Market Climate and Weather Forecast

1. Market Climateand Weather Forecast "It is not the strongest of the species that survives, nor the most intelligent, but the ones most adaptable to change." Charles Darwin Presented by Herb Geissler, Managing Director of The St.Clair Group Rational Investing/VectorVest Special Interest Group of Pittsburgh AAII May, 2012

2. Absolute Return More Important Than Relative Return 15-20 year Consolidating Bear Market Ten-fold, 15-20 year Big Bull Market Kuznets’ Infrastructure cycle averages 17.6 years for each bull or bear phase

3. Cyclical ClimateNew Political Agendas and Administrations globallythrough 2013 Still in churning phase of Kuznets cycle Europe sick with sovereign debt & austerity fears, US healing slowly from debt crisis and is improving manufacturing efficiencies with fewer workers emerging markets coping with demand shrinkage from their major markets in developed countries Then why has US stock market been so strong?

4. Recent Market Surges WereFueled by Fed Stimulus Liquidity

5. Stock Market Tracks Growth in GDP

6. For 40 years, ECRI’s WLI Called every major SP500 Drop The leading economic indicator (LEI), published by Economic Cycle Research Institute, is a weighted average of ten different economic and financial indicators. Above 50 is expansion, below 50 is contraction Growth in WLI since January ’12 is now weakening and WLI (absolute) is barely above 50 and remains below par

7. ISMs (PMIs) Confirm Direction of Stock Market Market rises when ISM is above 50, except right after 9/11/2001 NAPM = 54.8 NMBA = 53.5 in April ‘12 9/11

8. Even the Workshop of The WorldIs in Contraction

9. Consumer ConfidenceStruggling to Reach Prior Lows Consumer confidence still close to the worst during Normal periods

10. Small Business Confidenceis below normal and weakening

11. Rhetoric Causes Trading Ranges 2013 Bull Rally Hinges on Severity of Austerity June Buying Opportunity

12. Analysts’ Consensus ExpectsRebound from “Soft” 2012 Source: Morgan Stanley Research of Analyst Expectations

13. 2012 Intermediate-Term Strategic ConclusionsWalk softly and carry a big stick • Active institutional bottom-fishing and Operation Twist in November 2011 produced strong relief rally to end-March, 2012, as cash hoards were put to work • Liquidity from Fed is over, Europe is in sovereign debt crisis, emerging markets slowing down all likely to cause US stocks to sag into seasonal low by July 4th, ‘12 • U.S manufacturing sector becoming healthier from “creative destruction” and better technologies. But investing methods require greater selectivity in strategies and vehicles during such uncertain times • Political uncertainties and posturing delays problem-solving into next administration. Stocks bobble (crab-like) through 2012 into a political relief rally in Fall 2012 • Next administration “forced” to drastically cut spending, paring Government from 20% of GDP closer to historical 15%, increasing job-losses. Big Slice will be received better than frequent small slivers. European socialism/populism will worsen problems • Thus 2013 likely to be a “blood bath” year for the US economy and the stock market. Using Contras and Defensives could be critical to getting any positive returns.

14. Depends on Who You Are? Strategy Preferences For Intermediate Term Investors • Passive Investor is defined by absence of disciplined rules to sell-off losers • “Snooze and lose” has destroyed many nest eggs • Active investors vary in degree of activity • Timing to avoid big losses = dynamic asset allocation = MA12 • Periodic rebalance ETFs = tactical asset allocation = IVY • Monthly weed and refresh of stocks = position trading • Daily or weekly trading = swing trading • Modestly active investors need better tools to trigger sound entry and exits that stay out of harm’s way

15. Three Simple Strategiesfor Moderately Active Investors to stay on the RIGHT side of the market • Exit stocks whenever Index drops below its 12 month moving average • Diversify risk by holding 5 non-correlated ETFs only when each above its 10 month MA • Find single best-class to boost return, with moderate drawdown, by holding the “top performing” ETF of the 5, refresh monthly

16. For Dynamic Asset Allocation during Cyclical Periods,12 Month Moving Average Pinpoints Reversals and Minimizes Draw-downs During 10 difficult years, would have averaged 6.6% annual gain with 11.5% max draw-down vs 1.2% gain and 52.6% mdd with Buy & Hold During past 60 years, using MA12 would have produced 40% more profit

17. IVY Spreadsheets, posted monthly,Tells You Which ETFs to Hold IVY BASIC, as shown, keeps you out of trouble and beats buy-and-hold returns IVY TOP, best single ETF, produced 17.3% compound annual return over past five years CDs with spreadsheets and tutorials available for $30

18. For Position traders, IVY was Cautiously Bullishat end of April 2012 • IVY BASIC closed positions in VEU (Major Nations, exc USA) and DBC (commodities) • Holding VTI (US Large Caps), VNQ (Real Estate) and IEF (Bonds) for 60% invested • IVY TOP is holding VNQ

19. Weather Forecastfor More Active Investors When the facts change, I change my position. What do you do, sir? - John Maynard Keynes

20. 2011 Frustrating with Trading Rangesand Short, Spiky Trend-Surges 2009 2010 2011

21. For Position traders, Now, SPY has pierced MA20 and MA50and may find support again at past highs Would you be long now? RSI less than 50 Price is below MA50 MACD sloping down and is under zero DMIs are net-negative

22. For Position Traders, Risk Aversion is Absent in a liquidity melt-up, as Europe addresses sovereign debt issues Bull runs take off when VIX drops below 25 Risk aversion = FEAR Over Confidence =GREED

23. McClellan Summation Index(MA20)Confirmed Bull Rally before Xmasand the stall in March, finding support at prior highs For PositionTraders,

24. Longs Make Money When More Than Half of SPX is above MA50 For Position Traders,

25. For Position Traders, 50/50/0 Rules Signaled Xmas Bull Now Suggests More Downside If Support Is Broken

26. With Current Uncertainties,Leadership Shifting to Defensives Consumer Discretionary Healthcare Consumer Staples Utilities

27. Weather Forecast:Sunny, but clouds on horizon For Swing Traders, • Bull rally confirmed in mid December with VIX under 25, McC Sum crossing its MA20, and 50/50/zero chart • Rally faltering, with only 40% of SPX over MA50s • 50/50/0, strong since Jan 1, now testing support at bottom of trading range • End of Operation Twist in June and political rhetoric likely to trigger a nasty summer correction • Correction would provide a major buying opportunity for post-Election rally

28. Recap of Today’s Points • Economy and stock market will be distressed for next several years • Three Simple Strategies can protect and enhance wealth, patiently • Position and swing trading can boost returns, whenever market moves advantageously as confirmed by a few key indicators

29. Any Questions ? CDs with the 3 spreadsheets and 3 tutorials are available for $30 here or by mail. Send check and return address to: Herb Geissler 1792 Taper Drive Upper St. Clair, PA 15241