Markets Swoon 12/13/14

Is this just a pullback? Could be. I hear that from the market gurus on TV. We have been on a tear heading up and it is unlikely that the markets will do an about face and head South without a thought. But there is one thing unique about the current market. And that is how fast and furious the slide of oil has been.

I remember reading Thomas L Friedman’s book “The Lexus and the Olive Tree” thanks to my daughter. She had just developed a strong interest in International Relations and gave me the book to read. I felt I should read is just because she was interested. Since then I found Thomas Friedman to have a wonderful mind. I recall him writing about the Mexican Minister wringing his hands and watching the monitor in his office that showed the Mexican Pesos in free fall and asking why are they doing this to us? Who is the “they”? “They” is not just another country. “They” is not just the banks. “They” is an enemy he cannot see. “They” is the collective. “They” is the collective’s punishment to his country for their inefficient policies and for corruptions that prevent efficiency in the markets. The collective will punish inefficiencies.

And now a major country like Russia is asking the same question. The price of a barrel of crude oil and the Russian ruble has fall precipitously. While Russia flies its war planes cruising around the world, looking for the enemy, it cannot see its real enemy bringing their economy down…. themselves… traders are punishing Russia for invading Crimea and not using oil monies to develop its own industries and infrastructure. Lack of open markets. Harassing American businesses. Taking over foreign companies… Inefficiencies. All these make Russian markets less efficient and the collective heaps a fitting punishment on Russia for that.

And where are the American politicians who were once blaming the speculators for driving up the price of oil? Why are we not singing praises for those speculators now for bringing down the price of crude? Oil has roiled the markets and created an eerie new uncertainty. This is a place we have not been before. It should feel good…. I know I am paying less for gas (petrol) than I have paid in a very long time…. And the price of goods should come down as transportation costs should be less. Airlines are making higher profits. Planes are full. The retail industry has lower costs moving goods. Schools and State budgets are seeing a massive drop in expense for busing kids to school. So why is the market sending down signals? The answer is one word… uncertainty has increased.

Take a look at charts on DIA (Dow Jones 30) and SPY (S&P500). They are both flagging down signals. QQQ (Nasdaq100) also has a down signal. And you guessed it… Long term treasury bonds have been flashing an Up signal. See chart below on TLT. I have sold call spreads on QQQ betting on a down side for the short term. I sold off my holdings in SPY and QQQ. And I purchased some TLT that is up right now. I do have some long holdings in my 401K that I will need to exit that is pulling me down. Fidelity will be sending me their nasty letters about frequent trading… I hate that. I will never get a Fidelity trading account outside of my 401k for this hypocrisy. But I should never say never… time to work on my next project….

401K Monthly Analysis – More of the Same 120614

The chart on SPY shows an Up signal. The 401K monthly analysis suggests more of the same.

Top choices for my current employer’s 401K monthly analysis suggests top fund picks using my momentum analysis as Fidelity Growth, Spartan 500 and WFA SPL Midcap VL.

In my previous employer’s 401K top fund picks are Cohen & Steers Realty Fund, Vanguard Instl Index and Fidelity Contrafund.

The economy shows strong job growth. Market is still pointing upward.

A Case for Buy and Hold – 11/22/14

Buy and Hold works well when the market has been ripping forward as it has over the last 5 years. While we debate how long this can last, it beats all the pundits predictions of pullbacks and keeps going forward while frustrating many technical analysis oriented frequent traders.

When I think of the huge drop commodities (such as DBC) have seen, I tell myself you can’t rely on buy and hold. But this blog will be about how can you do a buy and hold and not all the afflictions against it.

Many months back, listening to a visiting speaker at AAII (American Association of Individual investors) I heard of a superb method to invest if you had lots of money.

The speaker (I cannot remember his name or face) told us about this rich widow who lives in Florida. He manages her investments by putting her money in high quality dividend paying stocks that will appreciate in value over time. She just lives off the dividend. His logic was that by buying a high quality stock such as these for $40, she would get 3% dividend annually ($1.20 for each stock held). In a few years, this stock could hit $60 and her dividend would be 3% of $60 ($1.80 for each stock held) – an increase of 50% in dividend or a net 4.5% dividend on her original investment. That would more than keep up with the pace of inflation. Sounds too good to be true? Not at all… he was right on the money. And how do I know? Because I created a list of his stock selections two years back and put them in a folder and I am amazed at the appreciation her portfolio has seen in capital value as well as dividend growth!

Below is a list of the el primo stocks he gave us that day in her portfolio. All I had to do was stick my money into those, forget about the ups and downs any individual stock went through and kept the dividends… alright with my technical analysis, I could even just have stayed on stocks with an up signal. And based on a long term view, that could have been just based on a weekly chart and not the daily chart shown below! Therefore there is a case to be made for Buy and Hold… as long as I do that with top quality, high free cash flow, diverse set of stocks such as listed below….

ABT, COP, INTC, JNJ, KO, MDT, MMM, PEP, PFE, PG, SYK, SYY, UTX, WMT, XOM.

For now, I will trade these in the direction of the long signals as they come up, although some look pretty overbought now… take a look at WMT, KO etc…I am in KO and PEP and sold JNJ, ABT, WMT recently.

401K Monthly Analysis – Back in the Game 11/7/14

SPY (S&P500 ETF) gave a buy signal using my ICE trading system. This particular system is slow to react and less jerky but it has been a little slow in response time lately. My mistake would be to abandon it and move to something else.

