August 2009www.ciovaccocapital.com

Asset Class Outlook

Evidence Supports Cyclical Bull Markets
With improving economic data occurring from previously
depressed levels and investors embracing risk assets, markets currently have positive fundamental and technical alignment. On July 29, 2009, the slope of the S&P 500‟s 200-day
moving average turned positive, a rare event which can signal the end of a bear market and the beginning of a new bull
market. The 2007-2009 bear market ended after a 57%
decline which took 517 calendar days to complete. Since
1929 there have been five similar bear markets with declines of over 35% occurring in 517 or more calendar days.
As shown in the composite graph to the right, it can be rewarding to be invested after the slope of the 200-day moving
average turns positive following a major bear market. Notethe correction in the composite graph just prior to the strong
rally. We may experience a similar “shake out” correction in
August or in the fall of 2009, where the market shakes out
investors just prior to a big move.

Chart 1 - Similar Bears: After The 200-Day Turned
Composite performance 315 trading days after the 200-day moving average turned up following declines of 35% or more. Using
prior declines lasting at least 515 calendar days. Five cases meetthe criteria since 1929; following the lows in 1932, 1942, 1970,
1974, and 2002. Composite below is the average path of the fivecases cited after the 200-day moving average turned up, NOT fromthe market bottom.

Recession May Have Already Ended

Leading economic indicators (LEIs) have been up for four consecutive months



Ratio of coincident to lagging indicators has been improving



Global LEIs had their biggest monthly gain since 1975

In 2009, the 200-day moving average turned up on July 29th when
the S&P 500 was trading at 975, which is represented hypothetically by
Point A above. If the market follows the historical composite, Point B
hypothetically would occur in the fall of 2010.

Stocks Perform Well After A Recession
If the recession has already ended as evidence suggests, then the next six to twelve months may offer an opportunity for investors.
Stocks were higher both six and twelve months after the end of nine out of the ten recessions („49, „54, „58, „61, „70, „75, „80, „82, „91,„01). The exception was 2001. However, the slope of the S&P 500‟s 200-day moving average never turned positive in 2001, which is not
the case in 2009. Commodities historically have performed well following recessions.

More On The Significance Of The 200-Day’s Turn
Chart 2 expands on the bear market set used in Chart 1 byshowing the composite path for U.S stocks after the 200-day
moving average turned up following a decline of 25% ormore. There were 13 cases following market bottoms in „32,
„34, „38, „42, „46, „57, „62, „66, „70, „74, „82, „87 and „02.
From 1929 to 1950 the Dow was used in the study. From1950 to 2009, the broader S&P 500 Index was used.
In 2009, the 200-day moving average turned up on July 29th when
the S&P 500 was trading at 975, which is represented hypotheticallyby Point A2 on Chart 2. If the market follows the historical composite, Point B2 hypothetically would occur in the summer of 2011.

More Support For Recession‟s End

Page 2

Favored Asset Classes & Markets

Page 2 - 11

Similarities to the 1970s

Page 11

Declining Volume & Other Voices

Pages 12 - 13

Chart 2 - 13 25% Declines: After 200’s Turn

Page 2

CCM Client Update

More Support For Recession’s End
Like the ratio of coincident economic indicators to lagging indicators, weekly
jobless claims can help us possibly spot the end of a recession. Initial claims
peaked in the first quarter of this year and have since declined significantly.
Businesses reduced inventories at a record pace in the last two quarters.
Rebuilding of inventories in the coming quarters will add to GDP. Car andtruck sales were hit hard during the recession. Increased sales helped by the
clunkers program will also be a positive for GDP. Government spending, oneof the few bright spots in GDP in recent quarters, should continue as planned
stimulus spending hits a high water mark in 2010. Housing has been a negative component of GDP for numerous quarters. Recent data suggests housing‟s drag on GDP should lessen or even become additive in future quarters.
From a historical standpoint, steep economic downturns are usually followed
by better than expected recoveries. The recent financial meltdown certainly
qualifies as a steep downturn. As stated on page one, stocks were higher six
and twelve months after the end of 9 out of 10 of the last recessions.

