Decision Moose Global Financial News & Analysis

2017.10.20 through 2017.10.29

Moosecalls Executive Summary page 1 Weekly Market Table, Daily Recap page 2 Economy Fed & Inflation page 3 Commodities page 4 Gold page 5 US Dollar, Carry Trade page 6 US Treasury Bonds page 7 US Large-cap Stocks page 8 US Small-cap Stocks page 9 European Stocks page 10 Japanese Stocks page 11 Asia Pacific ex-Japan Stocks page 12 Latin American Stocks page 13 Moose-extras: Top 20, TSP page 14 Moospeak Editorial page 15

Moosecalls— week closing 10.20.2017

On August 11, 2017, Latin American Equities (ILF) replaced Asia Pacific ex-Japan (AXJL) as the model’s top choice @$33.03. See newsletter for more details. Always familiarize yourself with any investment program and the assets involved before committing to it. Read the FAQs and The Art of the Switch, and get a prospectus online from the fund provider. Executive Summary— Global Stocks Take A Breath A stronger Dollar (+0.7%) hurt commodities (-0.4%)-- including gold (-1.8%), but not oil (+0.6%), which continued to catch a bid from Trump’s non-renewal of the Iran deal. It also led to a mixed scene in the equity markets this week, as the firming greenback dinged offshore stocks and aided their US cousins. Japan (+0.2%) was the only foreign market to end in the black. Asia Pacific ex-Japan (-0.3%) was modestly lower, while Europe (-0.7%) and Latin America (-1.4%) took slightly bigger hits. (Catalexit, Brexit, and German post-election political uncertainty are weighing on Europe. Mexico’s quake and storm damage remain a drag on Latin America.) US large caps (+0.8%) and small caps (+0.4%) rose after the Senate finally passed a budget on Friday, clearing the way for tax cut discussions. Economic optimism from Trump’s tax cut plan seemed to pick up this week, helping US stocks, but hurting US Treasuries (-1.9%). Latin America (ILF) holds on to the model’s top slot again this week. A month ago, Mexico (EWW) led the other major players in the Latin 40 index lower after the Mexico City earthquake. Mexico tried to recover, but Tropical Storm Nate hit the Yucatan a week later and sent Mexico even lower. EWW’s swoon continued on Monday and Tuesday of this week. It was testing strong intermediate support, however, and it held, rallying back to finish to unchanged on the week. Meanwhile, most of the region is holding up well. Peru (EPU), Brazil (EWZ), Chile (ECH), and Argentina (ARGT) are doing fine. Colombia (ICOL) looks iffy, but it’s still a hold. Mexico’s is the only Latin ETF that isn’t. As noted before, then, there seem to be few impediments elsewhere in Latin America weighing on ILF. Once Mexico begins spend on recovery, the regional index should continue higher… at least until the next exogenous surprise occurs. I recently began mentioning potential stop-loss levels for the model, following a four-week Donchian system to set a stop-loss for ILF. (All that means is that a stop-loss is set daily at the intraday low for the last 20 sessions.) For those who may be curious, ILF’s price as of this Friday’s close is $35.28, and its Donchian stop-loss levels over the next five sessions are expected to be as follows:

Monday Tuesday Wednesday Thursday Friday $34.49 $34.49 $34.49 $34.55 $34.89

(I recommend using stops as an alert rather than an automatic sell mechanism. They can be a buy signal for “buy-on-the dips” investors these days, so I wait to see how the action resolves itself throughout the day. Then I look at other factors-- in this case, the Dollar, commodities, (especially oil and copper), and China, Latin America’s biggest customer. The idea is to determine why it failed to hold its line and whether the reason is likely to be lasting or temporary.) See Moosecalls for my latest comments on using stops with the model. All US and foreign equity ETFs in the model are resilient and technically bullish. Risks of a pullback exist due to investor complacency amid rising domestic and geopolitical uncertainty. Trump’s new corporate tax cut plan has been propelling US stocks higher this month. Fear that the Republican Senate won’t get the job done on taxes was assuaged somewhat this week, when they actually passed a budget. That supposedly cleared the way for tax discussions. It also impacted bonds. Core inflation is under control, but overall inflation is heating up. If inflation worsens, the Fed will become more aggressive in Q4, to the detriment of stocks. It has already indicated that one more 2017 rate hike is anticipated, and that it will begin rolling Treasuries and mortgage-backed bonds off its $4.5 trillion balance

Weekly Close This Week's Signal End Date

10.20.2017 HOLD Latin America (ILF) 10.29.2017

sheet in October, i.e., now. The Fed will allow $10 billion to roll off this quarter, increasing quarterly in $10 billion increments until the total hits $50 billion starting in October 2018. That’s Yellen’s plan, at least. Things could change if she is replaced when her term expires next February. Meanwhile, US Bond prices have risen (and yields have fallen) after all three Fed rate hikes since December 2016. Bond and currency traders are betting a tighter Fed will lead to a weaker US economy ahead. Mid-year, when it appeared the Fed might delay further tightening in 2017, long bond prices briefly fell, but resumed their rally when balance sheet normalization (tightening) was announced and hurricanes ravaged Texas and Florida. Once Trump’s corporate tax cut was unveiled, bond prices fell on renewed economic optimism. US T-Bonds retreated for a month, sinking into neutral on the promise of a tax cut. They bounced last week, when an ugly public disagreement between the President and yet another Republican Senator raised questions about the Senate’s willingness and ability to pass a tax cut. This week, however, the Senate passed a budget, renewing prospects for a tax cut and weakening bonds. The NY Fed puts the chance of a recession by September 2018 at 10.3%. That is slightly higher than last month, but still low enough that a 20%-plus bear market in US stocks is unlikely. The Fed plan to (a) gradually phase out debt roll-over on their balance sheet and (b) hike rates again by December could change that, but for now, a correction is the greater downside risk. This week’s headlines: Commodities ($CRB) Pull Back on Dollar’s Gain Gold (GLD) Retreats on Firmer Dollar Dollar Holds Short-Term Support T-Bonds (EDV) Drop On Budget Deficit Fears Overbought US Large-Caps (SPY) Higher on Tax Cut Optimism US Small Caps (IWM) Bounce on Budget Approval Europe (IEV) Backs Off Latest 2017 High Japan (EWJ) Up Again, Still Overbought Asia-ex-Japan (AXJL) Slips Back From Latest High Mexico Still Weighing on Latin America (ILF) Index

Weekly Market Table-- thru 10.29.2017

RANK CI ASSET TS Trend 1 100% Latin American stocks (ILF) 81% very bullish 2 88% US small-cap stocks (IWM) 88% very bullish 3 67% Japanese stocks (EWJ) 100% very bullish 4 63% US large-cap stocks (SPY) 100% very bullish 5 58% European stocks (IEV) 97% very bullish 6 38% Pacific ex-JAPAN stocks (AXJL) 75% very bullish 7 25% Gold (GLD) 65% bullish 8 13% US Long Treasuries (EDV) 4% neutral 9 -- CASH -- --

