Tuesday, August 19, 2014

August 18: Confirming the trend upward

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An update.

With the close of markets on 8/18, my indicators are confirming that the long-term trend is intact and is moving upward:

The short-term timer is actually overbought and I'm anticipating a short-term consolidation of recent gains.  The intermediate-termed timer, which uses a combination of the 13d exponential moving average (EMA) and the 34d EMA of the GGT index (an unweighted average of about 3000 stocks with price > $1 and 50d MA above 50Kshares), is being subborn and is not completely flipped to the "long" side.  No matter.  The UWM slope indicator just turned positive for the first time in a long time, and this is a canary-in-the-coal-mine for smaller-cap stocks moving upward in price.  Finally, the stalwart 13d/65d MA crossing of the GGT index into positive territory confirms that short (or contra ETF) positions should not be in my trading plan.

From a LCR (Long-Cash Ratio) perspective, we have room to grow:

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

The left column is the Long-Cash Ratio (LCR) of the 3000+ stocks and it indicates that for every 5 stocks that are in CASH, 4 are recommended LONG.  you can see we hit a value of 0.335 back on 8/7 and this ratio has been moving upward ever since.  0.335 is nearly a 3:1 CASH:LONG (or 1:3 LONG:CASH) ratio and is very oversold from a database perspective.  At the same time, on the right side of the table, all the green around and preceding 8/7 told me that the floor was most likely in and that the number of stocks getting hammered in price was abating on a day-over-day perspective.  Hence, when the 2d/3d signaled fired LONG on 8/8, I used the opportunity to tip-toe into the markets.  The action of 8/11 and 8/12, combined with a cumulative TICK indicator, told me to get my orders queued.

I manage a number of portfolios and the holdings are doing well since this latest signal:

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

I exited WRES yesterday for a slight gain (GGT CASH) and USAK just signaled NEW CASH with last night's run, so I'm out today with a 1% trailing stop loss (TSL) that will activate after 9:45 a.m. this morning.  I use the TSL ratchet to let the market right any short-term reversal upward.

Overall, portfolio values are up an average of 2.1% since the signal started on 8/7.  It took me most of last week to move into the markets, and as of last evening I'm now 79% invested.  I'm pushing to get the remaining 21% invested but I don't control the individual price action of my candidate stocks (grin).  For the curious here are the orders that I'm hoping will fill today and will take me higher in total invested percentage:

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

Remember, I only purchase on buy-stop orders, so the price must take out the buy-stop (which is a show of strength) and then it converts to a market order.  Also, the orders above, with the exception of ATHM and WUBA (which use different rules), do not become active in the market until 9:40, so the initial spike due to the book being cleared does not cause me to enter too soon.

The cumulative TICK indicator from 8/11 and 8/12 also indicated that the markets were moving to the long side:

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

After a series of down days in terms of 52 week new high/new lows (NHNL), 8/11 saw that we had more 52 week NHs compared to NLs.  This was confirmed on 8/12, but a tad weaker.  The cumulative tick value on 8/8 went above a 10-day trend line, causing the slope of the trend line (solid red in the figure above) to change slope to the positive.  This was tested on 8/12, where the slope abated somewhat but it still remained positive. This told me to keep buying.

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

The image above is from 8/13 through 8/18 and shows that the trend is intact, irrespective of the LCR indicators (which are not at all related).  You can see that the number of NHs is increasing on a day-over-day basis.  You can also see that the slope of the 10-day cumulative tick line (RED) is very positive and steady.


As I indicated at the open, we are due for a short-term pullback, as we're a bit overbought here since the 8/7 transition.  It will be a great buying opportunity, as the medium and long-term uptrends are intact (as I write).  Of course, your crystal ball is as good as mine and things can go south quickly, but I'm not anticipating nor am I protecting myself against that.


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



Monday, August 11, 2014

August 11th Close: Short-term Timer Signals Entry


Long-Term Timer:  CASH
Intermediate-Term Timer:  MIXED (possible transition to LONG or CASH possible)
Short-Term Timer:  LONG (and confirmed)

Here's the graphical version:

This latest transition indicates that it's safe (safer) to go in the water than just a few days ago.  The "Mixed" status of the intermediate-termed timer is somewhat of a warning -- until it moves long we are not in a sustained uptrend on that time interval.  Hence, expectations of holding anything longer than a few days at most (with the data that we have today) is misplaced.

