August Monthly Update
August 2, 2010
By Will McGough
During the second quarter of 2010 the major market averages posted losses exceeding 10%. July, however, brought about a much needed reprieve with positive price appreciation. To start the month the S&P 500 traded down to levels not seen since August and September of 2009, wiping out almost 10 months of gains. Technical damage was broad as support levels were broken in this downtrend. A common market breadth measure, the NYSE McClellan Summation Index, dropped to levels not seen since March 2009. The S&P 500's drop stopped just short of "bear" market levels as macro-economic fears were being priced into micro-economic fundamental values.
While there are multiple points of view on market catalysts, all that we know is during the month of July, price action improved. What separated this move from the short-lived bounce in June is that market internals (the vitality of the market) supported and confirmed this price action sufficiently to move Stadion's Investment Model to a positive reading for the first time since early May. What differentiates Stadion from other strategies-including typical buy and hold-is that we do not forecast. Our investment decisions are driven by unemotional technical analysis to avoid adopting any particular point of view that might bias our allocation choices.
From the beginning to the end of July changes in market behavior produced two very different investment environments. The flexibility of our tactical unconstrained investment philosophy allows us access to the best performing assets classes based on the health of the market and emerging trends. In tactical portions of our portfolios we started July defensively, holding cash and fixed income investments. By the end of the month our allocations, depending upon risk tolerance, were focused on equity. Just as we saw a change to a favorable environment in that short a time order, the reverse can happen as well. While the mandate is growth we will seek to concentrate in the best relative performing asset classes until Stadion's Investment Model's focus turns to safety.
We appreciate the confidence you've placed in Stadion, and invite you to contact us any time you have questions.