Ryan/CRB Indicator 101% neutrality

ST Interest Rate Equity Indicator 18% neutral

Volatility Index -80% very bullish

US Dollar Index -64% bearish

Commodity inflation trend 44% slightly bullish

Oil 28% slightly bullish

*CI is the "confidence index" measuring the model's overall confidence in the asset. It combines the relative strength (rank), the technical strength (TS), and the Fed Check. For more information, see the FAQs. Daily Recap— week closing 10.20.2017 Monday, Stocks Advance to Begin the Week. US stocks continued their record run thanks to an unexpected jump in regional manufacturing and upbeat Chinese economic data aiding global optimism. Stocks’ advance may have been tempered ahead of the host of earnings and economic reports expected later this week. Europe was mixed, while Asia was mostly higher. Treasury yields and the US dollar ticked higher, while gold was flat, and crude oil added to last week's gains. The S&P 500 Index added 4 points (+0.2%) to 2,558. Tuesday, Stocks Hold All-Time Highs. A flood of corporate earnings and economic reports left US stocks fairly flat, despite the Dow breaking above the 23,000 mark intraday. Europe slipped as Spanish political uncertainties lingered. Stocks in Asia finished mixed. Treasury yields were little changed, and the US dollar rose amid uncertainty and speculation over the next Fed chairman remains. In economic news, homebuilder sentiment and industrial production rebounded, while import prices rose. Gold was lower, and crude oil prices inched higher. The S&P 500 Index added 2 points (+0.1%) to 2,559. Wednesday, Stocks Gain Ground. US stocks finished higher as the Dow Index closed well above the 23,000 mark for the first time. Europe was higher as well, but Asia was mixed as Japan continues streak. Treasury yields rose despite continued uncertainty regarding the future leadership of the Fed. Housing construction disappointed, and the Fed's Beige Book noted a modest and moderate increase in domestic economic activity. The US dollar and crude oil prices were little changed, while gold was lower. The S&P 500 Index added 2 points (+0.1%) to 2,561. Thursday, Stocks off Lows, but Mostly Flat on Close. US stocks ended the day practically unchanged, but well off the lows of the day. Risk aversion flared amid mixed global earnings and economic data, along with political and monetary policy uncertainties. Treasuries and gold advanced, while the US dollar and crude oil prices moved lower. In economic news, weekly jobless claims declined and regional manufacturing activity rose, but the Leading Index unexpectedly dipped. Europe was lower and Asia mixed. The S&P 500 Index inched nearly 1 point higher to 2,562. Friday, Stocks Rise as Hopes for Tax Reform Stay Alive. US equities extended weekly gains after last night's budget resolution passed the Senate. Passage sparked renewed tax reform optimism, though many obstacles still remain. Treasury yields rallied as existing home sales in September increased more than forecasted. The US dollar also rallied on the higher yields. A firmer Dollar sent gold lower, but oil prices managed a gain. Europe and Asia were higher as financials gained. The S&P 500 Index added 13 points (+0.5%) to 2,575.

Economy, Fed & Inflation-- thru 10.29.2017 Global Economy, Current Perceptions— The IMF has downgraded its forecast for US economic growth this year, but kept its global growth outlook unchanged for 2017 at 3.5% and next year at 3.6%. In its July World Economic Outlook, the IMF cuts its US GDP forecast for 2017 to 2.1% from its previous outlook of 2.3%, and for 2018 to 2.1% from 2.5%, “primarily reflecting the assumption that fiscal policy will be less expansionary going forward than previously anticipated.” Slowdowns in the US and UK are expected to be offset by an improved outlook for growth in most of the euro zone and Japan; China is still seen growing by 6.7% in 2017 and 6.4% in 2018. With weakening commodity prices and capital outflows from emerging markets, downside risks to the global outlook are up, exacerbated by currency pressures and increasing financial market volatility. The Baltic Dry Index (1578), an international shipping measure and proxy for current global growth, rose this week after opening the year at 963. (It is still well below its 2010 peak (4640), retreating in 2014 and 2015, before rallying in 2016.) WTI oil price ($51.84)-- another proxy for world activity— rose again this week after Trump refused to recertify the Iran nuclear deal. Oil is well off its 2011 peak ($113), though above its 2008 crisis lows ($37). Copper ($3.17), a proxy for global construction also rose this week. 10Y US bond yields over the past 13 weeks are up, a positive bet on the US economy. On balance, then, this week’s indications on the global economy are all positive. US Economy, Current Perceptions— Overall: A mixed but decent data week. The good: New weekly jobless claims (222K) much lower than expected. October Empire State Index (30.2) and Philly Fed (27.9) both up strong. October home builders index (68) shows solid advance. September existing home sales (5.39M) up more than anticipated. September industrial production (+0.3%) up in line. The bad: September capacity utilization (76.0%) up less than forecast. September housing starts (1.13M) and building permits (1.22M) both down more than expected. September leading indicators (-0.2%) broke string of gains. The ugly: September nonfarm payrolls (-33K) unexpectedly negative due to hurricanes. The Fed, Current Perceptions: The Fed met in mid-June (06/14/2017) and raised the Fed Funds Rate (FFR) to the 1.00%-1.25% range. It has since met in July and September and stood pat at both meetings. The Fed indicated in September that one more 2017 rate hike is anticipated, and that it will begin rolling Treasuries and mortgage-backed bonds off its $4.5 trillion balance sheet in October. Instead of reinvesting all the proceeds from its bond portfolio, the Fed will allow $10 billion to roll off at first, increasing quarterly in $10 billion increments until the total hits $50 billion starting in October 2018. The Fed’s 2017 GDP growth estimate is now 2.2% and its inflation estimate is 1.5%. Longer term, 1.8% GDP and 1.9% inflation are expected in 2018. Janet Yellen is now promising a 2.75% FFR by 2019, down from 3%. June’s was the fourth rate hike since December 2015, when the Fed ended seven years of zero interest rate policy (ZIRP) with its first rate hike in more than a decade. (The second rate hike was December 2016.) The Fed Check at 101% suggests Fed neutrality is warranted. Commodities are slightly bullish. The yield curve steepened this week. 3-month LIBOR yield @1.36% is up this week, while the 3 month T-bill at 1.08% is up. That puts the LIBOR/T-Bill spread at 29 basis points. Intermediate term, the curve is getting steeper while median yields are falling leaving our interest rate signal for stocks bullish, below the midpoint (38 bpts) of its post-2008 range. A lower spread suggests a stronger, more confident banking system. Inflation, Current Perceptions— Core consumer inflation is cooling in September, as are producer prices. Fed's favorite inflation gauge (core PCE) remains within the 1-2% target range. Commodity prices and oil, meanwhile, are bearish, despite a weakening Dollar, implying waning global inflation pressure. September core CPI (+0.1%) cool. September CPI (+0.5%) hot. September core PPI (+0.2%) cool. September PPI (+0.4%) cool. September import prices (+0.7%) hot. September export prices (+0.7%) hot. August 12-month PCE (+1.4%) and August 12-month core PCE (+1.3%) below 2% target. Q2 gross domestic product (+2.6%) lagged forecasts. Q2 unit labor costs (+0.2%) revised lower, much cooler than forecast. Q2 GDP deflator (+1.2%) below target rate. Q2 employment cost index (+0.5%) up less than expected. Q2 productivity (1.5%) revised up, closer to inflation rates. Q2 rental vacancy rate (+7.3%) up from Q1.