I intend to start buying positions that show strength.  I covered how I do this in previous writings so read backwards.  I use a BUY STOP that turns on after 9:40 a.m.

In addition to yesterday's "Greenfield Leaders" list, there are a few additional stocks that appeared today:


I don't have a GGT recommendation for PEIX and it will be the weekend before I can stop the number crunching and insert it.  Sorry for the inconvenience.  PL, ENV, and INPH are long, with BX, IDTI, and LDL in cash.  The GGT stock file in the Dropbox folder has been updated.

Also from yesterday's list -- remove BFR, as it's not performing well, despite the drop in volume which is showing loss of selling conviction.  The chart looks terrible, so I'm not sorry to see it go.  Note that it was already a GGT "Cash" stock so you should not have been playing with it in the first place.

As far as the LCR table is concerned, here's the update:

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

Of interest is that the LCR -- the Long/Cash Ratio -- has moved off the bottom of 0.335 now for two consecutive days, which is good.  A value of 0.335 means that nearly 3 stocks are in CASH for every one that is LONG -- this is really an oversold condition.  Parity is a value of 1.  3:1 to the reverse is overbought (3 LONG for every 1 CASH) and is the other extreme.  I think the bottom is in (for now) and we're going to move higher in a zig-zag fashion.

Whereas Friday saw just the 2d and 3d LCR slopes turning positive, today saw the 5d and 8d slopes also change positive.  This is what triggered the SHORT TERM BUY signal.

It could fail.  Just look back at 7/22 - 7/25 and you can see an example of this.  I don't think that it will -- the right side of the table is green AND it is stronger, so I think we're okay.  Again, zig-zag, but most likely upward.

When you buy strength on individual stocks it takes days to enter positions.  My goal is to ramp into the market all week and hopefully be around 25% "in" when the medium-termed timer moves LONG and 75% in when the long-termed timer moves LONG.  We'll see.


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



Sunday, August 10, 2014

August 10 Weekend Update

On the left there is a field to put your email address.  I suggest that you use it.  I do not individually notify people anymore of my blogs, so notification via email is going to be your only way to not miss an update.  I will not spam you, I will not sell your email, I won't do anything with it, actually.  Feedburner will send you a confirming email -- you MUST acknowledge the note from Feedburner if you want to receive my updates.


Long-Term Timer:  Moved to CASH on 8/1
Intermediate-Term Timer:  Moved to CASH on 7/25
Short-Term Timer:  Moved to LONG on 8/8

Graphically, here's the same information:


We just experienced a first test of breaking the downward movement in the markets with the transition of the short-term timer to LONG on Friday.  Whether it will continue is unknown.  To a certain extent the markets appear to have bottomed -- this is evidenced by the upward movement of the "slopes of the slopes" as shown in the table below:

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

The right side of the table shows the "slopes of the slopes", or SoS.  You can see "green" for the past 3 days, indicating that the selling in the market is moderating.  The SoS table is a measure of about 3000 stocks and whether the entire database of stocks is moving upward or downward in recommendation (Long or Cash).  This is my LCR (Long Cash Ratio) measure and it is very reliable overall -- it is adaptive so as the markets change, so does the underlying data upon which it makes decisions.

This "first test" of a thawing of the markets will be key here for a number of reasons.  If you look back at 7/22, you see essentially the same presentation on both sides of the table.  The left side had the 2d and 3d slope of the LCR turning positive, and the right side had been foreshadowing that this was going to occur.  It lasted 3 days and then on 7/25 bam!  Another nail in the coffin.  The action on 7/25 was the confirmation that things were not going well and that cash should be raised, and this is exactly what I did, starting with Monday, 7/28.

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

The figure above is an equity curve from TradeStation.  The x-axis shows the "trade number" and the y-axis shows the account equity change.  The general "drift" downward shown from trade 0 to trade 320 or so is due to normal GGT behavior -- sell stocks that move to "New Cash" and hold those stocks that are in some form of "Long" status.  What is not shown here is that equity is building during this period, but due to the way Tradestation reports, only those completed trades are logged and plotted.

