Weekly Market Commentary

The market continued to "melt up" this week. Everybody is expecting some sort of correction, but just like every time there is a consensus on something it never tends to happen. It is hard to envision the market having a massive continuation of this rally without some pullback, but we could easily continue to inch up for a while.

On the negative side there was a front page article in the Wall Street Journal this morning that individual investors are coming back into the market in droves. Any study you want to read will tell you that individual investors are typically the worst market timers, investing at highs and selling at lows. Time will tell if this trend continues.

Equity Markets

Our momentum indicators are still extremely bullish on the stock market. Our positive reading on stocks does not mean that the market is guaranteed to rise from here. There are still many risks on the horizon (Poor corporate earnings, problems in Europe, slowing economy, partisan bickering in Washington, etc) that could cause a selloff. However, our research suggests that when our momentum indicators are bullish the rewards of being invested outweigh the risks.

In the US we continue to see the most strength in Mid-Cap stocks, with Small Caps second. Globally, we have moved out of China and into broad based International Developed Stocks. Our shorter term counter-trend indicators still show that the market is highly overbought and hint that we could be in for some more consolidation before the next major move. This week we sold our counter-trend positions in US Dividend Paying Stocks and Small Cap Stocks. Our cash positions are now 25-50% which will use to buy into any counter trend weakness.

Fixed Income Markets

Our momentum indicators show the most strength in higher yielding areas of the bond market, particularly High Yield Corporate Bonds and Emerging Market Bonds. Low interest rates continue to force yield seeking investors into the "riskier" areas of the bond market. We fully understand that a lot of this momentum is an artificially created bubble created by the Fed's low interest rate policy. However, in an improving economic environment investors are more willing to take risk in the bond market. Also, being tactical we are always ready to shift out of higher yielding bonds if the "bond bubble" bursts.

This week our counter-trend Treasury Bond models indicated that the selloff in Treasuries might be a little over extended and due for a snap back causing us to initiate positions in our fixed income strategies. We understand that over the intermediate and long term Treasuries are probably the worst bet you can make, but over the short term they are looking oversold and could provide some protection if we do have any sort of pull back in stocks.

Question & Answer

We got a great question from a client the other day:

Q: If you are so bullish why do you have so much money in cash?

A: Remember that we have two core beliefs when looking at markets, one intermediate term and the other shorter term:

1. Over the intermediate term if stocks are strong they tend to continue being strong and if stocks are weak they tend to continue to be weak.

2. Over the short term markets are dominated by noise, fear, and greed, and frequently overreact on the upside and the downside, eventually snapping back into equilibrium.

When looking at the intermediate term the market is clearly bullish and our intermediate term models are fully invested. When looking at the short term the market looks quite overextended and due for some sort of pullback. Our short term models are in cash waiting to be put back to work in any selloff. We have found that combining both types of methodologies is extremely powerful as they are uncorrelated----intermediate term momentum analysis tends to work best in a straight up or down market (like this month), while short term counter-trend analysis tends to work best in a choppy market.

Top Holdings

1. Cash

2. Mid Cap US Stocks

3. S&P 500

4. Emerging Market Bonds

401k Advice

Below is our recommended allocation for 401k plans held outside of TWM:

Risk Tolerance*

Asset Type

Asset Class

Conservative

Moderate

Aggressive

Stock

S&P 500

15%

25%

Stock

Mid Cap Stock**

15%

25%

Stock

Small Cap Stock**

15%

25%

Stock

Intl Stock

15%

25%

Fixed Income

Corp Bond***

34%

14%

Fixed Income

High Yield Bond***

33%

13%

Fixed Income

Emerging Market Bond***

33%

13%

100%

100%

100%

* This should be based on the amount of risk/return you are looking for on this

block of money.

**If you do not have Mid Cap and/or Small Cap funds available that part of the

allocation can go into the S&P 500.

***If you do not have multiple bond funds then fixed income allocation can go into an

investment grade bond fund and/or multi-sector bond fund.

Tuttle Tactical Management, LLC is an investment adviser registered with the U.S. Securities and Exchange Commission. You should not assume that any discussion or information contained in this letter serves as the receipt of, or as a substitute for, personalized investment advice from Tuttle Tactical Management, LLC. It is published solely for informational purposes and is not to be construed as a solicitation nor does it constitute advice, investment or otherwise. To the extent that a reader has questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional adviser of his/her choosing. A copy of our written disclosure statement regarding our advisory services and fees is available upon request. Our comments are an expression of opinion. While we believe our statements to be true, they always depend on the reliability of our own credible sources. Past performance is no guarantee of future returns.

Certified Financial Planner® Board of Standards, Inc. owns the certification marks CFP®, Certified Financial Planner® and federally registered CFP® in the U.S., which it awards to individuals who successfully complete the CFP® Board's initial and ongoing certification requirements.

© Tuttle Tactical Management

www.tuttletactical.com

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