Calm In Midst of the Storm

It has been volatile since the beginning of May in the equity markets and the daily news stream from Europe has flamed concerns here in the U.S. and even instilled some mild panic. People are looking for stability, and some are worried that the wobbly world economies may spur another financial crisis like the one we all recently experienced in 2008.

At Stern Brothers, we provide stability, vision and growth for our clients. We also know that in the face of deteriorating world economies, the financial markets can display tremendous growth (and they did since the March 2009 bottom). We filter out the noise, find quality entry points when we have clear signals to buy, and take a defensive stance when the market shows signs of weakness. Protection of capital is key when avoiding steep market declines.

But when is the right time to take action? We developed the Stern Aggregate Market Indicator, or SAMi™, which is a combination of factors to determine market strength and health, creating an investing “environment” which then becomes the basis of our strategies. Does it work? Let’s examine.

On August 2, 2011, we identified a clear SAMi™ sell signal and we immediately took action by selling selective holdings, moving defensively into more cash, and hedged our portfolios to protect from the projected market decline. Below is the price action after the August 2nd signal.

We kept our clients from feeling the brunt of the 18-20% market decline from top to bottom. But what about a buy signal? Is the SAMi™ signal built to identify quality entry points?  Yes, because SAMi™ is a combination of many factors and indicators weighted for accuracy and the overall health of the market is determined for both positive and negative trends. Below is the most recent SAMi™ buy signal given on December 22, 2011, and the resulting price movement of the S&P 500 Index.

SAMi™ currently has a score of +1 (scale of -10 to +10), signaling that the positive market environment remains intact, but was tested at the beginning of June with the downside selling momentum from the European financial woes and subsequent market selloff.

At this time, a consolidation of prices here is a healthy sign and may signal changing momentum to the upside. We wouldn’t mind seeing the S&P 500 test its support levels at 1290-1295, which could possibly set up a nice entry point with a strong move upward. If there is more headline-driven panic (Greece vote, exiting the Euro, etc.) and the markets deteriorate further, causing a SAMi™ sell signal, we will not hesitate to protect our client accounts and move into a defensive stance.

Having a plan, relying on strict investment discipline and always putting the needs of our clients first is the Stern Brothers difference.

Stern Brothers manages portfolios in the context of a background overlay signal called SAMi™, which is a disciplined process used to interpret market strength, trend & volatility. For more information, click here .

To learn more about SAMi™ or to subscribe to The Stern Report™                                                                             CALL (800) 321-9586 or EMAIL us at [email protected]


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