Around 7/21 a few of the big winners in the portfolio triggered a sell signal and were closed, causing the equity curve to move upward a dramatic amount.  This is the cause of the major jump from -$40K to +$10K in a relatively short period.  A few more trades were executed between 7/21 and 7/25, and on 7/25, with the failure of the LCR to continue to advance, I placed a number of orders to exit the market on Monday, 7/28.

Exiting positions is done the same way, day after day.  I enter a 1% trailing stop loss (TSL) order, to be valid after 9:45 a.m. on the day that the order is placed.  This causes the first 15 minutes of the market behavior to be ignored, and allows the opening volatility to be ignored.  The TSL orders are Good 'til Canceled (GTC), so they persist until the position is unwound.  If the position moves higher it drags the TSL with it, and if it reverses, the intent is that it will hit the TSL level at a higher point than a simple market sell order would have accomplished.  In general this is the case and unless there are really good reasons I do not unwind positions using any other selling strategy.

Between 7/28 and 8/1 the positions unwound.  A large percentage were in positive territory, hence why the equity curve was growing while the markets were dropping.  With the action of 8/1 my long-term timer transitioned to CASH, causing me to unwind the last 25% of my positions.  Using the same 1% TSL GTC methodology I was able to unwind all of my positions by 8/6.


The obvious question is "what now?"

We're not out of the woods yet, but we're looking better.

As justification for this example, aside from the LCR SoS table shown above, there is evidence that the markets are buying stocks:

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

The second panel from the top in the figure shows an indicator that only moves up or down if 100 stocks trade in a minute.  It is based on the NYSE TICK indicator, and it simply tells me if algorithms ("algos") are buying or selling stocks.  You can see that on Friday, 8/8, the indicator moved to the positive after 11:00 a.m. and essentially kept moving positive.  This tells me "who is winning the battle on the Street", and the bulls clearly won.

The top panel of the figure says "not so fast".  This is a plot of stocks making 52-week highs (green) vs. 52-week lows (red), and the difference (high-low, yellow).  It indicates that although there was strong buying on the markets, 168 stocks still hit new 52-week lows -- this is not a good sign.  Until the number of stocks hitting new 52-week highs exceeds those that are hitting new 52-week lows caution is advised.

The primary indicator from the figure is in the lower panel.  This is the Cumulative Tick Ribbon, and it basically shows on a minute-by-minute basis (raw, white) what the market is doing in terms of the battle of the bulls and the bears.  The white line moving upward is bullish, and it moving downward is bearish.  You can see that it bottomed near the end of markets on 8/5 and has more/less been climbing since.  It just climbed above the solid long-term average (approximate 10-day, red), and this means that we're changing stance in the broad market.

Of course, the LCR SoS indicator in my chart told you this too, but now we have confirmation from multiple sources.

So, we could be in for another "test" to see if we can continue higher.  The cumulative tick indicators need to keep climbing, the NH/NL indicators need to dominate in terms of New Highs, and of course, the LCR table that I track has to show improvement.


The next item is to get your shopping list ready.  My shopping list is simple -- it's my published "Greenfield Stocks" list that I post nightly in the GGT Stock file in the shared Dropbox folder.  Here is the table:

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

To save you the trouble of typing the symbols, here they are:


Not all of these stocks are GGT "Long"; some are being stubborn and have lacked volume to make them transition to a long status:

Again, all of these stocks are solid stocks, but the ones in "Cash" or "Aff. Cash" status should be carefully reviewed before you enter.  In fact, anything with "Aff. Cash" should be avoided, as it is in some form of a pricing free-fall.

From an Effective Volume (www.effectivevolume.com) perspective, I'm watching the following stocks:


Each of these stocks is seeing a large amount of volume that is of the "big order" type, meaning, money flow is picking up for these stocks.  Note that LAD and SHPG are GGT-avoid stocks right now, so we could see these move upward in time.  Again, SHPG is a GGT-avoid stock, so be careful with this one.


I don't have any orders placed for Monday.  With my long-term signal in CASH, and my intermediate term signal in CASH, I'm in CASH.  If Monday is a solid up day I'll know by the end of Monday whether I should place orders for Tuesday.  You will see this in the GGT Stock file that is in the Dropbox folder:  on the "Portfolio" tab, you'll see yellow where you presently see white for the allocation matrix: 

So, for example, if I get a short-term entry signal with the market's close on Monday, you'll see MAR above appear yellow in the right-four columns -- this is my internal signal that I've entered a trade into TradeStation for the specific line item.  Obviously, red means I'm not entering, and white means that I've figured out what the position sizes for the entire portfolio should be but have not designated the number of shares or the BUY STOP price.