Commodities ($CRB) Pull Back on Dollar’s Gain Commodities, Perceptions thru 10.29.2017— The commodity Index (CRB) is currently slightly bullish. Commodity prices fell -0.4% this week, following last week's 2.1% gain. That leaves them up 4.2% for the quarter (13 weeks), but down -2.8% for the year (52 weeks). At 184, CRB is above its short-term (50-day) average at 182, and above its intermediate-term (200-day) average at 183. A strengthening US Dollar this week weighed on commodity prices. Longer term, the weak dollar is a positive for commodities. Meanwhile, oil prices (USO) are currently slightly bullish. Crude prices rose 0.6% this week, following last week's 4.0% gain. That leaves them up 11.7% for the

quarter (13 weeks), but down -9.1% for the year (52 weeks). At 10, USO is above its short-term (50-day) average at 10, and above its intermediate-term (200-day) average at 10. A strengthening US Dollar this week weighed on oil prices. Longer term, a weak dollar is helping oil. Commodities, Assumptions: JUL 1— Commodities peaked in July 2014 and ended 2015 down 48%, completing a double bottom in early 2016 after the first Fed rate hike in ten years, The 18-month swoon was led by a collapse in oil prices, which dropped from WTI $113 in mid-2014, to $26 in early 2016, due to falling global demand, a stronger Dollar, and a spike in US energy supply from fracking. In 2016, oil prices began to recover, reaching $53 by year-end. Crude began to roll-over in March 2017, however, as the Fed raised rates a second time in three months. It proceeded to make lower lows and lower highs in the second quarter. The CRB has been tracking it. In the process, prices overcame Fed jawboning; Brexit; a stronger second half Dollar; OPEC’s on-again-off-again deals to cut supply; Trump’s surprise election; China closing 700 factories to cut smog; and two Fed rate hikes (12/14, 3/15). Current outlook: bearish. The bearish case: Slow growth and financial concerns in China, a stagnant Europe distracted by millions of refugees and Brexit, and a below trend US economy in 2017 curb demand for commodities. In addition, the US Fed is contracting its balance sheet, raising rates, and has committed to additional rate hikes in 2017. That removes the easy money floor under risk assets, reducing global liquidity, and demand for commodities. It also should strengthen the Dollar, which cheapens commodities. On the supply side: US fracking has cut the price of oil, a key driver of the CRB. The bull ish case: Most of the developed world still engaged in relatively accommodative monetary policy, and the global economy shows signs of improving. Emerging markets are still growing at 5-7%. The Fed sees an improving US economy and greater demand long term for commodities, and has gotten cautious about further rate hikes, weakening the Dollar. Europe’s debt, refugee and Brexit concerns are being managed, as the ECB will do anything and everything to avoid sovereign default.

Gold (GLD) Retreats on Firmer Dollar Gold Bull ion, Perceptions thru 10.29.2017-- Gold Bullion (GLD) is currently bullish and ranks #7 in the model-- more attractive than cash. Gold's price fell -1.8% this week, following last week's 2.3% gain. That leaves bullion up 2.0% for the quarter (13 weeks), and up 0.6% for the year (52 weeks). At 122, GLD is below its short-term (50-day) average at 124, but above its intermediate-term (200-day) average at 120. A strengthening US Dollar this week weighed on Dollar investors in gold. Longer term, a weak dollar is helping GLD. GLD’s August breakout put in a new 2017 high @128 in early September, but it quickly retreated from that

overbought level, bottoming below its 50-day in early October before bouncing above its 50-day last week and back below it this week. A firmer Dollar and a quieter North Korea set gold’s tone this week. With a 14-day RSI of 44, GLD is currently neither overbought (70) nor oversold (30). Gold Bull ion, Assumptions: JUL 1— Gold peaked above $1900 an ounce in August 2011. It bottomed below $1050 (a six-year low) in December 2015, as the Fed hiked interest rates for the first time in ten years. In 2016, however, gold took off, reaching $1367 by mid-year, as the US economy and the Dollar softened and the Fed held off on tightening. Japan and Europe initiated negative interest rates; and Brexit threatened the financial stability of Europe. Subsequent worries over additional US rate hikes in the second half of 2016 caused the dollar to rally and gold to break down to 1125. In 2017, however Gold rallied after both of the early (DEC’16, MAR’17) Fed rate hikes, thanks to a weaker Dollar. It reached $1300 in June before pulling back on that month’s Fed rate hike. Despite a steadily weakening Dollar, GLD remained in a 10% range for most of 2017 (112-123) until late August, when it decisively broke out. (Gold has gotten intermittent boosts in 2017 from the US special prosecutor investigating Russian interference in the US election; ISIS terror attacks worldwide; North Korean saber-rattling; Dollar weakness; and hurricanes.) Current outlook: neutral The bull ish case: Gold’s upward trend of higher highs and higher lows remains in tact going into the second half of 2017. Negative interest rates last year put the cost of holding cash on a par with the costs of storing gold for the first time ever. Massive monetary stimulus and deficit spending in the US, Europe, and Japan over the past seven years have cheapened fiat currencies, increasing global inflation pressures. As the world economy begins to improve inflation will finally kick in. Easy money will not only stoke monetary-demand for gold but induce central banks to diversify their reserves with gold as well. The bearish case: Fed quantitative easing is over and rate hikes have begun, removing the easy money floor under all risk assets. In addition, the Fed is paring its balance sheet this year. The US economy is still the best of a sickly lot and the Dollar is expected to strengthen under the Trump administration’s expansive fiscal policies. Any deflationary debt or financial crisis could also strengthen the Dollar and US bonds and weaken the demand for gold. India-- once the world’s largest gold consumer-- has placed an import tax on the metal curbing demand. Meanwhile, China, now the largest buyer, has cut inflation and slowed economically.

Dollar Holds Short-Term Support US Dollar Index, Perceptions thru 10.29.2017-- The US Dollar index is currently bearish. The US Dollar rose 0.7% this week, following last week's -0.8% loss. That leaves it down -2.0% for the quarter (13 weeks), and down -5.1% for the year (52 weeks). At 94, USD is above its short-term (50-day) average at 93, but below its intermediate-term (200-day) average at 97. After hitting the bottom of a multiyear range in September 2017, the buck rallied on economic optimism, as Congress advanced Trump’s tax cut plan. That despite Fed plans for yet another 2017 rate hike, and balance sheet normalization in October. This week, the Senate

