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An Interview with Dave Moenning: Moving to Cash and Energy Stocks
By Market News Video Staff, Wednesday, March 16, 11:17 AM ET
An interview with Dave Moenning -- the portfolio manager of the ETF Channel Flexible Growth Investment Portfolio
1) We noticed that the ETF Channel Flexible Growth Investment Portfolio moved the market timing portion of the portfolio into cash on Thursday -- one day before the earthquake and tsunami devastated Japan. What prompted this move?
Basically, the move was prompted by the same thing that always triggers our trades – our Daily Decision Timing Models. So, before anybody starts thinking that our crystal ball is fully functional and locked in the “on” position right now, understand that we base our movements on the cold-blooded readings of our models.
Unlike most investors, we are most comfortable having a system that has proved successful in both good times and bad to help guide us when the going gets tough. The funny thing about our move to cash on March 7th and then a move to the short side in another, more aggressive model on March 14th, is that I was basically against the move. On March 7th, I felt that the market was obsessed with the goings on in Libya and that the situation was likely to be resolved in a positive fashion. The day of the move to cash, I went so far as to suggest that we brace ourselves for a blast to the upside when Gadhafi got the boot!
The good news is that despite my more than 25 years in this business, my opinions don’t have a place in our management strategy – thank goodness!
Unlike most traders who base their decisions on their favorite indicators, we use multiple market models, which, themselves are made up of multiple indicators. This “model of models” approach is designed to keep us on the right side of the market’s important trends.
Is our approach perfect? Of course not – remember that we’re money managers, not magicians! But I am here to say that we are quite pleased with the results we’ve been able to put up on the board – especially during the last three years when investors spent most of the time pulling their hair out.
2) Following the sell-off the last two days, does your model indicate that investors will have a good opportunity to enter the market soon?
Good question. The way our system works is we start with the reading of our Weekly Timing Model (which is made up of 10 independent market models). The weekly model is designed to “call” the direction of the market for the week and as such, this is our primary guide. But since it is downright dangerous to use a weekly approach in this market environment, we marry our weekly model with a Daily Decision Model, whose job is to keep us in tune with the trend in between weekly signals.
I know that was a long-winded intro, but the key is our weekly model is not negative at the current time – it is merely neutral (hence the move to the sidelines on March 7th). And since our Daily Decision model is constructed to include 40% “get ready to go the other way” indicators (market sentiment and overbought/sold indicators), it actually wouldn’t take much in the way of trend and momentum improvement in the current environment to get the model to flip to the buy side.
To be sure, we won’t get every move in the market right – again, we’re not magicians. But by keeping our positions in tune with the major trends, we’ve done pretty well in a tough environment.
3) And finally, what sector ETFs are you currently bullish on? And was it the individual components to the ETF that drew you to the sector or is it the sector itself?
One-half of our ETF Channel Flexible Growth Investment Portfolio is comprised of the top rated and top performing ETF’s. Thus, we combine the market timing approach from our Daily Decision models with some market momentum using ETF’s. Currently, the ETF portion of the portfolio is concentrated in energy (IEZ, XOP, KOL, XLE), some miners, some commodities, emerging markets (we like THD a lot here), and some micro caps in the U.S.
Top Holdings of IEZ: Schlumberger (NYSE:SLB), Halliburton (NYSE:HAL), National Oilwell (NYSE:NOV) -- for a complete list, visit the IEZ Holdings page on ETFChannel.com
Top Holdings of XOP: Frontier Oil (FTO), Chesapeake Energy (NYSE:CHK), Holly (HOC) -- for a complete list, visit the XOP Holdings page on ETFChannel.com
Top Holdings of KOL: Joy Global (JOY), Consol Energy (NYSE:CNX), Peabody Energy (NYSE:BTU) -- for a complete list, visit the KOL Holdings page on ETFChannel.com
Top Holdings of XLE: ExxonMobil (NYSE:XOM), Chevron (NYSE:CVX), Schlumberger (NYSE:SLB) -- for a complete list, visit the XLE Holdings page on ETFChannel.com
The ETF Channel Flexible Growth Investment Portfolio is designed to seek growth for investors — anywhere and everywhere. The key to the program is our portfolio strategy allows us complete flexibility in terms of asset allocation as there are no predetermined guidelines as to the level of stocks, bonds, cash, regions, countries, sectors, commodities, or even asset classes in the portfolio! In short, this is a completely flexible portfolio designed to follow the performance trail wherever it leads us.
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