Favored Asset Classes & Sectors - Next 6 to 24 Months
The asset classes and sectors shown to the left wereselected after comparing over 450 indexes, ETFs, stocks,
and asset classes head-to-head using CCM‟s proprietary
Asset Class Ranking System. The CCM Rankings werecombined with post-recession cycle results for 6, 12, 18,
and 24 month historical periods. The relative performance after the 200-day‟s turn in a major market average
was also included in the selection process. Correlations
and diversification considerations were also factored inwhen adding commodities and currencies.

“History does
not repeat itself,
but it often
rhymes.”MARK TWAIN

Performance After S&P 500’s 200-Day Turned in 2003 (sorted by 1 Year column)
6 Months

1 Year

6 Months

1 Year

6 Months

1 Year

Page 3

CCM Client Update

On page one we illustrated the composite historical performance of stocks after the 200-day moving average turned up. Those results
show that it is not necessary to “catch a bottom” in order to profit during bull markets. To underscore the point, we will examine performance in 2003 assuming we entered the market 160 calendar days after the market bottomed on March 12, 2003. We chose 160 days
since we are currently roughly 160 days from the March 2009 low. The 2003 and 2009 cycles are similar with the markets making initial lows in October of 2002 and November 2008. In both cases, market lows were retested or final lows were made in March (2003 and2009). August 19, 2003 was 160 calendar days after the March 2003 low.

Performance Assuming Market Entry 160 Days After March 12, 2003 Low (sorted by 6 months)
6 Mo

18 Mo

6 Mo

18 Mo

6 Mo

18 Mo

Monitoring The Health Of The Bull - Red Flags
Slope of moving averages: Negative slopes on 50-day, 89-day, and 22-week moving averages.
Moving Average Crossovers: Negative crosses of 20 and 50-days.
Poor Market Breadth: If the number of stocks participating in the gains deteriorates, especially for a prolonged period, it could
signal the end of a bull run.
A Spike In Interest Rates: With large amounts of supply due to hit the Treasury market and foreigners keeping an eye on thedollar, higher interest rates are a distinct possibility.
Extreme Bullishness: Investor sentiment is a contrary indicator as investors tend to hope and fear at the wrong times.
Valuations: Rising normalized PE ratios may result if earnings fail to materialize over the coming months.
Trendline and Trend Channel Breaks: Used in concert with other methods, trendline and trend channels can help us discern
between normal corrections and not-so-normal corrections.
Volatility Characteristics: Each investment, market, or asset class has a unique and ever-changing set of volatility characteristics. When markets step outside their recent norms, it is time to pay attention.

www.ciovaccocapital.com

Page 4

CCM Client Update

Currencies Demonstrate Acceptance of Risk
As global investors continue toembrace risk asset classes, theshift from principal protection
strategies to purchasing power
preservation strategies continues in a manner which supports
new cyclical bull markets. In
contrast to secular, or longterm, bull markets, cyclical bulls
can last from a few months to afew years. The current evidence
at hand supports the possibility
that global risk assets could
surprise on the upside at least
into the early spring of 2010.
Shifts in the currency markets
between March of 2009 andAugust of 2009 also lend support to the cyclical bull case.

While the U.S. dollar will experience countertrend rallies as any
market does, for now the longterm trend remains down or atbest range-bound at low levels.
A significant turn in the dollar
would be a negative for risk
assets such as emerging market stocks and commodities.
We will be watching the U.S.
dollar closely in the coming
weeks and months. The dollar
recently had a bearish turn inthe slope of its 200-day moving
average also supporting thebullish case.

March 2009: U.S. dollar leads as investors shun risk.

