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Avoiding Major Market Declines

The recent extreme market volatility has seen the S&P 500 price drop about 18% from its peak in late April to current. This decline was expected given the extreme bearish reading in early April on the "Smart Money” Indicator which measures bullish/bearishness of the largest traders and institutions that tend to drive the markets. As I warned publicly on June 12th when the "Smart Money” goes to extremes, the market tends to follow a few months later. So when the "Smart Money” rapidly shifted from bullish to extreme bearish in early April, this recent quick and severe decline occurred three months later; right on schedule.

During the third week of July, Toews Corporation, one of the Portfolio Strategists I recommend began to exit 2/3rd of their Developed International positions and moved to cash with the final 1/3rd on August 1st. On August 2nd Toews moved the first 1/3rd of US Stocks to cash and was 100% cash on August 4th. As of August 8th, Toews was 100% cash in Developed International Stocks, US Stocks, High Yield Bonds, and Emerging Market Stocks were 2/3rds cash. As of August 10th, all Toews portfolios were 100% cash.

Toews Corporation strategy is a purely price reactive model designed to exit asset classes in the preliminary phases of declines. This system has provided a reliable means of getting out of the way of catastrophic market declines. Toews is one of the few firms that have successfully avoided a majority of declines during both the 2000-2002 and 2007-2009 market crashes, while capturing more than 85% of rising markets since it began in 1996. With this recent downturn, they have avoided a good portion of it and should the markets decline further, they will remain in cash until the market begins to move back up again at which time they will begin to re-enter according to their model.

Since 2000 we have clearly been in a secular (long-term) bear market. The previous two secular bear markets occurred in 1929-1942 (http://bit.ly/1929-1942) and 1966-1982 (http://bit.ly/1966-1982). These market cycles usually last around 12-19 years depending upon the cause of the contraction. During times like these, robust risk management strategies such as Toews would tend to avoid the majority of the declines while capturing a majority of the rallies. In other words, Toews is likely to outperform traditional strategies with less risk/volatility during these types of markets.

For more information on the Toews Corporation strategy, click on the following link to watch a brief video: http://bit.ly/ToewsCorp. Contact me directly to discuss how to properly incorporate the Toews Strategy into your overall investment strategy and to review Toews Corporation's GIPS compliant performance results.

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