In what was one of the most stunning closes to a trading session that I can recall, the market reversed losses and rocketed to sharp gains on Tuesday, rallying the balance of the week despite closing lower Friday. Here is how the models looked one week into the year's final quarter:
Top 20 was able to outperform the S&P 500 this week, gaining 3.2% compared to the 2.18% for the market. The strength was widespread.
CG/B has moved slightly positive for 2011 now and gained about 1% relative to the hybrid stock and bond index. Bonds weakening helped, but the stocks in the model also outperformed the S&P 500.
Sector Selector ETF lagged the S&P 500 very slightly.
Market Outlook
Remaining constructive has been quite challenging. Just a week ago, I was forced to acknowledge that the August lows were unlikely to hold, and this played out very quickly this week with an almost 3% extension to the downside early in the week. I find the recent action quite encouraging, but it's hard to have conviction that we have exhausted the selling. I continue to hope that 2011 ends up looking like 1998, which ended with a powerful rally close out the year. In fact, the last time we had as ugly a start to October as this past Monday was 1998.
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Final Thoughts
While this year has been very challenging for Top 20, I want to take just a moment to review our recent activity. We have been able to add value through trading this year, even before the successful trade we completed today. Since August, here are the new position trades we have done:
- 8/4, we sold TECUA at 9.49 (now 7.25) to buy FLIR at 25.04 (now 25.91)
- 8/29, we sold SKX at 16.49 (now 14.24) to buy SMCI at 13.70 (now 13.64)
- 9/15, we sold FLIR at 27.70 (now 25.91) to buy SHFL at 8.72 (now 8.60)
- 9/26, we sold MFLX at 20.09 (now 19.99) to buy DORM at 30.09 (now 33.92)
As I indicated last week, despite the challenges, I will continue to make every reasonable effort I can to improve the performance in all of the models in the weeks ahead. As a reminder, we will be hosting a conference call on Tuesday. Please refer to the previous email for dial-in instructions. I encourage you to email your questions in advance.
Regards,
Alan Brochstein, CFA
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