Bullish Turns In 200-Day Moving Averages
The wide variety of asset classes and sectors which have seen the slopeof their 200-day moving average turn from negative to positive supports
the intermediate-term bullish case. As shown in Charts 1 and 2 on page1, bullish turns in 200-days usually signal better times ahead. 200-day
moving averages are shown in blue on the charts below.
S&P 500 Index - Large Cap

August 2009: Australian dollar‟s strength
mirrors investors‟ risk appetite

Emerging Markets

Large Cap

Technology Stocks

Basic Materials - Stocks

Page 5

CCM Client Update

Bullish Turns In 200-Day Moving Averages (continued)

Copper - PhysicalSmall Cap Value - Stocks

Financial /Broker-Dealer - Stocks

Consumer Discretionary - Stocks

Currency - Canadian Dollar

Developed Markets Foreign - Stocks

CCM On The Web - Bookmark Short Takes - Updated Regularly: Short Takes is a good way to keep of with developments
related to the markets. Visit www.ciovaccocapital.com - then click on Short Takes in the upper left margin of CCM‟s homepage.

Page 6

Attractiveness Rankings - Part I

CCM Client Update

S&P 500: Moving Average Crossovers Can Indicate Change In Trend

The asset classes, markets, and sectors below are shown in order of attractiveness based on the CCM AssetClass Rankings. Historical cycle information was combined with CCM‟sproprietary models to compile theserankings.

NASDAQ: 2009 MACD Indicator Similar To 2003 Bottomwww.ciovaccocapital.com

Page 7

Attractiveness Rankings - Part II

CCM Client Update

The Shift In Leading Asset Classes Supports An Economic Recovery
Leading asset classes can tell us a lot about the health of the financial markets. Chart 3
shows that concern remained in the markets into early 2009. Just as we would expect inthe early stages of an economic recovery, stocks and commodities took over the leadershipof the markets. Current leaders support the bullish case and an improving global economy.

Chart 3: Late 2008 / Early 2009 - Leaders Suggest More Trouble Ahead

Using Emerging Markets
and the Dollar to Monitor
the Bull
Emerging market stocks havebeen the leaders since we entered the current bull market.
Leading markets and asset
classes made their lowest lows inlate 2008 and then made higher
lows in March of 2009. Lagging
asset classes tended to makenew lows in March of 2009. All
things being equal, we would
prefer to own leaders. Emerging
market stocks can be used as agood proxy for the risk tolerance
of investors and a way to monitor
the health of the market. Significant breakdowns in emerging
market stocks could signal trouble for all risk assets. Similarly,
strength in the U.S. dollar, outsideof normal countertrend rallies,
would be a negative for mostmarket leaders.

Chart 4: March to August 2009 - Leaders Suggest Better Times Ahead

Page 8CCM Client Update

Corrections and Countertrend Rallies Are Part Of Any Market
When corrections are in full swing, it always makes sense to review the big picture. We have covered the topics below numerous
times in the past, but we will do so again because they remain important and they can help us deal with our biggest enemy – ouremotions. The concepts below are far from the only way to make portfolio decisions, but they do serve as a big picture framework to
help us make better calls during corrections. The Table A (page 10) portrays the state of the current financial landscape within thecontext of these big picture concepts.

Page 9CCM Client Update

Corrections and Countertrend Rallies (continued)

With the volatility removed, it looks easy
to get from Point A to Point B...

Please see Table A on the next page to see how markets are currently
positioned relative to their 50-day and 200-day moving averages.

Page 10CCM Client Update

Corrections (continued)

Stocks Have To Have A Big Pullback, Right?

Table A

Chart 4: Reasons not to buy small caps in August 2003









The market has come too far to fast.
We missed the bottom.
Look at those big gains off the March lows, a correction has
to be coming.
RSI is overbought (over 70 - see first red circle).
Full Stochastics (STO) are overbought (over 80 - see 2nd red
circle).
CCI is overbought (see 3rd red circle).
We can buy on a correction.
The shorts will come in soon - it‟s too late to buy.

The table above can help us control our fear and avoid making
emotional decisions during inevitable corrections, which canbe significant in any bull market. Study results of market behavior after the slope of the S&P 500‟s 200-day moving average turns up support erring on the side of holding as long asbull market conditions exist (as they do today). If conditions
change, we will adjust accordingly. Until they do, we will remain in the mindset of long-term investing. The evidence continues to support higher stock prices in the months ahead.
There is no compelling reason to believe recent corrections
have been anything more than that - normal corrections within
a bull market.

