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Monthly Update March 2015

CONCLUSION—The Same as Last Month

Not much has changed since our mid-month update in February—a mostly bullish stock market environment, until proven otherwise.  We have been in a trading range since mid-November, with an upward bias.  The S&P 500 dropped -3.54% from February 24 to March 11, but has recovered almost all of that in the past 7 trading days.

Advance/Decline Lines continue to confirm new highs in most of the indexes, which historically has meant a market peak is at least four to six months out.  The chart below is that of the NYSE advance/decline line, courtesy of www.stockcharts.com.  As shown where the red circles are (below), this indicator has been making higher highs since at least July 2014.  Prices typically do not peak while this indicator is confirming.

March 2014 Update Chart

A couple of weeks ago, I was reading an article in Investment News titled “Offense-only strategy won’t succeed.”  The article was about risk-management within long term financial planning, but it just as well could have summed up the season for my favorite hockey team, the Dallas Stars.  Out of 30 teams in the NHL, the Stars are 3rd in the league in goals scored.  There is no doubt they can put the puck in the net.  The problem is, they are 26th in goals allowed—only four teams have allowed more.  As a result, with 10 games to play, they are 6 points out of a playoff spot, and are unlikely to make it.  To be really successful, the Stars need to combine their goal-scoring talent with a stingy defense.

What does this story have to do with investing?  A strategy that is designed to capture all of the upside in financial markets also may not succeed, given that they will give back a substantial portion of these gains during the next down cycle.  This would be a description of indexing, or passive investing, or being fully invested at all times.  Because of the rising trend of the past 6 years, the drum is beating louder for this philosophy, as being tactical, or playing any kind of defense for this time period has been harmful to one’s bottom line.  We are certainly aware of this.

At some point, though, the jig will be up and tactical investing will become quite valuable.  According to our longer term stock market models, that time is still not here yet.  And, this is not to diss the fully invested approach.  It can succeed in the stock market because of the long term upward trajectory of stock prices and earnings over time.  We are using this strategy on a limited basis for clients who wish to be more aggressive.  The main message would be to understand expectations so that one has the discipline to stick with it during the inevitable poor periods.  Since we have been in a good period, and still are, this is a good time to think about how one will react when the tide turns.

If history is any guide, fully-invested stock allocations will lose 20-40% or more once in the next 10 years, maybe twice.  Those will likely present really good buying opportunities.  Meanwhile, there is no evidence of a breakdown in the major trend of stocks, so above average exposure continues to be warranted.

Portfolio Allocations

Our tactical equity allocations continue mostly in the 60-70% range.  Favorable six-month seasonality will be turning negative in mid-to-late April, so the probability of a decline of greater than 5% will likely increase in the May to October time frame.  Our real estate model remains bullish—this area lost nearly 8% in a few weeks, back to its level of December 31, but has regained almost all of this in the past two weeks.

Our corporate high yield bond fund model remains in positive mode, though prices have fallen from their peak three weeks ago, and our GNMA model remains positive as well.  The Loomis Sayles Bond Fund continues to act poorly relative to other bond indexes, and our models for this fund are mostly negative, so portfolios have no or only 1/3 exposure at present, with the rest in PIMCO Total Return, Loomis Sayles Limited Term and money market.

Material of a Less Serious Nature

One Sunday morning, the pastor noticed little Alex standing in the foyer of the church staring up at a large plaque. It was covered with names and  small American flags mounted on either side of it. The six-year old had been staring at the plaque for some time, so the pastor walked up, stood beside the little boy, and said quietly, “Good morning Alex.”  “Good morning, Pastor,” he replied, still focused on the plaque.

“Pastor, what is this?”   The pastor said,  “Well son, it’s a memorial to all the young men and women who died in the service.”

Soberly, they just stood together, staring at the large plaque. Finally, little Alex’s  voice, barely audible and trembling with fear asked,

“Which service, the 8:15 or the 10:30?”

Hopefully, tax time is going smoothly for all of you.  Let us know if there is any information you are missing.  Baseball is in full swing, and hockey and basketball playoffs are approaching, so things can’t be all bad.  Right?

Sincerely,

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Bob Kargenian, CMT

TABR Capital Management, LLC(“TABR”) is an SEC registered investment advisor with its principal place of business in the state of California.  TABR and its representatives are in compliance with the current registration and notice filing requirements imposed upon registered investment advisors by those states in which TABR maintains clients.  TABR may only transact business in those states in which it is notice filed, or qualifies for an exemption or exclusion from notice filing requirements.

This newsletter is limited to the dissemination of general information pertaining to our investment advisory/management services.  Any subsequent, direct communication by TABR with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.  For information pertaining to the registration status of TABR, please contact TABR or refer to the Investment Advisor Disclosure web site(www.adviserinfo.sec.gov.).

For additional information about TABR, including fees and services, send for our disclosure brochure as set forth on Form ADV from us using the contact information herein.  Please read the disclosure brochure carefully before you invest or send money.

This newsletter contains general information that is not suitable for everyone.  The information contained herein should not be construed as personalized investment advice.  There is no guarantee that the views and opinions expressed in this newsletter will come to pass.  Investing in the stock market involves gains and losses and may not be suitable for all investors.  Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.

A list of all recommendations made by TABR within the immediately preceding one year is available upon request at no charge

By Bob Kargenian | Monthly Updates

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