passed a budget bill, clearing the way for tax reform a tax bill. The prospect of lower taxes (and a stronger than expected economy) rallied bond yields, and the Dollar gained. With 14-day RSI at 58, USD is neither oversold (30) nor overbought (70). Dollar Assumptions: OCT 1-- The Dollar Index has been in a 92-103 range since the end of 2014. After peaking (@103) to start 2017, the Dollar has weakened since the Fed’s December rate hike. Its trend of lower lows, and lower highs continued throughout 2017 into September when it plumbed the bottom (@92) of its multi-year range. Fed rate hikes (in December, March, and June); a US special prosecutor; and a do-nothing Congress putting Trump’s pro-growth agenda at risk all contributed to the weaker Dollar. Uneven US economic data; uncertainty over Fed timing; and volatile currency markets have also played a role in the greenback’s volatility. Carry-trade thru 10.29.2017 Non-Dollar investors who want to maximize their profits using the Moose should incorporate a "carry-trade" currency strategy into the decision, making it a two-step process. First, decide whether it's a good time to switch to US Dollars, and then use the Moose to identify the best place to put those Dollars. (Generally, if one's currency is weakening (Bearish) against the Dollar, non-Dollar investors in the Moose will outperform.) This table is intended to give non-Dollar investors an additional clue as to whether following the Moose might work for them. It may not be right every time-- as the currency markets can be volatile, and government intervention can make them even more so-- but more information is probably better than less. As for the major currencies, the Euro is bullish and down -0.4% this week. The Yen is bearish and down -1.4%. The British Pound is bullish and down -0.8%. The Canadian Dollar is bullish and down -1.1%. The Aussie Dollar is slightly bullish and down -0.9%. Currency vs. Dollar TS Trend Medium Term Implications for non-Dollar investors Euro (FXE) 66% bullish Euro investors underperform the $ Moose Yen (FXY) -66% bearish Yen investors outperform the $ Moose Australian $ (FXA 43% slightly bullish Aussie $ investors underperform the $ Moose GB Pound (FXB) 62% bullish Sterling investors underperform the $ Moose Canadian $ (FXC) 57% bullish Canadian $ investors underperform the $ Moose

T-Bonds (EDV) Drop On Budget Deficit Fears US Long Treasury Bonds, Perceptions thru 10.29.2017-- US Long-zeros 25y+ (EDV) are currently neutral and rank #8 in the model-- more attractive than cash. Long zero Treasuries fell -1.9% this week, following last week's 2.5% gain. That leaves them down -1.7% for the quarter (13 weeks), and down -10.9% for the year (52 weeks). At 116, EDV is below its short-term (50-day) average at 119, but above its intermediate-term (200-day) average at 115. A strengthening US Dollar this week made the carry trade in US bonds more attractive. The 10-year Treasury bond yield rose to 2.38% this week, from 2.28% the week before. Longer term, the yield curve is getting steeper, a bet on

economic improvement. After peaking in September, bond prices retreated on slightly better news-- hurricane damage estimates were lowered and congress finally began tax cut negotiations. The September jobs report was very weak due to the hurricanes, but bonds didn’t rally, possibly because wage growth appeared to be picking up. Last week low inflation and a flight to safety helped bonds. This week, the Senate passed a budget bill, clearing the way for tax reform a tax bill. The prospect of lower taxes (and a stronger than expected economy) dampened bond prices. EDV’s current 14-day RSI of 42 makes it neither overbought (70) nor oversold (30). US Long Treasury Bonds, Assumptions: OCT 1— EDV finally put in a bottom (@106) with the December 2016 FOMC rate hike, and retested that bottom with the March 2017 rate hike. Bond prices rallied after both meetings, however, mounting a choppy advance that peaked mid-June, as the 10-year yield dropped to 2.14%. EDV then backed off on dovish Fed comments before setting a new high in September as hurricane season hit. Bonds have gotten a global flight-to-quality boost in 2017 from ISIS terror attacks worldwide, and the North Korean nuclear threat. On the domestic front, quarterly FOMC rate hikes-- despite job growth averaging less than 200K per month and low inflation—not to mention a US special prosecutor; a stalled Trump growth agenda in Congress; and hurricanes have also boosted bond prices. Current outlook: Neutral. The bull ish case for long Treasury bonds primarily rests on four assumptions: (1) US and global growth are anemic and inflation is not a problem. (2) Tighter Fed monetary policy in the face of anemic GDP and low inflation will exacerbate the lingering fiscal and regulatory drag created by the Obama administration, as Trump’s reforms are delayed in Congress. (3) Europe’s sovereign debt worries and weak economies have led to easier money out of the ECB and lower European bond yields. That, and Britain’s vote to exit the EU have led to a flight to quality in US Treasuries. (4) Japan’s constant effort to weaken the Yen also causes a flight into Dollars and US bonds. The bearish case: also rests on four assumptions. (1) China, the US Treasury’s largest customer, continues to sell US bonds in order to depreciate the Yuan (which is tied to the Dollar) and boost its exports. (2) The Fed underestimates the inflation danger created by worldwide central bank easing. (3) Massive US government expenditure in Obama's first seven years-- most of it financed by new debt-- has increased the supply of Treasury paper going to market. The Fed purchased much of it under QE and been rolling it over when it matures. This year they plan to gradually stop roll-overs and “normalize” their balance sheet. Less Fed demand will push yields higher, and prices lower. (4) Brexit is not a problem. The European Union’s debt situation has stabilized, and the ECB’s easy money policies will restore growth, lessening demand for US bonds.

Overbought US Large-Caps (SPY) Higher on Tax Cut Optimism US Large-Cap Stocks, Perceptions thru 10.29.2017-- US large-cap stocks (SPY) are currently very bullish and rank #4 in the model-- more attractive than cash. US large-caps rose 0.8% this week, following last week's 0.2% gain. That leaves them up 4.1% for the quarter (13 weeks), and up 20.2% for the year (52 weeks). At 257. SPY is above its short-term (50-day) average at 250, and above its intermediate-term (200-day) average at 241. A strengthening US Dollar this week made the carry trade in US equities more attractive. Longer term, the weak dollar limits SPY. SPY has rallied hard after the Trump win, making new highs each month

from December through October. SPY did pause in early August, dipping below its 50-day on White House disarray and monetary disagreements at the Fed, but it quickly recovered from mid-August on. It has set new highs in each of the last five weeks as Congress and the President promised a massive corporate tax cut. 14-day RSI is 81 and overbought. US Large Cap Stocks, Assumptions: OCT 1— Dividend-producing US large cap stocks led both mid-caps and small-caps in 2014-15. After opening 2016 with a correction on Fed tightening fears, however, they rallied on Trump’s election, making new all time-highs in the third and fourth quarter, even as the Fed finally hiked rates (Dec’16). Fading after the March 2017 rate hike, SPY set has set new highs every month since. Current Outlook: bull ish. The bull ish case: Fundamental and technical analysis don’t matter that much. The Fed is in charge and low interest rates are still putting a floor under risk. Japan’s massive monetary expansion has been renewed. Europe also remains accommodative in its monetary policy in the face of an improving economy. That, and concerns over the UK’s exit from the EU is redirecting investment capital out of the euro and into the US Dollar. With cash and bills still yielding a negative real return, large or dividend paying stocks are filling investors’ income needs. The bearish case: US fiscal and regulatory mismanagement under Obama failed to provide economic stimulus for eight years. “Affordable” healthcare became the biggest tax in US history in 2014 and remains a nightmare for the consumer, even as the healthcare system collapses. Republicans cannot agree on Trump’s stimulative fiscal proposals, and Democrats will not help them out. Congress is not up to the task of fixing everything before the wheels come off and recession hits. The US economy may be better, but not enough to justify pricey stock valuations if promises go unfulfilled. The Fed has expressed its intention to raise interest rates one more time in 2017, and to begin normalizing its balance sheet now.

