Thursday, January 20, 2011

A Belated Top 25 Stock Change

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Yes, this is a day late.

Yes, it's probably a dollar short too.

My day job got in the way of this extracurricular activity and I could not post the Top 25 Stock changes to the world.  I need someone else to cover me for instances like this.  Any volunteers?

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Here's how I'm handling the SNAFU.  I'm using the data file of 1/20, just as normal.  We'll sell the stocks according to that file, and we'll buy the new stocks recommended.  BUT, I've run the updates for today (Thursday) on the Top 25 stocks and I know which ones were a sell for Thursday, so we won't buy those.  The result is that we'll have 22 stocks when we're all said and done with this.

Sell:

AMRN (-2.02%)
APKT (-13.79%)
FCS (+6.14%)
FRG (-20.05%)
HL (previously sold intra week)
JRCC (-13.04%)
KOG (previously sold intra week)
LNG (+2.60%)
NXPI (previously sold intra week)
OCLR (-7.10%)
REE (-11.63%)
WLT (-7.70%)
WNC (-7.54%)
WNR  (previously sold intra week)

These stocks will be staged for sell at the open and will execute as Marketocracy allows, dependent upon market volume.

Buy:

AREX
HDY
MHR
NCT
SFI
SGMO
SRZ
AXL
CIEN
ENTR
VVUS

Buying will start with available equity once the majority of the stocks above are sold.

Hold:


ACLS (-2.54%)
XOMA (+10.10 %)
WTNY (-0.02%)
LULU (-4.80%)
JAZZ (+16.55%)
ITMN (-2.10%)
GTLS (+2.94%)
FTK (+4.53%)
EXEL (-8.51%)
CVI (+3.01%)
ATML (+2.19%)


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An obvious challenge for the Top 25 stock portfolio at Marketocracy is the lack of ability to short stocks.  Additionally, the ability to use any form of leverage does not exist (e.g., margin), hence once the Elder Intermediate Timer rolls below 0, this portfolio is sold and we are in cash.

I'm backtesting an approach that appears to work and allows enhancement of returns when the Elder FI(13)<0.  It utilizes -1x ETFs only, and basically allows us to use the following ETFs:

  • DOG (-1x of DJ30)
  • PSQ (-1x of NASDAQ 100)
  • SH (-1x of S&P500)
  • RWM (-1x of Russell 2000)
I'm testing 20% per position with these, with 20% in cash, because Marketocracy requires a 65% invested amount at all time and at no time can any one position exceed 25% of the portfolio.

A variant on this is to use the -2x ETFs:
  • DXD (-2x of DJ30)
  • QID (-2x of NASDAQ 100)
  • SDS (-2x of S&P500)
  • TWM (-2x of Russell 2000)
Results are a little less than double the 1x performance.

These ETFs cannot be purchased until they signal "New Long",  I note with interest that:
  • DOG and DXD are both still GGT-rated in CASH
  • PSQ and QID are both still GGT-rated in CASH
  • SH & SDS are both still GGT-rated in CASH
  • RWM is in CASH
  • TWM has signaled NEW LONG as of the close of Thursday, January 20th.
Under the methods that I have backtested, I would be allowed to enter a 20% position of TWM on Friday IF the Elder FI(13) of the GGT database is < 0.  I will not know this until Friday morning which is when the GGT stock universe will complete it's update.

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The Top 25 Stock Portfolio is performing poorly relative to the Top 25 ETF portfolio, as well as the S&P 500.  Since inception on 10/28/10, and through closing on 1/20/11, the portfolio has dropped -0.11%.  It reached a peak of 5.87% on 12/29 and has given up all of these gains.

One of the major difficulties of the Top 25 Stock portfolio is that the GGT method is relatively slow on the exit of a given equity once it starts to break down.  This can delay exiting, and as a result, cause us to hold onto a position until it drops to -20% or greater (FRG is the case in point).  Hence position management other than relying on the Wednesday rotation or a drop out of the GGT Top 25 needs to be affected.

As many of you know, I'm a big fan of Elder, and I'm also a big fan of using the slopes of the 13d and 34d EMAs as a buy/sell window.  This is incredibly difficult to backtest though, because each of the GGT lists has to be hand reviewed.  The data exists in HGSI, which is what I used to backtest many of these variants, but going back to March of last year with a new set of test requirements simply does not appeal to me.

The introduction of effective volume also can play a role here.  We can simply block entry into any stock that does not have a positively-trending large effective volume (LEV) on the day of selection.  Additionally, we can sell any stock that experiences significant (define significant?) drop of LEV, long before GGT will react.  Again, backtesting is virtually impossible. 

I'd like your comments on these ideas.

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Please check back before the open on Friday to see if the GGT Elder FI(13) value is below 0.

Remember, the Top 25 portfolios are TEST portfolios only.  

Regards,

pgd