Sunday, July 26, 2015

Market Overview as of July 25 2015 Weekend



You may have to change the default resolution to 720p -- use the little "gear" in the lower right corner to do this.

Tuesday, July 21, 2015

Short term cautionary

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Please subscribe to this using the "Follow by Email" link to the left.  Nobody gets your email except me, and I promise that I won't email you.  It helps me see the number of folks reading this as well as ensuring you get the signals on a timely basis.  If you miss a signal this system will most likely produce sub-par results, which isn't my fault.

Yesterday, Monday, July 20th, saw the S&P 500 and the NASDAQ, as measured by the SPY and QQQ respectively, hit new highs.  On a day-over-day basis for the past 6 trading days the SPY and the Q's have moved 1.65%/day and 3.04% per day.  Putting this in perspective, the SPY normally averages 0.15%/day and 0.34%/day using the past 50 trading days, so these are huge daily gains and are well outside the norm.  My own GGT index, which is an unweighted, stock volume above 100Kshares/day index of nearly 3000 stocks has moved upward 0.15%/day for the last 6 days and is averaging -0.01%/day over the last 50 trading days.

Obviously, there is a huge disconnect in the markets.  As many of you know, I generally state that the indexes can be manipulated, and I think we're seeing the heavy weights in the various major indexes pulling the numbers upward in a disproportionate manner.

My Cumulative Tick chart tells a tale of extreme caution:


Right-click on the image to open in a new tab or window.

The chart has 3 primary plots.  The top one is the NYSE 52-week New High (green) and 52-week New Lows (red), with their difference (yellow).  When red is above green more stocks on the NYSE are hitting a 52-week new low than those that are topping out.  In robust markets green is above red, the opposite of what we presently have.

The middle trace is a "strength" filter.  It basically looks at trades/min, in this case 500/minute minimum, and if the net bid/ask on 500 transactions per min is positive, it clicks upward by the amount over 500.  If the net bid/ask on 500 transactions per min is negative, it clicks downward by that amount.  What you're seeing is that more/less, throughout the day, there was selling pressure.  This is evidenced by the negative start and minimal recovery throughout the day.  As the day wore on the value accelerated to the downside -- meaning -- more people were net sellers on the day rather than those that were buyers.  Again, this was as the SPY and the QQQ's were hitting new highs.

The bottom trace is the most important one.  The white line is the instantaneous cumulative tick, and it measures net buying/selling on a minute-over-minute basis without any filters.  When it moves up all the moving averages respond, and as you can see, when it moves down, all the moving averages also respond.  The white line was in a solid downtrend all day long, and this means that while the SPY and Q's were making new highs, the market was selling into the highs on a short-term basis.  The fact that the white line is now below the solid red line means that net selling has surpassed the gains of the past 10 days of buying, and the trend is clearly downward from here, at least on a short-term basis.

Another warning shot, at least on a short-term (daily) basis is my Long-Cash Ratio (LCR) table:

Right-click on the image to open in a new tab or window.


The left side of the table shows that the LCR has stalled at a local level of 0.639 -- up from a minimum of 0.332 back on 7/9.  It made no substantial forward progress on Monday.  This value means that in a database of nearly 3000 stocks that over 1800 are in some form of "cash" status (avoid) and the remaining stocks are in some form of "long" (potential for having a position).  Since the value has stalled, NEW purchases should be suspended, at least for the short-term.

The green on the left is indicative of slopes of the LCR moving averages.  Slope values are rates of change, and you can see that the longest slope values are still negative -- we have not completely turned the market upwards despite the gains from 7/9.  The day-over-day increase in the slopes is encouraging, BUT, the growing amount of green on the left does not tell the full story.

On the right we see lots of green with some newly-emerging red.  This side of the table shows the "slope of the slope", or acceleration of the LCR on multiple time frames.  This tells me how fast we're moving into a new market condition, and the growing red on the very right bottom of the table tells me we're stalling on a short-term basis.  Day-over-day, the shorter moving averages are failing to continue upward and are actually decreasing, so again, short-term entry of new positions is going to be with much higher risk.

The good news, at least on the intermediate-term or long-term view, is the following chart:

Right-click on the image to open in a new tab or window.