Another thing -- I only buy strength.  Under MAR you see that the BUY STOP is $65.03.  IF I place an order, it will become valid at 9:40 a.m. -- after the opening volatility slows down -- and the price will have to move up and touch $65.03 before the order will trigger.  I enter at the market price after the trigger since they are generally one and the same.  If the price does not get touched then that evening I will adjust the BUY STOP downward to 0.1% above the day's high and the process starts all over again.  This ensures you get the best price commensurate with strength.

At any rate, this is all in the Dropbox file that I post nightly or early in the morning.  If you are not a subscriber, then send me a note to pduncan [{at] v t (dot} e d u   (clean it up, you know how) with the word "Dropbox" in the subject line and I'll add you.


As with all my postings, take all of this with a grain of salt.  You are responsible for your own investment decisions, and I am not.  Do your own diligence, and please take ownership for your actions.



Wednesday, July 16, 2014

7/16/14 General Observation-Market Rotation

I'm writing this at 3:32 pm Wednesday afternoon on 7/16.  I see some significant rotation occurring at the present time -- none of the "Greenfield leaders", with the exception of YPF, are attracting any significant money, relative to the past 10 days.  I view this as defensive:

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

The column I have the arrow on is a projected volume column.  It uses a polynomial to estimate volume for the day -- obviously, early in the day it's less accurate, but at this time of day it's very accurate.  The "strength" column is relative to the volume over the last 10 down periods -- and this is because I believe that up days need to be stronger than down days to maintain a trend.

Something to think about.

The lack of stocks that are 1) positive in price change for the day and 2) have a volume "strength" greater than their previous down days tells me that folks are letting their baskets ride.

A bit more disconcerting is the list at the bottom of the table -- RMBS, BFR, STZ, and EMES are all being sold today at volume levels higher than any of the previous 10 down days.  Obviously, avoid these names for now.

For those of you who receive stock and ETF updates via the Dropbox folder, you probably have seen this:

In a nut shell, the small-cap Russell 2000 is being sold while the DJIA, NAS, and S&P500 continue about their merry path upwards.

This isn't to state that I think we're headed down -- it simply is an observation that the market is becoming more defensive and is rotating out of small cap stocks into the larger ones.

If you have money in the market, start paying attention to whether it is small-cap focused or blue-chip.  It will make a difference.



Sunday, June 22, 2014

Continuing the Portfolio Descriptions

Update on Shooting Stars

In my previous entry I described the Shooting Stars portfolio, which I've developed to test the theory that stocks coming out of Stage 1 and into Stage 2 are significant.  The key of that portfolio is to select quality stocks that have accelerating sales and earnings on a quarter-over-quarter basis.  I started the portfolio "officially" on May 2 and May 5, and added another variant this past weekend.  Here, "officially" means that I started an official tracking/audit of every transaction, inclusive of commissions.

There are three portfolios that are using the accelerating sales and earnings rules:  one that looks at the present universe of qualified stocks that meet the Shooting Stars criteria and selects those that are projected to grow at a CAGR of at least 15%, another that uses the entire universe of qualified stocks without the 15% CAGR requirement (but still meeting the Shooting Stars requirements), and the third uses high-beta components only of the shooting stars universe, e.g. calculated beta has to be higher than the market beta (which by definition is 1).

As of the close of June 20 we have:

Shooting Stars 15% CAGR:

  • Realized gains/(losses):  -2.1%
  • Unrealized gains/(losses):  +0.5%
  • 22% invested
Shooting Stars All:

  • Realized gains/(losses):  -1.9%
  • Unrealized gains/(losses):  +4.4%
  • 77% invested
Shooting Stars HiBeta:
  • Realized gains/(losses):  N/A
  • Unrealized gains/(losses):  N/A
  • 0% invested (orders will be executed starting Monday)
The GGT recommendation for individual stocks controls the amount of cash in the portfolio, and the 15% CAGR has a high number of stocks that are being held in cash.  Details are in the GGT stock file, which is in the shared Dropbox directory.  Send a note to pduncan [at] v t {dot} e  d  u  with "Dropbox" in the subject line if you want access to the files.