US Small Caps (IWM) Bounce on Budget Approval US Small-Cap Stocks, Perceptions thru 10.29.2017-- US small-cap stocks (IWM) are currently very bullish and rank #2 in the model-- more attractive than cash. US small-caps rose 0.4% this week, following last week's -0.5% loss. That leaves them up 5.2% for the quarter (13 weeks), and up 23.9% for the year (52 weeks). At 150, IWM is above its short-term (50-day) average at 144, and above its intermediate-term (200-day) average at 140. A strengthening US Dollar this week made the carry trade in US equities more attractive. Longer term, the weak dollar limits IWM. Tax relief and infrastructure spending talk has helped small-caps gain

traction since mid-August. That’s led IWM to break above both intermediate and short-term resistance in the past five weeks, even as hurricanes Harvey and Irma slowed upward momentum. In September, corporate tax cut talks on the Hill spiked investor optimism in small caps to severely overbought levels. Investors spent the last three weeks holding their breath on a Senate budget agreement, which they got on Friday, clearing the way for tax reform. (14-day RSI is now at 72— still overbought (70), but down from 81 last week.) US Small Cap Stocks, Assumptions: OCT 1— Dividend-producing US large cap stocks led both mid-caps and small-caps in 2014-15, but gave way to small caps in 2016 after the Fed first hiked rates (12/15). After a January correction, and pre-election weakness due to Fed tightening fears in 2016, small caps rallied 20% in 20 days after the Trump win, making new all time-highs in the third and fourth quarters. They continued to rally in 2017 after the Fed resumed hiking rates (12/16), slowed by the March and June Fed rate hikes, and finally by the Senate’s vote to retain Obamacare and recess in August without accomplishing anything of significance. North Korea and White House disarray then provided new distractions before tax relief and infrastructure development talk helped small-caps gain traction mid-August and post new highs in September and again this week. Current Outlook: bull ish. The bull ish case: Fundamental and technical analysis don’t matter that much. The Fed is in charge and low interest rates are still putting a floor under risk. Japan’s massive monetary expansion has been renewed. Europe also remains accommodative in its monetary policy in the face of an improving economy. That, and concerns over the UK’s exit from the EU is redirecting investment capital out of Europe and toward the US. With cash and bills still yielding a negative real return, large or dividend paying stocks are filling investors’ income needs. The bearish case: US fiscal and regulatory mismanagement under Obama failed to provide economic stimulus for eight years. “Affordable” healthcare became the biggest tax in US history in 2014 and remains a nightmare for the consumer, even as the healthcare system collapses. Republicans cannot agree on Trump’s stimulative fiscal proposals, and Democrats will not help them out. Congress is not up to the task of fixing everything before the wheels come off and recession hits. The US economy may be better, but not enough to justify pricey stock valuations if promises go unfulfilled. The Fed has expressed its intention to raise interest rates one more time in 2017, and to begin normalizing its balance sheet now.

Europe (IEV) Backs Off Latest 2017 High European Large-Cap Stocks, Perceptions thru 10.29.2017-- European equities (IEV) are currently very bullish and rank #5 in the model-- more attractive than cash. European stocks fell -0.7% this week, following last week's 1.3% gain. That leaves them up 3.9% for the quarter (13 weeks), and up 22.1% for the year (52 weeks). At 47, IEV is above its short-term (50-day) average at 46, and above its intermediate-term (200-day) average at 44. A weaker Euro this week hurt returns for dollar investors in European stocks, but helped Europe's export prospects. Longer term, a weak dollar is helping IEV. Better data out of Europe of late has

offset political drama in Spain, stalled Brexit negotiations, and post-election fallout in Germany. The Catalan independence movement in Spain stepped back from the brink last week. Brexit negotiations moved into phase 5, as PM Theresa May broached a UK cabinet reshuffling. Meanwhile, Germany’s Merkel backed off her previous stance on accepting an unlimited number of refugees as problems mount. That led IEV to post yet another new 2017 closing high last week, before backing off a bit this week. With a 14-day RSI of 68, it is neither overbought (70) nor oversold (30). European Large Cap Stocks, Assumptions: OCT 1-- European Union GDP grew a lethargic 1.6% in 2015, and an even weaker 1.5% in 2016. Europe (IEV) peaked @$48 in mid-2014. Slow global growth, a local refugee crisis and a European Central Bank perceived to be behind the curve kept IEV’s downward trend intact into 2016 when it bottomed-- and spent the rest of that year in a $34-$40 range. After the European Central Bank (ECB) extended its asset purchase program by nine months to start December, IEV broke out of its 2016 range on encouraging US and global economic data, making Q1 2017 European equities’ best quarter in two years. IEV then took a breather before rallying to new 2017 highs in early June and again (@$46) in August. As the ECB’s asset purchase extension winds down, September’s ECB meeting left monetary policy unchanged and accommodative. Current Outlook: bull ish. The bull ish case: European politicians have gotten their act together, and the ECB, the IMF, the Fed, and the EU will flood Europe with more liquidity as necessary. Lower oil prices will help the continent’s consumers. A stronger Dollar under Trump and a cheaper Euro will help Europe’s exporters. Brexit is more onerous for Britain than the EU. Fears that France, Netherlands, Greece and Portugal could vote to follow Britain are overblown. The bearish case: EU economic growth is anemic. Flagging household and business confidence, deflation worries, and conflict with Russia now have been complicated by an influx of millions of refugees from Syria, Libya, and Albania. Now, the EU’s second strongest economy, Britain, is leaving the union, weakening both parties. Quantitative easing in the US that once quieted sovereign debt fears in Spain, Portugal, and Italy through the carry trade is basically over. US rates are headed up, removing the easy money floor under risk assets. That reduces global liquidity, and weakens banks and financials-- the predominant equity sector in Europe. Europe’s financial crisis is not over, then, just awaiting the bell to start the next round.

Japan (EWJ) Up Again, Sti l l Overbought Japanese Stocks, Perceptions thru 10.29.2017-- Japan's equities (EWJ) are currently very bullish and rank #3 in the model-- more attractive than cash. Japanese equities rose 0.2% this week, following last week's 2.5% gain. That leaves them up 5.8% for the quarter (13 weeks) and up 14.4% for the year (52 weeks). At 58, EWJ is above its short-term (50-day) average at 56, and above its intermediate-term (200-day) average at 53. A weaker Yen this week hurt returns for dollar investors in Japanese stocks, but helped Japan's export prospects. Longer term, a weak dollar is helping EWJ. Aggressively expansive monetary