Ciovacco Capital would like to thank StockCharts.com forallowing us to share charts created on their site.

See Chart 5 on the next page to see how small caps
performed after the big move off the March 2003 lows

Page 11

CCM Client Update

Be Careful With Overbought In Trending Markets

Similarities to 1970s Say Commodities Over Stocks

Oscillators, like RSI, work best when markets are in a trading
range. During strong trending phases (Chart 5) oscillators do notwork well in terms of helping with the timing of an entry point,
especially on a monthly chart. With all the reasons not to buy inAugust of 2003 (see Chart 4), the small cap value index showngained an ADDITIONAL 95% from August 30, 2003 to April of
2007. Note how long the overbought conditions remained.

Similarities between the 1970s and 2009: secular bull markets incommodities and loose Fed policy. Assuming you bought the S&P
500 when the 200-day moving averages turned up in 1971 and
1975, the average return 407 trading days later would have beenroughly 20%. See lower left for asset class returns (1971-1976).
1972-74: 48% Decline Over 630 Days

Chart 5: Small Cap Gains After Being Overbought in 2003

1968-70: 35% Decline Over 546 Days

2007-09: 57% Decline Over 517 Days

Similarities to 1970s Say Commodities... (cont. from upper right)
Average Annual Returns (1971-1976)

Annual Inflation

Composite „70 & „74 After 200-Day Turned

Starting point is similar
to July 29, 2009, whenthe 200-day tuned up.
Hypothetical path isaverage of gains after
the 200 turned in „70 &„74.

Page 12

CCM Client Update

Volume Is Not A Show Stopper - At This Point In The 2003 Cycle Stocks Were Rising On Declining Volume (monthly charts)

2003: After Rising On Declining Volume, Both Indexes Went On To Post Impressive Bull Market Gains

2008-2009: Monthly Volume Is Not All That Weak Relative To Recent History

Page 13

Other Voices

CCM Client Update

Ned Davis Research figures the brighter investor mood isn't yet enough to puncture the overall positive trend. NDR
has even floated the idea that the S&P, now at 1010, could approach an overvalued level near 1200.
BARRON’S
August 10, 2009

"The worst recession since the Great Depression is likely coming to an end," says Sung Won Sohn, economics professor at California State University. Friday's better-than-expected July jobs report fanned hopes for a recovery, as
did a report a week earlier showing the economy shrank less than expected in the second quarter.
And that bodes well for stocks, if history is any guide. Following recessions in the post-World War II era, stocks haveposted positive returns in nine of the 10 cases both six months and 12 months after the end of the recession, says
Ned Davis Research (NDR). The Standard & Poor's 500 has gained an average 9% six months after recessions and
14% a year after them, NDR says. If the recession ended now, the average 9% and 14% gains would put the S&P,
at 1010 on Friday, at roughly 1100 in six months and 1150 in a year.
USA TODAY
August 19, 2009

On Tuesday of this week our long-term model for the S&P 500 switched from a sell to a buy signal. My recommendation regarding this signal is to use it as an information flag rather than an action flag. For example, we use thelong-term signals to determine whether or not the market is in a bull phase or a bear phase. As of Tuesday we consider that we are in a bull market, and this is the long-term context within which we will interpret medium-term priceaction and technical indicators. Bull market rules apply. The market will tend to stay overbought, and, while overbought conditions require increased caution, they are not necessarily selling opportunities in a bull market.
CARL SWENLIN
DecisionPoint.com
Source : Financial Sense - August 14, 2009

Too many people get too arcane and have too many arguments about why an economy goes into or comes out of arecession. Having done this for 35 years, I’ve fallen into using just a couple of indicators that characteristically havedone a very good job. We saw it happen two weeks ago. The recession is over. Every time can be different, but theyrarely are. Every time you bet on something being different, you pay dearly for it.
DENNIS GARTMAN
The Gartman Letter
Source: Fortune - August 6, 2009www.ciovaccocapital.com

