Well, we can put another month and quarter in the books with last Wednesday’s close and a good month and quarter it was. The S&P 500 (SPX) closed the
quarter up 14.98% and the Dow Jones Industrial Average (DJIA) was up the exact same amount, 14.98%.
Since market indicators remained positive for most of the third quarter, we feel the market should remain in positive territory going into and for the 4th quarter,
albeit with less than ideal market conditions. For all my football fans out there, read: the offensive team is still on the field, but not in great field position!
Judging by other strong quarters, the odds are stacked in our favor for a potentially strong push at the end of this year and over the next 12 months. Of course,
past performance is not guaranteed. When looking at the 20 strongest quarters for the DJIA, we see that the average return in the following 4th quarter was
5.92%, and in 13 out of 19 years or 68% of the time (we don’t know how 2009 will play out), the DJIA posted a gain the next quarter. The stats are very similar
for returns during the next 12 months. In 13 out of the 19 times the following 12 months posted gains for an average return of 12.78%. As always, we will look
to the indicators to guide us but these stats provide some perspective about why it is important to keep our offense on the field even though the field position
may appear to be lousy right now. We will wait for the indicators to turn negative to tell us to get more defensive.
Past performance not guaranteed. You cannot invest directly in any index. Individual results will vary.
Over time, those in my industry are all judged by performance. We call it alpha or risk adjusted return, but over time, all that matters is which way your assets
are moving. In 2009 we have endured three very distinct periods to this point, delineated by where positive returns could be found. Much as a geologist might
identify time by using layers of various rock in a side canyon, we can do the same with 2009. The first part of 2009 was essentially the “mattress‐era”, while the
second was the “dumpster period”, and since May we have experienced a return to quality and to some extent normalcy.

In the first two months of 2009, money under a mattress was difficult to outperform. Equity prices were still falling across the globe, the US dollar was rising,
generally speaking money was still looking at risk and running the other way. Bad stocks became worse stocks, and good stocks still left a mark as the asset class
was falling as a whole. Then came the March bottom and the world as we knew it at the time changed. I suppose that period is best described as a “dumpster
diver’s paradise”. The very things jettisoned from portfolios as if they brought with it the bubonic plague, returned for speculators as if they had found the
fountain of youth. It was quite the reversal of fortune for shares of Genworth, AIG and many others and we entered a period of time where holding such stocks
was not only favored, but required to outperform.
For two months, from March to May, the market was….well let’s put it this way: On March 9th a portfolio consisting of 1 share each of Office Depot (ODP), Fifth
Third Bank (FITB), Genworth (GNW) and AIG (AIG) would have cost $3.24. Two months later that $3.24 portfolio was worth $19.71, and today it is worth around
$31.20. Most of these names were flirting with bankruptcy, in fact most had to get pretty creative to avoid such an outcome, but nonetheless those were the
stocks to own if you wanted to really knock the cover off the ball. Of course, the other side of that story is that had you bought that same portfolio at the
beginning of the year, you were down 77% by the time March 9th, 2009 rolled around. There’s an old saying in our business, “the market can remain irrational
far longer than you or I can remain solvent.” Which is to say that even though those companies found a way to stay in business, you likely would not have been
so fortunate. And so it was during the Dumpster Diver’s Paradise phase of 2009.
Traditionally, it is those washed‐out market environments that can produce the “laggard rallies”. Outside of those relatively infrequent events we have found
that following trends in Relative Strength can potentially increase our odds of success within an asset class more consistently than any other tool.
Jeffrey A. Green
Founder
Branch Manager
D‐713‐244‐3030
F‐ 713‐513‐5669
6363 Woodway, Suite 870
Houston, TX 77057
http://www.greenfinancialgrp.com/
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