For the three portfolios, allocations are made by optimizing the Sharpe Ratio of ALL possible holdings and then only buying those that are in some form of GGT "long" status.  Note that the act of optimizing potentially removes some of the candidates from the pool, in that additional stocks either worsen gain and/or portfolio volatility.  Hence, the process of optimizing allocation removes stocks that have a really poor reward/risk ratio as measured over the past year.

Selling of individual stocks will occur based on my nightly scans.  Same goes for purchases that are signaled via a GGT "New Long" recommendation.  Reallocation, and additional scans for stocks that fit the universe criteria happen every couple of weeks or so, time permitting.


Steady Eddies

Steady Eddies is my long-term, low-maintenance portfolio concept.  Unlike most of my portfolios, this one does not subscribe to the accelerating EPS and sales requirement, although it does require growth in both of these components over a much longer time period than consecutive (trailing) quarters.  In fact, it requires incredible stability on a 10 year time frame for EPS and sales, and out of the universe of stocks only 9 (nine) make the cut right now.  Here's the exact selection strategy:

  • Must be on a US exchange
  • A linear fit to the 10 year revenue growth using yearly numbers must have a R-squared of greater than 0.95
  • A linear fit to the 10 year EPS growth using yearly numbers must have a R-squared of greater than 0.95
  • The current price, when compared to the projected "high" price using the EPS projection determined above, must provide at least a 2:1 upside in the next 5 years.
I've been tracking this portfolio for almost a year and it lives up to it's name.  It just plods along.  Without the GGT influence on the individual positions the portfolio swings with the market as a whole -- up a few/down a few.  With GGT timing individual stocks it appears that there is between a 20 to 25% reduction in volatility compared to the always-long approach, which is why I'm interested in this portfolio strategy.  Although some positions are held in cash and this limits the overall gains of the always-long stance, the returns seem to be very stable on a longer term.  We'll see.

Although the stocks are in the Dropbox file I'll list them here for your consideration:


Note that CERN, LKQ, MWIV, and PNRA are currently in GGT "cash" status.

Like Shooting Stars, there are multiple portfolios here.  The basic portfolio (Fully Invested) invests in the full  list of 9 (nine) above, timed with GGT.  The second portfolio is the 15% CAGR methodology, and presently, the only stocks on that list are AAPL, BRLI, CTSH, and LKQ.  As I stated above, LKQ is in "cash".  I officially started logging these two portfolios on May 5th.

Here are the performance numbers:

Steady Eddies 15% CAGR:

  • Realized gains/(losses):  -2.2%
  • Unrealized gains/(losses):  +2.8%
  • 67% invested
Steady Eddies Fully Invested:
  • Realized gains/(losses):  -0.8%
  • Unrealized gains/(losses):  +2.1%
  • 75% invested
For both portfolios, allocations are made by optimizing the Sharpe Ratio of ALL possible holdings and then only buying those that are in some form of GGT "long" status.  The allocations are listed on the "Portfolio" tab of the Excel workbook in the Dropbox folder that I described above.


In a future entry I'll describe the "Greenfield" portfolios, which are presently outperforming everything else I am running.  

Let me know if you have any questions!



Wednesday, June 4, 2014

Various Portfolios in the Dropbox Stock File

I received a question today that most likely is on many of your minds, so I thought I'd post a generalized response.

" I see the titles of the various stock lists- Greenfield dividends, Greenfield Leaders, Steady Eddies, Shooting Stars,etc. I suppose I can tell from some of the titles , what types of stocks are within, but where does " Greenfield" come from.  Also, is the criteria you are using for the various lists specified somewhere?"


2014 has seen me focused on "life" things, but one item I devote time to is improving GGT.  In fact, it's in process of being moved to "the cloud", and I'll reveal more of that once I start initially kicking the tires and seeing how it can be used to influence our decision making when it comes to stocks and ETFs.


Part of the effort of moving GGT to the cloud is the creation of portfolios, and these portfolios are what you see on the "Portfolio" tab of the Dropbox stock file that I update daily.  Here's a brief rundown of the different portfolios; aside from my personal portfolios, I'm only going to explain Shooting Stars, 15CAGR and Shooting Stars, Fully Invested in today's entry.