This chart plots the number of stocks that are "long" in the database -- e.g., those that are outperforming their historical averages -- and you can see that 1) we're in the green, and 2) the trend is moving upward.  The "green" component means that it is less risky, on an intermediate-term and long-term view, to buy (relative to being in the red zone at the top), and that once the LCR table shows some improvement, it may be time to add to positions.

Hence, I'm bearish on a short-term (1-3d) basis, and optimistic on a longer-term basis.

Strategy:

Aside from adding to my dividend portfolios (which are fully invested at all times unless the market is completely unraveling on all time frames -- it's not), I'm on the sidelines.  I am not adding to my Leaders, Low Beta, or Bargains portfolios with the exception of already pending orders.

My cash target right now is ~ 66%, meaning I'm holding 66% of my portfolios in cash.  Exposure at this point is limited.

You can follow my portfolios here:

Greenfield Bargains:  https://www.collective2.com/details/95793176
Greenfield Dividends: https://www.collective2.com/details/94780986
Greenfield Leaders: https://www.collective2.com/details/94921209
Greenfield Low Beta:  https://www.collective2.com/details/95702992

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As always, you are responsible for your own investment decisions and I am not.  Please do your diligence, and please take ownership for your actions.

Regards,

Paul



Saturday, July 11, 2015

A question/answer about Collective2 Portfolios

I received a question this week about the portfolios I'm running at Collective2 and I presume that more than one person has the same question:

"Going forwards, do you have a preference as to which strategies are performing the best and with the least trades?  [D]o your past studies seem to favor the GF Leaders or the Low Beta?  Is the Low Beta dependent on all 3 of your timers and the GGT just like the leaders strategy?"

I have four "Greenfield" portfolios at Collective 2:

Greenfield Bargains:  https://www.collective2.com/details/95793176
Greenfield Dividends: https://www.collective2.com/details/94780986
Greenfield Leaders: https://www.collective2.com/details/94921209
Greenfield Low Beta:  https://www.collective2.com/details/95702992

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It is hard to compare portfolios because they have different objectives and are subject to different initial conditions as well as market conditions.  This being said, let's look at the portfolios.

Of the four,  Greenfield Dividends has been running the longest, since June 3, 2015.  It is presently up 4.8% YTD, and according to Collective2's  statistics, is currently at 51.2% Annualized Return including trading costs.  I presume that it will continue on it's path but your crystal ball is as good as mine, and one month does not make an annual value.  My expectation is that it will be positive for the year and meet the performance of the S&P in terms of gain, but will outperform in terms of drawdown (e.g. lower volatility).

There have been 39 trades in the account, including the 25 buy-ins, so an additional 7 trades have been bought and 7 trades have been sold according to the system rules.  14 trades over 5 weeks is probably a good number, so 2-3 trades per week may be a good feel for this portfolio.

In comparison, I traded this strategy prior to introduction at C2 from 7/9/2014 to 6/26/2015.  Portfolio sizing was a bit different then (targeting 40 positions, modeled on another portfolio I saw at Seeking Alpha), and about half-way through the year I reduced it to 25.  There were a total of 279 round-trip trades over the course of the year, with 130 being winning and 144 losing (5 were a wash).  This is a 47.4% win loss.  The total return in the portfolio was 6.4%, inclusive of dividends and fees paid to TradeStation.  Dividend yield was 1.774% over this period, and is in a tax-deferred account.  The average win per position was 2.9%, not including dividends, and the average loss per position was -1.4%.  Only in the last 3 months I did restrict buying to when the long/cash ratio was below 50% (-ish) and this improved numbers (I don't have the exact calculation but I do have the trades, and the trend is clear to me).  Also in 2015 I started updating the coefficients more frequently with a new process/computer, and this resulted in my detecting when to get out of a stock much faster.  I also started keeping the portfolio 100% invested about 3 months ago, and this allowed me to ignore the drawdowns and participate on the rebounds.

Over the same period the SPY returned 5.53%, so the dividend portfolio outperformed the SPY by a thin margin.

Of course, the past is no indicator of the future, so beware.

While not an apples-apples comparison, the last year's test has given me the confidence to publish the portfolio at C2, and the results there are independent of my writing.  I will either succeed or not...

