 10.57% in 2017.
The Index/Hedge/VIX Trader portfolio advanced 1.06% this week, and is currently up 19.43% in 2017.
Next update after the markets close Monday.
Have a great weekend!
Chief Trading Strategist
Portfolio Update Archive