Sharebuilder -GB, Sharebuilder -SB:  these are automatic investments for my two boys and the plan costs $12 per month per child, and you get 12 investment transactions per account per month.  I invest weekly for them (right now $214 per kid per week), and you can see where the allocations are going.  Allocations are done in terms of optimizing the Sharpe Ratio for the three stocks per account, so it's not a 33%/33%/34% in each.  Presently, you can see the weights in the "CAP Weightings" column.  Anything in a "CASH" status means that that portion is going to cash, not to the investment indicated.  The data is listed in this file simply so that I can easily track my personal investments.

TS-PF, TS-790, TS-535:  these are actual holdings in TradeStation accounts for private individuals, including myself.  TradeStation permits 3rd party transactions on an account, e.g., these folks have opened a TradeStation account and have permitted me access to trade their account.  I cannot withdraw monies, but I can trade their account as it was one of my own.  This is a for-fee monthly service that I am providing to individuals.  If you have under $25K in the account margin rules allow only 3 transactions per day, which is a pain in the tail if you're trying to act on a new buy signal.  Nevertheless, you can see actual holdings in these accounts and the overall allocations.  Again, the allocation per stock is done using software that optimized the Sharpe Ratio for the portfolio, so it weights more those stocks with a higher Sharpe Ratio.  Presently, TS-PF and TS-535 are shadow accounts, meaning they should be holding the same stocks as I'm mirroring performance, and the TS-790 account is my personal account that is not using the same method as the TS-PF or TS-535 accounts.  The TS-PF and TS-535 accounts are using a blended Greenfield Leader's / Leader's strategy, which I'll describe at a late time.  The TS-790 account is using a Darvas Box breakout strategy, which I'm still developing.  I will discuss this strategy also at a later time.

Shooting Stars, CAGR 15%, GGT Timed:  this is a strategy that requires a number of conditions at the time of entry:

1) 200d Uptrend Test:  the 200d MA of the stock must be in an uptrend for the past 30 days (minimum).
2) Span Test:  the 75% level of the 52-week high must be above the 125% level of the 52-week low.  As an example, let's assume that the 52-week high is $100 and that the 52-week low is $50.  75% of $100 is $75 and 125% of $50 is $62.50.  In this case the stock meets the condition because $62.50 < $75.    If the 52-week high were $75, 75% of $75 is $56.25 which is less than $62.50 so in this case the stock would fail and would not pass the Span Test.
3) Accelerating EPS Test:  The last 4 quarters of earnings must be higher than the prior 4 quarters of earnings, one reporting cycle ago.  As an example, I'm writing this on 6/4/2014.  There are 4 quarters in a year, so I can take each earnings for each of the quarters 6/2013, 9/2013, 12/2013, 3/2014 and add them together.  I can then take the series of 3/2013, 6/2013, 9/2013, 12/2013 and add them together.  If the first lot (most recent 4 quarters) is greater than the previous lot (4 quarters one quarter ago) then we have accelerating earnings.
4) Accelerating Sales Test:  Exactly the same process as the Accelerating EPS Test above, but for sales figures.

Sales and EPS drive a stock price and company valuation.  200d Uptrend Test ensures that prices are moving upward over the longer haul.  The Span Test ensures that the moves are significant and that we're not getting a stale stock.

This specific portfolio requires that the projected CAGR, using Better Investing's Stock Selection Guide (SSG) methodology, shows that the projected 5-year return will be higher than 15% CAGR per year.  Your crystal ball is as good as mine.

GGT is used to time this portfolio.  As I write 5 stocks are in some form of "CASH" status, e.g., money is held in reserve.  When the stock transitions to a "New Long" I'll submit an order for the allocation shown.

Allocations into each of the positions are shown in the "AO" column on the Portfolio tab.  Again, this is done using the Sharpe portfolio optimization tool.

Allocations may change going forward if there is cash in the account.  I periodically update the CAP weights and as new stocks meet the criteria, they are tested as a whole within a portfolio setting.  It is quite possible that a stock in "CASH" status will disappear and be replaced by another, possibly in cash status, or possibly in some form of "LONG".  I generally will only do this update on the weekends, as I don't have much time during the week to do the analysis (although it is automated it takes time to set up and verify).

The published portfolio has been running since the beginning of May 2014, although I've been playing with the concepts for many years.

