Portfolio Decisions 4/28/12

So far this year, we are positive on our portfolio and just hit our high mark for the year. I am also meeting the boss’s (wife) goals for me to make 1% per month for this year. That is actually quite remarkable because I am quite conservative and in my harsh judgment for myself give myself an A on trading systems but a C on execution. The boss reminds me how I have failed to take on the executions for AAPL when the trading systems have fired entry and exit signals for the last several months that were spot on.

On a flight back from Minnesota, I was mulling my portfolio on a napkin and was thinking that the way I wanted my retirement portfolio set up for trading is

Stocks                          50%    (Always hedge my stocks with SPY Put options)

Alternative Investments 50% consisting of

            Commodities (GLD, OIH, USL)           10%

            Bonds  (TIP, TLT)                               10%

            Real Estate (IYR, SPG)                        10%

            Currency funds (FXY, FXC, FXF, FXE, UUP, and UDN)  10%

            Cash                                                    10%

I would enter each based on tactical asset allocation – which would be my 1/month momentum system on my 401Ks and daily dynamic hedge system based on my Metastock trading systems. Once again I failed to execute my real estate trading decisions and they have risen nicely since I failed to get in. Same with AAPL. Think I will dump AAP as I have not acted upon it for so long. I am still in HOG, PCP and on the down side on SNDK although I took half profits on the huge gap down. Also long UDN and TLT which are all in the profit right now from my entry point..

P.S. My boss minds the AAPL mishap.

Down Signal on AMD 4/23/12

We have a down signal on AMD. Since this is a few days after the earnings announcement, that is not a good sign. The market has digested the earnings news and is not enthralled.

I had mentioned in my earlier post that I took the easy route out. I got out of my AMD position before the earnings announcement. The earnings report was too much of a gamble for me to stay in. Meaning we don’t know which way the market would turn. Given the earlier exit long signal on SPY, the safe route was not to take the chance on AMD as the health of the overall market also plays a role in the stock’s direction.. The market has taken in the earnings news and is selling off.

A Tale of Two Stocks 4/21/12

A tale of two stocks; HOG (Harley Davidson) and SNDK (SanDisk). I am invested in the up direction in HOG and in the down direction in SNDK. This appears somewhat conflicting but it is based entirely on my technicals and it is working well for me.

I own HOG. Not the bike; but the stock. We got a nice pop in the stock Friday as it broke through above $50. I remember driving through Wisconsin on a business trip and driving by the HOG plant. The story went that the union agreed to cut backs and was able to keep the manufacturing jobs in Wisconsin and not lose it to South of the Border. I am glad for them. It looks like there is resurgence in HOG as it climbed all the way from high 30s up to over 50 in stock price. Only a few things drive stock price up. The usual reasons are - increase in revenue, increases in profit and a positive outlook. Looks like older Americans are buying Harleys. I am trading this with my hedge system. That means I buy the stock and hold put options below the stock price as downside protection. When the stock moves up, I move my protection up. When the stock gives me a down signal, I will let go of the stock and use the put options to make a little money. I have to take a look and see if I need to move my put protection up a strike or two.

SNDK or SanDisk on the other hand has taken a beating. My last long signal was a dud and I lost money on that trade. However with the down signal, I sold the stock and held on to my put options. The stock has continued to go down ferociously from $44 to $34 in a few weeks. My put options have gained value nicely. Talk about making money on the down side… my friends from the buy-and-hold camp will ask why it went down. I will say Why-ask-why? Post mortems are for morticians and news commentators, not traders. All I see is that the technicals have guided me in the right direction for each of the two stocks. What else could have done that in a timely manner?

Nothing in life is to be feared. It is only to be understood.

- Marie Curie

The Winds of Change 4/15/12

I heard a great talk this weekend by Dennis Stearns from the Stearns Financial Group. He was the guest speaker at our local AAII Chapter meeting on investing. More on his talk next time. For now I am looking and seeing the winds of change starting to whisper.

As I pointed out last week, I was surprised with a down signal on SPY. I also keep track of the ratio of number of Advancing/Declining stocks. That too turned in a down signal last week. GLD has been in a down signal for a month or so and so has Oil (OIH).  CAT has been in a down signal since 2/8/12. Guess what has turned in an up signal? TIP and TLT. These are bond funds and show the mood shifting from stocks to bonds. As I have pointed out before, I try not to align myself with a single idea and try not to be too predictive long term; but short term, the winds of change are towards the down side on equities.