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Greenfield Leaders has a great track record, at least prior to listing at Collective2.  For the period 5/5/2014 to 6/9/2015 the portfolio has a 42.3% realized gain.  Volatility is higher though, as these stocks tend to have higher betas.  Note that this period was one of QE2 and where the markets were doing well, so it's hard to say if the performance can be replicated.  Part of the success certainly was money management -- the Greenfield Leaders portfolio moves in and out of the market with active management, so if you're looking for a low maintenance portfolio, this one is NOT going to make you very happy.  There were a total of 129 round-trip trades over the past year, with 61 of them being winners and 66 being loosers, and 2 considered "wash" trades within +/- 1% gain/loss.  The average win/loss are largely moot with this portfolio, as the position sized is determined by captial asset model methods and can vary from something as large as 22.7% to something as small as 0.7%.

At C2 the Greenfield Leaders portfolio has struggled since I started it on 6/10/2015.  It is down -0.4% right now, but is above the S&P500 over the same period by about 0.5%.  It is less than 33% invested, per money management rules, so effectively it's not doing much in the market either way.  The portfolio invests in stocks that are good candidates to move higher.  I have no idea on how it will perform in the future, but obviously, since it costs me money to list at C2, and since I have my personal money in the portfolio (at TradeStation), I think it will take off if the markets take off.  I'm patient.

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Greenfield Low Beta portfolio has done quite well in my pre-C2 trials (with real money).  It tends to be a low volatility model, but this can change if market conditions change (any stock can move to a high-beta condition -- it isn't sold under the existing rules).  Since 5/12/2015 my personal portfolio of these stocks is up 10.8%, and it is only 1/3 invested.  Again, future performance cannot be based on past, so beware.

At C2 the Greenfield Low Beta portfolio is up a minor amount since I started it on July 4th, 2015.  The 2.5% return is solidly outpacing the S&P500, AND, the portfolio is only 1/3 invested.

Note though that this portfolio, like the leaders portfolio, is subject to money management rules so will have frequent trades.  If you're looking for a low-maintenance portfolio, this one probably isn't going to be very satisfying.

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Greenfield Bargains portfolio is another solid performer prior to Collective2, with an annualized gain of 32.4% from 10/16/2014 to 6/9/2015.  This portfolio is fully subjected to money mangement rules, and because many of the stocks are GGT "cash" rated (because they have been beaten down in price), position allocations can be fairly high when a buy signal occurs.  This may fly against your view of "putting all your eggs in many baskets" as I've invested in a few as 4 stocks with this portfolio.  Volatility is high, but again, performance is high (so far).

Money mangement in the Bargains portfolio has been a bit different compared to the others.  For the Bargains portfolio, when I'm holding just a few positions, if the signal says to transition from 100% equity to 66%, I sell 34% in each position, locking in gains.  This means more book keeping, and it drives cost-basis calculations crazy.  this is a complicated portfolio, but I like it for my retirement account where much of the purchases / sells are transparent, so it works for me.

Note that I only have a small portion of my monies in this account right now -- it's sitting at 33% equity (at best) if you look at the GGT signals.

If you're looking for a low maintenance portfolio, this one has a few positions, but you'll need to move quickly so again, you may not be very happy with this one.

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This is all a long way of answering the question as "Greenfield Dividends" probably will provide the best performance for the least amount of work.  Leaders, Low Beta, and Bargains are all subject to the same money management rules, so will be moved in and out of as market conditions dictate.  Bargains probably has the lower position count / higher allocation per stock, so it may be a good alternative relative to the others.  Low Beta *should* be an outperformer, but in the present market conditions, it is not.

As with all my ramblings, you are responsible for your own decisions and I am not.  Please do your homework, and please take ownership for your actions.

Regards,

pgd

Wednesday, July 1, 2015

On the edge of the cliff - Close of markets July 1st

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I'm on a train heading back from a wonderful wedding in NYC -- so this will be short and not have any graphics.

With the close of markets today my system is calculating a move to cash -- all of it.  There are caveats though, so let me explain:

1) We are very, very oversold here.  Not extreme, as once-in-a-lifetime oversold, but enough to tell me I should be getting my shopping list together.  We're at a level that has only occurred 3x in the past 2 years, putting it in context.