The values presently listed in the yellow/blue bar are simply estimates of future performance and are not a guarantee of anything.  Here's the terminology:

TR:  projected annualized total return.  For this portfolio the requirement of TR is > 15%, and the projection is 21.2%
PAR:  projected annualized average return.  This specific portfolio, as fully held, (coincidentally) projects a PAR of 15.0%.
R/R:  risk/reward of the portfolio.  Ideally, want better than 3.0/1.  This portfolio is presently at 6.2/1, which indicates that there is a 6x upside possibility relative to a 1x downside movement.
RV:  relative value.  Uses the present EPS value relative to the past 5 years EPS average to determine stocks/portfolios that are overvalued or undervalued.  Ideally, we want values in the 80-110 range, with a preference around 90-100.  A value of 79.1 is good, but a bit low and if on an individual stock, would be considered suspect.  The fact that it's spread across all the holdings improves confidence in the value so we'll see.
Hoadley:  13.52%/21.73%/0.62.

  • The first number is the projected annual return of the portfolio, fully invested, with a market return of 12% and a risk-free rate of 0.03% (I use the 4-week T-bill as the RFR, http://www.federalreserve.gov/releases/h15/update/).  In this case the portfolio has a projected 1.52% alpha level, e.g., on average it should return 1.52% more than simply investing in a market index.
  • The second number is the projected annual volatility of the portfolio, again fully invested.  In this case a fully-invested portfolio may vary as much as 21.73% over the course of the year in order to return the 13.52% projection shown.
  • The third number is the Sharpe Ratio, and by definition, it is the ratio of 13.52%/21.73%.  Of course, dropping volatility and increasing return will improve the Sharpe Ratio, and while easy to do for individual stocks, it is not easy to do for portfolios due to covariance.  Out of the universe of stocks that meet the criteria for this portfolio, this is the greatest Sharpe Ratio for the stocks listed, and the lowest covariance for the portfolio.
For you data wonks, here is the correlation matrix for all the stocks meeting the criteria within the portfolio (but not necessarily positioned):

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

A value of 1.00 means that two securities are perfectly aligned with each other, e.g., they move exactly together.  A value of (-1.00) means that they move exactly opposite of each other.  A value of 0.00 means no correlation to the target market.

As you can see above, relative to ^RUT, which is the Russell 2000 (R2K) index, WDR has the highest correlation with the ^RUT at 0.70, meaning that 70% of it's movement correlates to the movement of the Russell 2000, but 30% of the time it's movement is not explained by the movement of the R2K.  Contrasting,  EDGW only has a value of 0.17, so only 17% of it's behavior can be attributed to the R2K market.

Interestingly enough, not all the stocks make it into the preferred portfolio.  Here's the list and weightings as of 5/30/2014 (subject to change going forward):

ANIK 12.22%
BMA 1.86%
BWLD 4.98%
CTSH 13.15%
FFIV 12.15%
FSS 11.23%
HURN 8.11%
LKQ 5.11%
LVS 13.26%
OLED 6.07%
WDR 11.86%

Of significance is that WDR is listed and EDGW is not.  It's all in the math of finding the optimum Sharpe Ratio for a portfolio.  Suffice to say, WDR is more stable than EDGW and EDGW simply causes the portfolio to move away from the optimum point.  You can see this clearly on the Efficient Frontier chart:

The target portfolio is shown where the blue curved line and the straight line intersect (at the purple triangle). Note that the projected return for EDGW is far below the target AND it has extremely high volatility, hence, it's not a great candidate in the portfolio relative to other securities.

The lone gold diamond, just above WDR, is the present holdings portfolio estimate.  This is with the 5 securities that are in "CASH" mode NOT included in the optimum results.  While return is higher, volatility is much higher, so the trade-off is higher risk for a disproportionate amount of return.  It's not an ideal situation and I'm hopeful that the remaining 5 stocks transition to "New Long" soon so I can commit the monies.

Shooting Stars, Fully Invested:  This is a sister-portfolio to the one described above and the only major difference is that ALL stocks meeting the 200d slope test, the span test, and the EPS/sales tests are considered.  I do not screen on the 15% CAGR estimate requirement.

The impact here is significant -- the universe of stocks grows dramatically.  Consequently, there is more ability to fine-tune the Sharpe Ratio (it is presently estimated at 0.67 compared to 0.62 in the 15% CAGR portfolio), but estimated returns drop dramatically because more securities are involved.

