This Secret Market Signal Outperformed "Buy and Hold" by +117%

Note: Starting with today's issue, we'll be increasing the frequency of Investor Update to three times a week in an effort to provide our readers with more timely information and investment ideas.     

     I know the government can keep secrets and stage cover-ups. But who knew they were hiding a secret market-timing signal, right under my very nose?

     I've looked at everything -- from hardcore economic statistics to Super Bowl winners -- to get an edge on the market's future, but they don't hold a candle to this market indicator.

     It goes to show that sometimes it's the simplest things -- the things that make the most intuitive sense -- that turn out to be the most powerful. And that appears to be what I've found.

     Here's just one example of the power of this market-timing signal:

     If you had invested in the S&P 500 the day after the 2001 recession ended, you would have lost more than -20% of your money waiting for the market to turn around. But if you had been paying attention to the government's secret "buy" and "sell" signals that I found, you could have saved yourself a -24% loss and had a safe and rewarding ride upward.

     Actually, it's not much of a secret. It's something that everyone is familiar with, and its statistics are reported, by law, every quarter.

     It's the U.S. mail. Mail volume turns out to be a great market indicator. When companies are flush and looking to grow, they flood our mailboxes with everything from zero-percent credit card offers to teeth-whitening specials to home-improvement services. When companies feel the pinch, the first thing they cut back on is advertising and direct-mail costs.

     Perhaps the best thing about using the change in mail volume as an indicator is that it leads, or predicts, the market. Because it is a future market indicator, investors have plenty of time to react to the quarterly mail volume reports issued by the U.S. Postal Service.

     Here's how it works: The Postal Service announces the change in quarterly mail volume about halfway through the following quarter. For instance, the USPS announced the results of the quarter ended September 2008 on November 14, 2008.  But you don't buy right then based on the signal.  Investors need to hold back until the first trading day of the next quarter -- in this example, January 2, 2009 -- to execute based on the signal.

     A volume increase of greater than +1% over the same quarter in the previous year is a "buy" signal.  A volume decrease of more than -1% is a "sell" signal. Anything in between is neutral, and investors should stay the course of the previous signal.

     In the chart below, I've included a few of the more compelling examples of how this market indicator works:

     Using the Postal Service's archives, we went back to April 2, 2001, the first signal available. If we had invested $10,000 in an investment tied to the S&P 500 on that day, and followed all the quarterly signals until January 2, 2009, we would have $17,628, for a +76.3% gain. Investors using a "buy and hold" strategy would have fared much worse. By January 2nd, their $10,000 investment would have shrunk down to $8,132, for a loss of -18.7%. Overall, the mail volume signal would have left you with +117% more cash than a "buy and hold" strategy.

     I guess it's not surprising that the last few quarters of mail volume data have all signaled "sell." But the next quarterly report should be coming out in the next few weeks -- and I'll be sure to let our Investor Update readers know what it has to say about the next quarter's market. In the meantime, keep your eye on the mail. 

     Good Investing!




-- Amy Calistri
Staff Writer
StreetAuthority Investor Update

While many things  seems to be on a downward trend, that is not true for the personal savings rate. The Bureau of Economic Analysis recently reported that personal savings for December was $378.6 billion, up from November's $299.1 billion. Personal savings, as a percent of disposable personal income, was 3.6% in December, versus November's 2.8%.

-- IU Research Staff

January was another rough month for most asset classes. The good news is that last month wasn't a complete sea of red ink. High-yield bonds posted a +6.3% gain for the month,  while emerging-market bonds rose +1%.  

-- The Capital Spectator

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