September 27th, 2008

IBD 100 Performance

Something you won’t see in Investors’ Business Daily expressed explicitly is the extent to which the index of stocks making up their top 100 stocks over timer, stocks they call the “leaders”, have declined significantly during this market crash. While the S&P 500 his declined 22.47% since August, the IBD 100 has declined approximately 39%. Even more strikingly, the S&P 500 has declined 14.86% since the May recovery peak and the IBD 100 has declined 35%, or 2.5 times as much.

So while IBD’s parameters has selected a variety of stocks that have increased an exceptional 165% vs. 35% for the S&P 500 since the Index’s inception in May, 2003, the momentum stocks IBD focuses on are extremely volatile. You make terrific money when the stocks and the market are going up but you also run the risk of taking huge losses when both lose their momentum.

That’s why I think it’s wise for any momentum player to add “market timing” as a tactic into their investment strategy. Imagine if you had moved into cash in January, 2008 when the MTI (Market Timing Indicator) had flashed its alert. You would have captured the profit of the move up to that point and now be sitting on a pile of cash ready to pounce on the new momentum-driven stocks when the MTI flashes a green light.

When will that be? I don’t know when but I’ll let the market tell me when. We’ll get some early alerts as the S&P 500 Index bridging the gap with its moving averages. Stay tuned here and you’ll have plenty of time to start building your shopping list. In the meanwhile, keep your chin up as you wallow in the self-pity of your losses. You’re in good company. Just look at IBD’s recent performance.

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