In fact, if you look at the Hoadley numbers in the yellow/blue title bar on the dropbox sheet, you'll see that we have  10.91% / 16.34% / 0.67.  This means that instead of having a alpha greater than the 12% market baseline, we're actually working harder for less return than simply investing in the ^RUT using the ETF "IWM" and being done with it.  The only benefit of adding securities is that volatility drops dramatically (estimated to be 16.34% versus 21.73% in the 15 CAGR portfolio), so the Sharpe Ratio moves up from 0.62 to 0.67.  This is significant.

Here's the Efficient Frontier for the Shooting Stars, Fully-Invested portfolio:

You can see that there is an improvement in potential gains with a slight add of volatility as more positions are added using this portfolio.  This is simply due to GGT timing.

All of the stocks in the Shooting Stars Fully Invested portfolio meet the 4 critical criteria as outlined above so they are good stocks, BUT, they also are not necessarily projected to do as well going forward, according to SSG methods.

The purpose of this portfolio is to compare/contrast the 15 CAGR screen and to see how the SSG worksheet process of future projections work.


Enough for now.

The next blog entry will consider "Steady Eddies", which I think you will find quite interesting if you have a long-term view of the markets.

Your feedback is solicited and welcomed.

If you are not a dropbox member, please send me an email to pduncan [ at] v t [dot] e d u (no spaces, trying to beat the bots) with the word "Dropbox" in the subject line and I'll add you.  Note I will also force add you to the Yahoo! GGT group, as it's the only way I can communicate with you.



Thursday, May 29, 2014

All timers are aligned "LONG" May 29th, 2014

With the close of markets on Thursday, May 29th, all my timers have transitioned to the "Long" side.  This means that short-, medium-, and long-term timers are all indicating resumption of the uptrend that ended in March.

Whether the trend will continue into June is unknown.  Your crystal ball is as good as mine.

From a long-term stance, the brutally-simple 13d / 65d timer has transitioned to "long".  This means that the difference between the 13d EMA and the 65d EMA of my internal index (the "GGT Index") is now positive. As I've stated in previous emails, this is my last safety net.  It kept me out of the 2008-2009 mess, and any time it is negative is a time to significantly raise cash.

As I've stated in previous blog entries, the timer has signaled a move to cash or fully invested only 7 times since November 2008, so the number of signals to evaluate is low.  You can also see from above that we can whipsaw, as we did in 2012 and earlier this year.  Despite this, it's a good safety net and worthy of consideration in your arsenal.

From a timer status point of view, we're green:

From a short- and intermediate-term point of view, we've been "green" for about a week.  We're approaching what I call a "local overbought" condition which is where stocks have run up off lows and are now ready to ease back a bit, generating the "higher low" conditions.  This will be absolutely key in the next week -- we do not want to see huge pullbacks in the market that take out previous lows.

A number of stocks are looking quite attractive here.  The following list is my "greenscreen" list, and it is presently sorted in terms of the highest volume stocks to lowest volume, relative to the past 10 days of activity:

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

A description of the fields is here.

To save you the trouble of typing the symbols they are listed here.

The stocks listed at the very top of the greenfield figure are performing quite well on a number of fronts, both in the present market as well as with their fundamentals.

My strategy is simple -- buy breakouts and stocks which are signalling "New Long" conditions.  As many of you know, I buy strength, not weakness.  I have placed a BUY STOP on the following positions:

ADS above 257.13
BIIB above 320.16
BMA above 31.38
FFIN above 60.31
HURN above 67.91
MANH above 33.10
MCHX above 10.78
PAG above 46.69
SPWR above 34.15
WWWW above 35.05

I'm paying a great deal of attention to


because these stocks are in some form of a squeeze and have great fundamentals.

As many of you know, I watch Effective Volume when I'm considering a stock.  I've developed my own ranking system, and when match with the greenfield indicator, the following stocks are attracting money in this most recent up leg:


This isn't to say that others are not attaching money -- it is simply another method of slicing/dicing the stocks in terms of hidden inflow of capital.  These are at the top of the list.


There are plenty of ideas out there.  Of course, this present cycle could reverse, and all of the noise of "sell in May and go away" could be 100% true.  Again, your crystal ball is as good as mine.


As with all my postings, it should be evident that you need to do your own diligence and that you are responsible for your own decisions.  I am not.  Please take ownership for your actions.