Tactical Trading Summary

When speaking of our tactical strategy, we allude to our shorter-term plan of action (one to three months) within our longer-term plan of action (one to three years). When crafting our tactical strategy, our thesis revolves around our proprietary behavioral model.

Our behavioral model attempts to capture human trading emotions mathematically. It combines years of data from various indicators and aggregates it into an easy to understand model that assists in the investment decision making process.

Our indicator encapsulates the put/call ratio, the volatility index, pricing and volume analysis, new high/lows and point and figure analysis to report the daily scores used in making decisions.

Our indicator will score within one of five basic market cycles. These cycles include “Extreme Euphoria”, “Greed”, Rational Market”, “Fear”, and “Extreme Panic”. Depending on where we are in the market cycle determines how aggressive our portfolio structure.

Typically, the best time to aggressively buy US equities is when we are rising out of Extreme Panic. The best time to be conservative is when we are falling from Extreme Euphoria.

Delving further in the interpretation, our models comprise of two lines. The first is the “Trigger Line”. This line tracks the general movements of the market and provides us with a “heads up” that a time to act is approaching. The second line is the “Trend Line” and provides us with the actual actionable entry or exit into the market.

While sitting in cash for much of 2Q12, we are now seeing the behavioral model flash buy signals.

We believe the US equity markets will continue its ascent as we pierce 2Q12 earnings season. We will be taking advantage of market weakness to build positions.

Joseph S. Kalinowski, CFA