2) Not all of my "go-to-cash" indicators are confirming.  I use several, and I typically (for backtesting rules) require that they all are heading in the negative direction.  They aren't.  Hence, we have an internal war going on.  I have one of many indicators that is now south, which at a minimum is a warning shot across the bow.  A serious warning shot.

3) Of significance is that a) average volume is up, b) no real progress is being made in the cumulative tick (it's horizontal, not moving up, but not moving down), and c) the long-cash ratio actually moved up a tad with today's action.

The indicator that has historically kept me out of trouble is a very simple one and my crystal ball tells me it may whipsaw back to the "get invested" side, perhaps this week, and probably violently if some sort of Greek deal is worked out.  It literally is the difference of two exponential moving averages -- the 13d and 65d, and right now the 13d is below the 65d.

Again, I don't think that it's going to last.

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Strategy -- relatively simple.  I'm already working to maintain 66%-ish cash in my leader's portfolio, and I'll continue to do so on Wednesday.  The portfolio can be viewed in real time here:

https://www.collective2.com/details/94921209

As far as my dividend portfolio, I bought two of three stocks today and will try to get into the 3rd one on Wednesday.  The dividend portfolio is targeting being 100% invested (it's goal is income, with price appreciation being secondary), and I've filled 24 of 25 positions.  The portfolio can be viewed in real-time here:

https://www.collective2.com/details/94780986

So, no changes, I'll start working on the shopping lists and will post them in the Dropbox folder.

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Standard disclaimers apply, as usual.


Monday, June 29, 2015

Knee-jerk in Markets Signals Move to 66% Cash - June 29 Close

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Please subscribe to this using the "Follow by Email" link to the left.  Nobody gets your email except me, and I promise that I won't email you.  It helps me see the number of folks reading this as well as ensuring you get the signals on a timely basis.  If you miss a signal this system will most likely produce sub-par results, which isn't my fault.


With the close of markets today (Monday, June 29th), my money-management system says move to at least 66% cash.  This is in response to the Greek Tragedy that is unfolding overseas and is impacting perceptions in the Euro zone.

My take on it?  The GDP of Greece is about $242B in 2013.  Using 2012 numbers, which aren't too far off of 2013, this places it somewhere between Connecticut and Louisiana or Finland and Pakistan.  The amount of debt is somewhere in the range of $317B.  Yes, I'm sure there are nuances here and there, but the point is the same:  this really isn't a big deal as far as money is concerned.   The issue is one of perception, and while that matters, I do believe that today's sell off is actually a buying opportunity.  Not tomorrow (Tuesday) mind you, but soon.  We are incredibly oversold.

But, let's not look at the market we want, let's look at the market we have:



Both the short-term and intermediate-term timers are now in cash.  While I can see the details and you can't, the long-term timer is a whisker above it's transition point to cash.  If it flips I doubt we'll stay there long -- again, we are very, very oversold.

The rationale for the transition of the short-term timer is simple:  the LCR table has moved all red (again):


Right-click on the table to open in a new tab or window.

What is important here is that we had a sea of red on the right long before today, hence the move to 50% cash on Friday.  That was easy.  

On the left side of the table you see a "16".  This was the 16th strongest down day, in terms of real LCR change, since September 2008.  Ouch.  Looking back, I do expect to see a short-term bounce -- whether it will continue upward or reverse downward is anybody's guess.  Your crystal ball is as good as mine.

Again, the big tell to not get overly committed to the long side has been the cumulative tick:


Right-click on the figure to open in a new tab or window.

We've had nothing but sustained selling in the markets for the better part of the last 4 days, independent of what the indices are doing.  You can look back at other blog entries to understand what you're looking at but suffice to say, the smart money has been net selling for at least 4.5 days, and this, over and above the LCR timer table, tells you to take things much slower.  I'm glad I have been.

Until the white trace moves above the bright red trace (bottom plot) and stays there I doubt I'll get too committed in the markets.  You can tell by the slopes that today's selling accelerated to the downside as the day wore on.  Ideally, we want to see some sort of "V" pattern here, and it didn't come.  We're probably not done with this yet.