policies known as “Abenomics” have kept Japanese equities per EWJ in a long-term uptrend since February 2016. Economic cross-currents, trade issues, and currency developments, however, have made it a roller coaster ride. EWJ has broken below 50-day support and recovered in April, July, and September in a generally positive (+16%) year. Last week Japanese equities gapped to a two decade high amid more North Korean histrionics, a second US carrier ordered to the region, positive Asian trade data, and the prospect of easier money in China as well as Japan. This week it hit yet another high on Monday before working off some of its overbought condition later in the week. With a 14-day RSI of 85, EWJ is currently severely overbought (70) and due to correct. Japanese Stocks, Assumptions: OCT 1— Japan’s economy has struggled for years. As if anemic GDP growth in 2014 (0.0%), 2015 (+0.5%), and 2016 (+0.5%) were not enough, the forecast for 2017 (-0.1%) is even worse. Japan has tried infrastructure spending, quantitative and qualitative monetary easing, tax delays, regulatory reform and negative interest rates to get things going. Japanese equities, meanwhile, broke out of a long-term downtrend in late 2012 with the advent of “Abenomics”-- a three-part program of (1) regulatory reform, (2) fiscal stimulus, and (3) massive BoJ quantitative easing. The Nikkei posted a 26% gain in 2013, a choppy +2% performance in 2014, a volatile +8% gain in 2015, and a +7% improvement in 2016 after BoJ announced Japan's publicly held pension funds would double their equity holdings. EWJ scored an 18-month high in January 2017, as the US pulled out of the TPP, and has moved higher since-- up 11% YTD in 2017. The roller coaster ride continues. Current outlook: Bull ish The bull ish case: The BoJ’s massive quantitative easing program-- about 60-70 trillion yen per year in asset purchases-- has doubled the monetary base and will begin to work in time. In addition, the Japanese government has spent $200B in new stimulus spending to get the country going again. Lately, they are doubling the equity holdings in their pension funds. Elsewhere, the Europeans are now easing along with the Chinese, Australians, and Koreans. Falling oil prices help the energy importer, and once global growth returns, the weaker Yen will spur Japanese exports and revive its economy. The bearish case: The domestic Japanese economy is moribund due to an aging population, and a weak global economy. Chinese economic weakness and devaluation has set off an Asian currency war threatening Japan’s weak Yen policy. Abenomics has not worked. Conceptually, easy money and a weakening Yen is like pushing on a string— more likely to result in a carry trade than investment in Japan. Meanwhile, the prospect of additional Fed rate hikes also reduces global liquidity and weakens the floor under risk assets. Since the Fukishima nuclear crisis, nuclear power generation has been shut down, forcing Japan to import fossil fuels to make electricity.

Asia-ex-Japan (AXJL) Slips Back From Latest High Asia Pacific ex-Japan Stocks, Perceptions thru 10.29.2017-- Asia-Pacific ex-Japan equities (AXJL) are currently very bullish and rank #6 in the model-- more attractive than cash. Asian stocks ex-Japan fell -0.3% this week, following last week's 2.4% gain. That leaves them up 2.2% for the quarter (13 weeks), and up 14.1% for the year (52 weeks). At 69, AXJL is above its short-term (50-day) average at 68, and above its intermediate-term (200-day) average at 65. A strengthening US Dollar this week weighed on Dollar investors in Asia-Pacific. Longer term, a weak dollar is helping AXJL. Asia Pacific-ex-Japan hit new closing highs in early August, early

September, and again this week (early October). The advance, however, has been bumpy, as Korean saber-rattling got to Asian investors. A weaker Dollar, and strong equity markets in China, India, and Australia paced the region to its latest new high on Monday of this week. Its 14-day RSI is at 61— neither overbought (70) nor oversold (30). Asia Pacific ex-Japan Stocks, Assumptions: OCT 1— GDP growth in Emerging and Developing Asia grew 6.6% in 2015, but growth is projected to decline to 6.4% in 2016 and to 6.3% in 2017. China and India are expected to lead the Asian Tigers (ASEAN) higher. A multi-year uptrend in AXJL ended in April 2015 (@$73). AXJL then dropped like a stone until January 2016 (@$46). Asia was mixed to generally higher in 2016 gaining about 14%. It dropped with Trump’s election— a seeming death knell for the Trans-Pacific Partnership—but recovered. Asia Pacific ex-Japan stocks, entering 2017, were still almost 40% below their October 2007 high, but they have rallied 14% YTD in 2017. The region’s equities are heavily weighted in financials and materials, and its fortunes are closely tied to those of China, directly, and Japan, indirectly. Current Outlook: Bull ish. The bull ish case: The Fed may have begun gradual rate hikes, but US monetary policy remains very accommodating. Even looser policies in Japan, China, and Europe should also improve global growth prospects. Europe has gotten the institutions in place to deal with its debt crisis. Japan’s beggar-thy-neighbor policies no longer soak up trade demand at the expense of its Asian neighbors, as the Yen has risen in 2016. Asian inflation pressures are under control allowing interest rates to recede in the region—further stimulating growth in 2016. Finally, the Dollar was at a 13-year high going into 2017. It was due to soften and has. A softening Dollar improves Dollar investors’ returns in Asia and raises commodity prices paid to Asian resource producers. The bearish case: Asia Pacific is an export region and while the US economy is thought to be picking up, the rest of the global economy is still slow, including China, Europe, and Japan. China’s equities are down 17% in 2016, and its financial system is fragile. India is down slightly. In addition, the US elimination of quantitative easing and removal of ZIRP removed the easy money floor under risk assets, reduced global liquidity, and weakened Asian financials. Rising rates and the possibility of a more stimulative government under Trump should eventually strengthen the Dollar. A strong Dollar increases Asian exports to the US in the longer term, but short-run, a rising Dollar erodes Dollar investors’ returns in Asia and reduces commodity prices paid to Asian resource producers. Geopolitical risks include Chinese militarization of the South China Sea and North Korea’s nuclear program.

Mexico Stil l Weighing on Latin America (ILF) Index Latin American equities Perceptions thru 10.29.2017-- Latin American equities (ILF) are currently very bullish and rank #1 in the model-- more attractive than cash. Latin equities fell -1.4% this week, following last week's 0.6% gain. That leaves them up 8.5% for the quarter (13 weeks), and up 13.5% for the year (52 weeks). At 35, ILF is above its short-term (50-day) average at 35, and above its intermediate-term (200-day) average at 32. A strengthening US Dollar this week weighed on Dollar investors in Latin equities. Longer term, a weak dollar is helping ILF. Thanks to a weak dollar and a rebound in copper and oil prices, ILF

had been making new highs since early August-- until Mexico City suffered a major earthquake in late September and the Yucatan got hit by tropical storm Nate shortly after. Mexico’s subsequent equity swoon has weighed on the region since, even though other national markets remain strong enough to keep ILF at the top of the model. ILF managed to rebound after the natural disasters, but slipped this week and is still below its 2017 high @$36. With a 14-day RSI of 50, ILF is neither overbought (70) nor oversold (30). Latin American Stocks, Assumptions: OCT 1-- Latin American GDP was down 0.1% in 2015, and down about 0.5% in 2016. Slow growth in the advanced economies and in China, and falling commodity prices, including oil, kept the Latin 40 mired in a highly volatile downtrend from March 2011 to January 2016. Latin American equities fell 32% in 2015, bottomed in January 2016, and rallied to finish 2016 an impressive 31% higher. Going into 2017, however, ILF was still almost 55% below its May 2008 high. It was range-bound (30-33) from late January until early May 2017, when it broke out to the upside on stronger oil and commodity prices. A week later, the President of Brazil was implicated in a bribery scandal, and the Bovespa dropped 15% in a day, sending ILF down with it. Within a couple of months, it had recovered, thanks to a weak dollar and a rebound in copper and oil prices. Through September it is up 25% year to date. Current outlook: Bull ish The bull ish case: Latin American countries are generally rich in natural resources. They also have positive demographics with a younger population and a rising middle class. That tends to attract foreign capital inflows. The Dollar is at a 13-year high going into 2017, and is due to soften. A softening Dollar improves Dollar investors’ returns in Latin America and raises commodity prices paid to Asian resource producers. Low Fed interest rates in the US and China and negative rates in Japan and Europe increase capital inflows, promote growth, and lift commodity prices, improving profitability for Latin exporters. Meanwhile, slower global growth reduces Latin inflation pressures and allows interest rates to recede. Latin America was the most oversold of regions, and now that the bleeding has stopped, it still has a tremendous upside. The bearish case: The region has spent years mired in one of its “inept government” phases, which has increased both domestic and foreign capital outflows. Capitalism has been on the fade since 2011 in Latin America, and the equity markets have reflected that. Some nations in the region may be too far-gone to save, short of bankruptcy. Below trend growth in China, Europe, and the US adds to the problem by curbing demand for Latin exports. The Trump victory also bodes ill for Latin exports—products as well as immigrants. More importantly, the end of US quantitative easing and subsequent Fed rate hike removed the easy money floor under risk assets, reduced global liquidity, and weakened Latin financials.