Page 14

About Ciovacco Capital Management

CCM Client Update

Ciovacco Capital Management, LLC (CCM) is an independent money management firm based in Atlanta, Georgia. CCM helps individual investors
protect themselves from inflation while minimizing the probability of investment losses via research, disciplined risk management techniques, andglobally diversified investment portfolios. Since we are a fee-based financial advisor, our only objective is to help you protect and grow your assets. Our long-term, theme-oriented approach allows for portfolio rebalancing from time to time to adjust to new opportunities or changing market
conditions. CCM’s risk management and stop-loss disciplines help preserve principal in even the most challenging investment environments. We
explore opportunities in all asset classes to help protect and grow your hard earned assets. Our clients may hold positions in timber, foreign commercial real estate, gold, silver, base commodities, foreign stocks, foreign bonds, and foreign currencies to complement their positions in U.S.
stocks and U.S. bonds. When conditions warrant, we also use hedging strategies as "insurance policies" to protect against downside risk. Thisapproach (wide diversification and hedging) has been used successfully for many years by the best pension and endowment managers to reducerisk and improve returns. Clients who work with Ciovacco Capital Management gain access to a diversification strategy that is seldom seen at theindividual investor level.

Visit www.ciovaccocapital.com Visit www.ciovaccocapital.com For
Short Takes — Updated Regularly
For CCM’s Five Major Investment Themes

All material presented herein is believed to be reliable but we cannot attest to
its accuracy. The information contained herein (including historical prices orvalues) has been obtained from sources that Ciovacco Capital Management(CCM) considers to be reliable; however, CCM makes no representation as to,or accepts any responsibility or liability for, the accuracy or completeness of theinformation contained herein or any decision made or action taken by you or
any third party in reliance upon the data. Some results are derived using historical estimations from available data. Investment recommendations may change
and readers are urged to check with tax advisors before making any investment
decisions. Opinions expressed in these reports may change without prior notice. This memorandum is based on information available to the public. The data
and analysis contained herein are provided "as is" and without warranty of any kind,either expressed or implied. CCM, any CCM affiliates or employees, or any third party
data provider, shall not have any liability for any loss sustained by anyone who hasrelied on the information contained in any CCM publication or web posting. This
memorandum is not an offer to buy or sell or a solicitation of an offer to buy orsell the securities mentioned. The investments discussed or recommended inthis report may be unsuitable for investors depending on their specific investment objectives and financial position. Past performance is not necessarily aguide to future performance. All opinions expressed herein are subject to change
without notice, and you should always obtain current information and perform due diligence before trading. CCM, accounts that CCM or its affiliated companies manage, or
their respective shareholders, directors, officers and/or employees, may have long or
short positions in the securities discussed herein and may purchase or sell such securities without notice. CCM uses and has historically used various methods to evaluate
investments which may, at times, produce contradictory recommendations with respect
to the same securities. When evaluating the results of prior CCM recommendations or
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do not impute or show the compounded adverse effect of transaction costs or management fees or reflect actual investment results, that other less successful recommendations made by CCM are not included with these model performance reports, that somemodel results do not reflect actual historical recommendations, and that investment
models are necessarily constructed with the benefit of hindsight. For this and for manyother reasons, the performance of CCM's past recommendations and model results
are not a guarantee of future results. The price or value of the investments towhich this report relates, either directly or indirectly, may fall or rise against theinterest of investors. All prices and yields contained in this report are subject tochange without notice. This information is based on hypothetical assumptions
and is intended for illustrative purposes only. Investment recommendations
may change and readers are urged to check with their investment counselors
and tax advisors before making any investment decisions. Opinions expressedin these reports may change without prior notice. The securities mentioned in thisdocument may not be eligible for sale in some states or countries, or be suitable for all
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expressed in CCM research reports accurately reflect the research analyst's personalviews regarding any and all of the subject securities or issuers. No part of any analyst
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RESULTS OBTAINED FROM ANY INFORMATION CONTAINED IN THISREPORT. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Reproduction or references made to CCM research without specifically providing the source, Ciovacco Capital Management and www.ciovaccocapital.com is prohibited without prior permission. Copyright 2009 © Ciovacco Capital Management, LLC. All
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