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My strategy is simple.  I'm unloading positions to get to at least 66% cash in my Leader's portfolio.  I'm starting with the stocks that are performing the worse and working towards the best ones.  You can follow this portfolio here:

https://www.collective2.com/details/94921209

For my dividend portfolio, I'm simply selling the positions that have signaled "New Cash".  As of tonight there are none, so I'm going to continue to hold the 22 positions that I currently own.  Note that my target is 25 positions, and I'm most likely going to attempt to fill those 3 starting tomorrow night.

You can follow the dividend portfolio here:

https://www.collective2.com/details/94780986

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Standard disclaimers apply.

Regards,

pgd




Thursday, June 25, 2015

Reducing exposure to 50%

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NOTE:  Please subscribe to this using the "Follow by Email" link to the left.  Nobody gets your email except me, and I promise that I won't email you.  It helps me see the number of folks reading this as well as ensuring you get the signals on a timely basis.  If you miss a signal this system will most likely produce sub-par results, which isn't my fault.

With the close of markets on June 25th, my timer system is indicating that I should move to at least 50% cash.  So it is written.



Standard procedure has been to:

1) eliminate all positions that are underwater
2) if not at the desired cash target, start selling the positions just above the water line until the cash target is achieved.

Most of my positions are above the water line, so I'll be locking in some modest net gains using this method.  Only the strongest stocks will survive.

Dividend portfolios will not be subjected to this rule -- e.g., they will remain fully invested.

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The cumulative tick is the tell here:



It appeared that Tuesday and Wednesday were going to be break-through days, with the "white above red" indicating a constant buying pressure.  You can see that it began to fail yesterday, and today was more of the same.  Selling accelerated today at the end of the day, which obviously is not a good sign.

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Although the short-term timer and the long-term timer are still intact (on the long side), now is not the time to buy:


We're around 48% longs in the database, which puts us into equal probability that trades entered right now may or may not work out.  With weak markets, and the cumulative tick being negative overall, this is not the time to buy.

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Strategy:

Raise cash.  Set sell orders with a 1% TSL, GTC, effective after 9:45 on the first day of entry and let them ride until either 1) they execute or 2) the GGT timer transitions.  For the latter I'll let you know.





Thursday, June 4, 2015

Whipsaw ... back to 67% cash target

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NOTE:  Please subscribe to this using the "Follow by Email" link to the left.  Nobody gets your email except me, and I promise that I won't email you.  It helps me see the number of folks reading this as well as ensuring you get the signals on a timely basis.  If you miss a signal this system will most likely produce sub-par results, which isn't my fault.

Once again the Cumulative Tick saved my tail, and hopefully, it saved yours.  Here's what it looked like at the end of the day:



Internally, the selling continued throughout the afternoon, e.g., it didn't reverse, which (generally) means that we haven't seen the local bottom.  Of course, your crystal ball is as good as mine.

The middle plot is a filter -- the negative values that occurred mid-day indicated that we were seeing over 500 stocks per minute that were ending on a lower price after the transaction than what they started.  This is significant, if only that the selling pressure was large.

The top plot is the 52-week high and 52-week lows.  The green (hi) and red (lo) traces show that nearly the same amount of stocks were making new highs as those that were making new lows.  When this has occurred in the past it basically has meant that we're not at a turning point -- so I'm expecting more of the same drift sideways, at least for the short term...

Timers

The short-term and intermediate-term timers have whipsawed back to "Cash", so money management says that we're back to a 67% cash target.  I didn't buy anything except dividend stocks yesterday and today (which have fared worse than expected by the way), so my powder is still quite dry.  The dividend stocks are more/less immune to the short and intermediate timers, but of course, a rising tide ... (and the converse is true too).

Strategy

I'm still in the mode of getting down to 33% equity / 67% cash.  I'll continue to sell my worse positions first, then work towards  the better positions, until I hit the equity target.

Note that I'm *really* close to the long-term timer triggering a sell signal.  I hope we don't trigger, and this is a danger of a moving average system in the face of a sideways market.  The longer we move sideways the more the moving averages decay, and eventually, they will flip the other way.  In fact, this is the exact situation we're in now with the short-term and intermediate-term timers -- since their period is so short, sideways markets really put havoc on their operation.

"Trade the market given to us, not the one we want ..."

We're in a great buying zone here, so as soon as things turn just a tad and confirm, we'll be ready to commit capital.

I'll post when the signals change....  until then, daily commentary (time permitting) will be on the Yahoo site.

Regards,

pgd