I hold a position in AMD that is still in a long signal but has been a slight loss. Earnings report is coming in this week and I am going to close the position before earnings announcement. It is too much of a gamble and I have no idea where the odds are. So best to stay out. I am holding down put positions, albeit small in SNDK which has continued to slide. I am still long HOG which is barely holding up. I am also long my 401K equity funds. I will start adding to my hedge positions (with SPY put options) against the 401K as well as buy some TLT at market open Monday and sell AMD. Eventually if this is the beginning of a slide, my 401K positions will shift towards bonds but since it is a slower reacting system, I will wait for it to tell me so. The winds of change appear to be blowing and I am getting protective on my portfolio.

I will buy commodities like Oil and GLD when I see up signals. As Dennis pointed out there are some good double duty positions one can take to hedge, like Oil and Gold. I agree but my preference as an individual investor is that I can be more nimble and will get into those with tactical asset allocation. That means I will get in when I see long signals from the technicals for the double duty hedges. The bond funds are signaling up in the meantime.

SPY Gives Exit Signal!! 4/10/12

Rather unusual happening. SPY gave an exit signal after the end of day today.  See chart below. We have had a nice upturn for a while and it is always a shock to see the exit.

The short term timing may not be perfect as the market seems oversold to me; but caution is certainly the word of the day.

I also see an exit signal on PCP, so I will switch to a down bias and just hold my puts. Currently sitting on puts on SNDK also -  I am biased to the down side on it.

My 401K remains long, although I do have hedges on it..

401K Monthly Analysis – 4/7/12

The monthly investment analysis for my two Fidelity 401K funds is done.

The first Fidelity analysis on my current company fund choices say to keep my money in Royce Opportunities, Blue Chip Growth, and WFA SPL Midcap VL.

The second Fidelity analysis on my previous company Fidelity funds analysis says the strongest funds are Artisan Midcap fund, Mt. Vernon Growth and Vanguard Explorer Admiral Fund.

These are all strong stock funds and does not belly the fact that the markets were closed Friday but after the Jobs report Friday morning, the S&P futures took a >1% dive and we are expecting a much lower open. Some market pundits are heading for the hills citing other weaknesses. Then there is the sell in May and go away theory. The market appears to be faltering and early panicky investors are looking for cover.

Still, I have to decide whether to stay in the game and follow my system or jump at the first sign of weakness. I can frankly see merit to both. There are no fixed rules we must follow. Or are there? The markets have been climbing for a while and there is nothing wrong with walking away with profits. On the other hand I am not expecting the market to just capitulate. After a strong move up as we have seen, it is unlikely that there is no more strength left. More of a regrouping. But with the regrouping we will see weakness and eventually my systems will point down. I still have hedges on but the downward movement could hurt.

People wish to learn to swim and at the same time to keep one foot on the ground.

- Marcel Proust

Up or Down? 04/02/12

Up or Down? That depends on which market we are talking about.

I was surprised to see a down signal on IIF the India fund. Saw similar weakness in FXI or the China fund ETF, as well as a down signal on EEM, Emerging markets ETF. It is surprising that the US is currently one of the strongest markets this year. My signals for the DJ30 and SPY remain long and Up and that is my bias in my portfolio.

I think we will find a reason to pullback eventually. It could be the fact that we will eventually realize we are running up against the debt ceiling again and the long political battles will begin again. For now, I cannot bet against a rising market other than keep hedges or insurance on a surprising downward move. I am reading Nassim Nicholas Taleb’s book “The Black Swan” and have to agree with some of his thoughts. It is far better to make money by not having large losses.  That can be achieved by insurance and redundancy.

He also makes a great point about not totally relying on past data to make future decisions. For example the turkey that had a healthy life for a thousand days would find everything changed the day before Thanksgiving. Nothing in the past data would have given the turkey information about what was to come. I admit that my Metastock systems look at past data. I look at it as just telling me for the next day, one day at a time, what the state of health of the chart is. But I cannot predict a black swan event and accept its possibility.  Therefore to protect my portfolio I carry insurance against the black swan event. And yes, I carry life insurance on myself as well as on my cars and home.

I am attaching a chart on the IIF as well as one on SPY to show the contrast.

Next week, I will post my 401K analysis for the month.