Moosextras— Outside the Box: —Top 21 thru 10.29.2017 The following represents the top 10% of our diversified master list of 210 exchange-traded funds. ETFs are listed in order of most momentum at the close of the latest week. RSI is daily. Foreign (12), Tech (5), Financial (2), Small-caps (1), Materials (1)

TICK NAME RSI COMMENTS SOXX Semiconductors 88* Tech & Telecom ECH Equities: Chile 76* Foreign Equities ITA Aerospace & Defense 73* Tech & Telecom EWO Equities: Austria 69 Foreign Equities PALL Palladium 68 Materials EWZ Equities: Brazil 55 Foreign Equities EEB Equities: BRIC 65 Foreign Equities IXN Global Technology 85* Tech & Telecom KCE KBW Capital Markets 69 Financial GMF Equities: Emerging Asia Pacific 76* Foreign Equities IGV Software 84* Tech & Telecom FDN Internet 75* Tech & Telecom EWY Equities: South Korea 78* Foreign Equities EEM Emerging Markets 71* Foreign Equities IWC Microcaps 42 Small-caps EVX Environmental Services 49 Industrial SLX Steel 64 Materials DXJ Equities: Japan Hedged 78* Foreign Equities IAI Broker Dealers 52 Tech & Telecom IYG US Financial Services 63 Financial XLK Select Sector Technology 86* Tech & Telecom

* overbought, **oversold Outside the Box: —Thrift Savings Plan thru 10.29.2017 The Thrift Savings Plan, or TSP, is the government’s 401K-style retirement plan. Millions of federal employees are invested in it, including several life-long friends here in the capital region. The TSP does not provide all of the choices that the Moose does. Gold is notably absent, and foreign equities are all lumped into one choice, not broken out by region. As a result, TSP investors often have questions at switch time— especially when the Moose switches to a choice that TSP doesn’t offer. To clarify that situation, the following ranking table applying a Moose-like momentum model to the TSP has been added to the site. This week the 100% model holds the I Fund (International). (1st April switch). Note: TSP choices can be highly correlated. That means the model can jump around a lot, giving false signals. Since TSP limits account holders to two switches per calendar month, diversifying the portfolio to give it more stability is an option. This week the diversified model holds equal percentages of Large and Small-cap US Stocks, US bonds, Foreign Equities, and Cash. RANK FUND ASSET TYPE COMMENTS DIV% 1 I Fund International Equities Central Bank bullishness 20 2 C Fund Large-cap US Equities US Large-caps bullish 20 3 S Fund Small-cap US Equities US Small-caps bullish 20 4 F Fund Fixed Income US Bonds neutral 20 5 G Fund Short-term income Safe, but negative real return 20

Outside the Box: — Alternative Strategies thru 10.29.2017 ALLOCATIONS CASH EDV SPY IWM GLD IEV EWJ AXJL ILF Switch? 6040static 10% 30% 20% 15% 5% 5% 5% 5% 5% never 6040sma 10% 30% 20% 15% 5% 5% 5% 5% 5% no 6040rs 10% 30% 20% 15% 5% 5% 5% 5% 5% no 8020static 5% 15% 15% 15% 10% 10% 10% 10% 10% never 8020sma 5% 15% 15% 15% 10% 10% 10% 10% 10% no 6040rs 5% 15% 15% 15% 10% 10% 10% 10% 10% no Six basic (and highly simplified) alternative strategies are monitored in addition to the momentum model on this site—three growth strategies and three aggressive growth strategies. The growth strategies are based on a 60-40 risk-asset-to-income-asset ratio. The aggressive growth strategies are based on an 80-20 ratio. The growth and aggressive growth strategies each include one static, and two dynamic models. Static models have a fixed asset allocation (60-40 or 80-20) that does not change. Dynamic models alter the basic allocation by adding a technical indicator into the mix. The indicators used here are the 40-week (200-day) moving average, and 26-week relative strength. If the weekly closing price of an individual ETF becomes bearish per its technical indicator, the dynamic model reduces its allocation to zero, and adds that allocation to cash. If a switch from the standard allocation is operative, the switch date is shown under “Switch?”. The reduced allocation is listed in red, and the increased allocation is green. CUMULATIVE GAIN 1 Yr 3 Yr 5Yr 10Yr 15Yr 3Y Sharpe SPY 20% 31% 82% 67% 185% 2.86 6040static 7% 16% 29% 59% 214% 2.18 6040sma 8% 12% 28% 56% 132% 3.90 6040rs 6% 14% 36% 60% 143% 2.42 8020static 9% 14% 25% 37% 229% 2.32 8020sma 10% 13% 26% 50% 168% 3.34 8020rs 10% 16% 30% 50% 179% 3.86 Moose Weekly 16% 7% 0% 28% 297% 0.63 Moose Daily 6% 26% 73% 398% NA Moose Daily/stops 5% 31% 58% 491% NA Strategic Observations: Diversified investment strategies continue to under-perform the S&P benchmark. Central banks continue to pump trillions into markets, facilitating “financial engineering” in which companies borrow at extremely low rates and buy back their own stock, pushing the stock price higher. The result: a market bogey with few corrections and no bear markets since 2009 is tough to beat. Aggressive diversified strategies are outperforming moderate ones, inducing investors to accept more risk in 2017. That the 80-20 group lags the 60-40 group over three years without having suffered a bear market, however, suggests that when corrections do occur, aggressive strategies may take disproportionate losses. Momentum is approaching the S&P and beating diversified strategies in the past year. It is underperforming longer term, but outperforms over the very long term. The level of underperformance since 2009 has diminished, perhaps due to changes made in the Moose momentum model in the last five years. Static strategies require less attention, however, and over the past year, performance numbers have been less volatile, i.e., they have been a more predictable strategy. Buy-and-hold strategies should outperform timing strategies until the next US bear market. The two circumstances that would lead to a bear market are (1) a US recession, or (2) a significant exogenous development that threatens the integrity of the global financial system. The Fed currently puts the chance of recession in the next twelve months at 10%. Exogenous developments are tougher to predict, but truly significant ones are historically few. At the moment, there is nothing on the horizon that would appear to qualify.

