The basic message from the study is that when the market has declined in the months of January and February, the rest of the year has been choppy and volatile.

1. 1
Titan Capital Management, LLC
Global Market Letter
March 4, 2015 Abe Askil, CFP®
STOCKS DOWN FIRST TWO MONTHS OF THE YEAR
The S&P 500 fell 0.4% in February which marks the 19th
time since 1929 that it fell in each of the first two months.
According to a study by Ned Davis Research, in the past when this has happened the market fell 10 out of 18 times from
March through December with a median gain (loss) of -3.8%. There have been some good years when this occurred such
as the 51% gain between March and December in 2009, but there have also been some bad years such as the -32% decline
in 2008. There were 5 cases out of the 18 that occurred during election years and while the last two cases (2000 and 2008)
were negative, the median gain during election years was 6.5%. The basic message from the study is that when the market
has declined in the months of January and February, the rest of the year has been choppy and volatile.
The market is rallying after it put in lows on February 11th
. The move is similar to what we saw last October when the
market rallied approximately10% from the September bottom. That rally did not last and the market went on to make new
lows. Time will tell if the current rally is successful and if the S&P 500 can make new all-time highs. The chart below is
the same one that I showed in last month’s letter and I wanted to show it again as there have been some changes in the
past few weeks. The S&P 500 was able to bounce off of the 1850 support area and break above the 1950 resistance level
(magenta line). The S&P 500 is testing its 200-day moving average near the 2000 area (magenta down arrow). If it can
breakout and hold above 2000 then there is a high probability that it may go on to make new highs. The other good news
for the market is that breadth is improving as can be seen in the second pane with the NYSE Advance/Decline Line
breaking out above its 200-day moving average. The third pane shows that 34% of all U.S. stocks are above their 200-day
moving averages versus just 16% at the February lows which is another sign that market breadth is improving, but it still
has a ways to go to reach the 60% - 70% level normally seen during strong rallies. If the market is going to embark on a
strong rally, then breadth should continue to improve along with market prices. We don’t know at this point if this is the
beginning of a rally that will take stocks to new highs or if it is a short-term rally within a longer-term downtrend. If the
S&P 500 is going to go on to make new highs it should close and hold above the 2000 level first, but if it closes back
down below 1950 then that will mean that this is most likely a short-term move within a long-term downtrend.

2. 2
FINANCIAL STRESS INDEX RISING
The financial sector tends to have leading tendencies for the broad stock market. When the financials are strong relative to
the market it is generally bullish and when they are weak it is bearish. The S&P 500 financial sector was down 23% off of
its highs on February 11th
which put financials officially in bear market territory. The financials have rallied with the
market over the past few weeks and are currently down 13% from their highs. Strength or weakness in the financials often
indicates future strength or weakness in the market so this is an important sector to monitor. The chart below, retrieved
from the Fed Bank of St. Louis, shows the Cleveland Financial Stress Index (CFSI) which is designed to track distress in
the U.S. financial system. The CFSI tracks stress in six different markets: credit markets, equity markets, foreign
exchange markets, interbank markets, real estate markets, and securitization markets. The CFSI is currently at 1.79 (blue
line, left scale) which according to the Fed Bank of Cleveland indicates Moderate Stress. A reading above 1.82 is
indicative of Significant Stress, it reached as high as 1.88 on February 16th
. The last time two times the CFSI was near
current levels the Fed unleashed Operation Twist in 2011 and QE1 in 2009. The financial sector may continue to rise and
the CFSI may fall into the Normal Stress area between -0.73 and 0.54, which should be positive for the market. If the
CFSI continues to rise indicating high levels of financial stress, I am concerned about how effective the Fed will be on the
issue given that they are pretty much out of bullets.
THE BOTTOM LINE
Our Alpha and Omega trend models are both negative at this time, but if the market action continues to improve they
could turn positive in the next few days or weeks. The long-term risks for the global markets that I have been writing
about for more than a year still exist, but the consequences could be delayed a little longer as the global central banks are
doing everything they can to prop up the markets. Our goal is to stay in harmony with the major trends and not fight the
tape, so if the market continues to rise and our models turn positive we will get back into stocks comforted with the fact
that we have an exit strategy and will move into the safety of bonds and cash if the markets turn down once again.
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Management, LLC on the date made and may change without notice. We will not be responsible for any investment decisions, damages or other losses resulting from or
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