Opinion— week closing 10.20.2017 Moose 3.0 & Stop Losses The only way to remain a contented investor is to maintain perfectly realistic expectations. (Unfortunately, first among realistic expectations must be that nothing is ever perfect.) – W.H. Dirlam The Index Moose model has been live on the internet weekly for over twenty years. It has gone through several performance-tweaking revisions since it was first developed in the early 1990’s. Initially a weekly mutual fund construct, Index Moose v2.0 swapped out mutual funds for exchange traded funds (ETFs) as they became available (v2.0-v2.4). Still, it remained a weekly model. When interest rates went to zero and the Fed took over the financial markets in 2008, the way the model looked at cash had to be revised (v2.5). The model’s Fed Indicator also became useless and was eventually dropped (v2.6). As government crowded out more of the US private sector economy between 2009-2016, the business cycle and growth weakened, shortening financial market cycles in the process. The latest tweak (v2.7) shortened the model’s relative strength calculation period to better reflect that new reality. With each change, the old performance data was kept. The Moosistory page, then, is an archive of the model’s decisions (using the version of the model current at the time) and the outcomes. Good or bad, it represents the best I could do given what I had to work with at the time. In other words, Moosistory performance is the real deal-- not the result of back-testing. (Caveats do apply. It is greatly simplified. It does not, for example, include taxes or commissions paid, or dividends earned… and so on.) Meanwhile, I always back-test a new version before I implement it. If the back-test suggests a significant improvement in performance, I’ll go with the revision, but not the revised data. I don’t pretend that back-tested data represents historical performance, because it doesn’t. It does, however, hint at what’s going on and help me draw conclusions about how to proceed. Lately, I’ve begun publishing back-tested data on certain very basic investment strategies to give investors a general idea about how those strategies perform versus SPY and Index Moose. (See Demoostify). I’m not selling momentum strategy here (just the cheapest, most thoroughly researched global investment newsletter in the world). So for me, it is one thing to admit that the Moose has struggled against the S&P since 2009, but quite another to imply that a prudent investor has no other strategic options. There are always other options. Knowing what those options are and what they potentially offer is an important decision-making tool for small investors. I’m trying to provide that information, albeit in a rather simple generic sense. (It all gets back to my opening reference about investor happiness being dependent on realistic expectations. I’m trying to frame what “reasonable expectations” are, given the strategy one chooses.) Over the years, I’ve gotten queries about moving from a weekly to a daily model, as well as questions about incorporating stop losses into the framework. Now that I’m a semi-retired money manager-- free of much of the stress and time-consuming complexity endemic to that job-- I’ve had some spare time to explore those two ideas. What I’m finding is not entirely unexpected, but worth reporting. Background: I created a simplified daily momentum model (Index Moose 3.0) running off the same relative strength parameters as Index Moose (v2.7). To simplify, I omitted the technical indicators. I added Donchian stops in v3.1. I also made daily Moose fully automatic. (The weekly model is considered a “first cut”. Among other things, I do confidence testing on every automatic switch signal to determine whether the buy and sell candidates are oversold or overbought.) Automating the calculation is the quickest way to get a general gauge of performance without running the risk of “fitting the data” to get a desired outcome. The final difference between the weekly and daily constructs is with respect to data history. I did not keep daily price histories for mutual funds in the early days since the model was weekly. Many of those mutual funds are dead and gone at this point and daily data is irretrievable. Index Moose 3.0, then, looks exclusively at ETF data. While Index Moose has been around for over twenty years, it only became all-ETFs a little over ten years ago. Ten years is a very short period for back-testing. (I’d prefer 70 years-- a Kondratieff cycle-- but I’ll have to live ‘til I’m 130 for that.) Nevertheless, the period I used does include a major bear market as well as a major bull

market. You need both market conditions to tell you what to expect in good times and bad. It is better, of course, to have more than one of each, since no two bulls or bears are ever the same, but beggars can’t be choosers. Getting right to it, then—my preliminary findings are summarized in the following table.

Strategy 1 Yr 3 Yr 5Yr 10Yr 15Yr Switches Last 52-w

Max 52-w Drawdown

SPY 20% 31% 82% 67% 185% 1 -47% 6040static 7% 16% 29% 59% 214% 1-4 -24% Weekly Moose* 16% 7% 0% 28% 297% 7 -20% Daily Moose 6% 26% 73% 398% na 15 -11% Daily Moose/stops 5% 31% 58% 491% na 22 -10%

Conclusions: With back-testing, I tend to take the exact numbers with a grain of salt. I find that focusing on relative magnitudes over time instead provides more reliable conclusions. So what does this table tell us about Daily Moose?

1. A daily momentum model is a lot of work. To approximate the performance numbers in this table requires running the model every day and following its sell/buy instructions right before the close. The weekly model requires less attention in that regard. It is only run weekly at the Friday close. Moreover, I’ve found that acting on the weekly switch signal the following week isn’t necessarily that problematic. Wins and losses balance out over time. Waiting one day to act on a daily switch, however, sharply reduces performance short and long term.

2. A daily momentum model generates more transactions. Buy-and-hold strategies are usually rebalanced either annually, semi-annually, or quarterly. Meanwhile, the weekly momentum model (v2.7) signaled 7 switches in the last 52-weeks. The daily model (v3.0) produced 15, more than twice as may switches as the weekly model. Add stops to the daily model (v3.1) and it more than triples the number of switches to 22. Note: There have been no market corrections greater than 10% in the last 52-weeks. In years with more volatility, the number of transactions can be expected to go up. More transactions are an issue in terms of investor time, trading costs, and tax implications.

3. A daily momentum model can l imit drawdown. Over the last 10 years, maximum drawdown for the daily models is about half that of the weekly model, and a fourth that of the SPY. By being “closer to the curve”, daily models cut losses sooner than weekly models do. That is truer in bear markets than bull markets, in which being too close to the curve can keep gains from running to their full potential. Stops can lessen drawdown as well. The only 20% 52-week drawdown in Index Moose in 22 years (the previous max was 14%) followed two switches in a six-month period that between them lost a total of 18%. With Donchian stops in place those losses would have capped out closer to 1%.

4. A daily momentum model can improve profitabil ity measurably long term. Daily momentum substantially outperforms the weekly model over ten years (and probably longer). Momentum works best in a bear market, and the bear market from ‘07-’09 was more accommodating to a daily model than a weekly one, and better for stops as well.

5. A daily momentum model may or may not improve profitabil ity in the very short term. Despite outperforming everything on the chart longer term, daily momentum lags all strategies in the table over the last 52-weeks. As mentioned earlier, daily models are “closer to the curve” and cut losses sooner than weekly models do. The latest 52-weeks has been consistently bullish without a correction. Dips have been for buying, not selling. Being too close to the curve in such a market can keep gains from reaching their full potential and promote under-performance. In the past 52-weeks, the reading on one-year performance has ranged between -11% to +20%. Adding stops did little to change that (-10% to +20%). Such variability in the “what have you done for me lately” department could make for alternating bouts of euphoria and depression among daily model users. That tends to have an impact on whether a user sticks with it long enough to realize long-term gains.

There are pros and cons to daily models. The added work, time, and cost, may eventually be offset by greater long term profits and less drawdown, but it will require patience in the face of very uneven near term results. As for stops, they’re best in bear markets, but may be counterproductive in buy-on-the-dip markets. The daily model might work if I were to automate it, but even then, it does you, dear reader, no good. Publishing a daily signal is not the way I intend to spend my sunset years. Losing weekends is bad enough. Perhaps there is a middle ground, however. More on that next week.