The trading system I use on DIA (Dow Jones 30 ETF) is my own creation. It gave an entry signal much earlier. I used that to sell put option spreads. The notion being that with a long signal indicator on DIA, it will likely move up or go sideways and give me better odds to sell option put spreads on the down side. The risk is capped using a spread and time decay is in my favor. See charts below on SPY and DIA.

My 401K monthly analysis on my current employer’s fund options suggests that I should put my monies into mid-cap funds, mainly the WFA SPL Midcap VL and NB Midcap GRTH TRUST. The Spartan 500 Index follows behind these two.

My previous employer’s 401K monthly analysis shows the strongest funds to be Fidelity Growth Co, Artisan MidCap VL INST and Fidelity Contra fund.

I am back in the game. 

Fear of Ebola 101814

How quickly markets fall I think. Yet if I look at a chart of EWG (Germany) the exit signal occurred back in 6/14 or if I look at EWC (Canada) the exit signal occurred in 9/14. Because I am biased towards US markets, I look at SPY and that was the last to show weakness (exception being IIF the India fund). This time it was a multitude of reasons but the one standing in front of 95% of Americans is the fear of Ebola virus. Just last month I took my regular once a year flu shot knowing that it covers a majority of flu issues but not the grand master of all, the ebola virus. I was curious to read what my classmates posted on Nassim Taleb of “Black Swan” fame about Ebola. After reading this article I felt his opinion was quite sound.

http://www.businessinsider.in/Nassim-Taleb-Heres-What-People-Dont-Understand-About-Ebola/articleshow/44864143.cms

Ebola is a multiplicative virus. The growth rate is certainly non-linear. The number of people catching it doubles every 20 days. The key to controlling it is at the beginning and at the source. Travel bans may seem excessive but travel bans in the 3 affected areas is more important than trying to close borders – we know we are not effective at border control anyway. Reminds me of the old movie “Outbreak” I think… building a dome around the contagion? This all sounds crazy and rarely do our politicians agree on anything other than that which helps them all get elected. I expect we will see both parties calling for travel bans. And do we prevent Texas folks from traveling to the rest of the US? After all the nurse that stepped on the Frontier plane risked spreading the disease all around the country?

My cab driver from the airport last week has his home in Sierra Leone, West Africa. He is 69 years old, has been driving a cab for 15 years and will keep working for another 2 years till his oldest son can complete his Dentistry schooling….. He worries about his family in Sierra Leone. He says that all schools are closed. Taleb is right. See article in Forbes on the devastating effect on its economy...

http://www.forbes.com/sites/mfonobongnsehe/2014/10/16/ebolas-impact-on-sierra-leones-once-flourishing-business-sector/

We need to take the fight to Africa. I think the real heroes are the Doctors and social workers and organizations who are sending medical supplies to Africa and some with the incredible courage to go to Africa to help. I include as heroes the Doctors and Nurses in the US who stepped up to the front line in this fight.

The markets have shown a significant increase in volatility as we well know. I have been on the side lines and was considering dipping my toes back as I think we have seen a reversal but work and travel has kept me busy. I will most likely add to my negative stance when the market bounces a little more, as I expect a retest of the lows or another leg down. Overall the drop in oil prices have been catastrophic for “oil” countries such as Russia, Saudi Arabia, Canada etc. Question is will the US economy hold up and keep the rest of the World stable or the other way around…no one really knows.

Gasoline $2.99 per Gallon!! 10/11/14

Last week when I was in St. Paul Minnesota I saw gas at $2.99/Gallon – first time I had seen it less than $3/gal in a long, long time. I recall during the last presidential elections (primaries?) one candidate promising to make gasoline below $3/gal. Guess he did without getting elected!! The drop in price has been very steep. See charts below on the price of Crude Oil on NYMEX and also the ETF (exchange traded fund) OIH that can be traded. I love it when the gas fill up on my Prius is only $24 and I can drive $375 miles before seeing a gas station again.

Last week I was wondering if the prices on plastics commodities had also seen similar drops. Probably not, as material suppliers hold on to the high pricing as long as they can to maximize their profits while molders and converters are slow to take advantage of the huge drop in crude.

Why is gas going down so quickly? The first reason has to be the strengthening dollar at the prospect of rising interest rates. That may not yet happen as the Feds are concerned that a rising interest rate in the US may cause a slowing down here with an already slow Europe resulting in a global slowdown and more serious problems.

Second obvious reason is a weakening in demand. That is more troublesome. Europe is already in a slump. Look at your international funds like VEU that have been taking a nose dive… dropping oil prices is going to hurt Mr. Putin even more than us and cause a full fledged recession in Russia as his oil revenues drop while he keeps putting money into his military machine. The Saudis I hear are not planning on reducing oil supply this time and the US is also turning it on.

Eventually oil will find a bottom. Is it here now? I see high volumes trading on OIH and a precipitous drop in price which may signal a short term bottom but I am not one to go in front of a falling knife. Let it find its footing, stabilize and make some moves up before I will put my toe in.

Meanwhile I just filled up my car at $2.95/gal in South Carolina this weekend…

401K Monthly Funds Analysis – 10/4/14

Time for me to do my monthly funds analysis. The S&P 500 index (SPY) has turned down so I am mostly out of my 401K funds with the exception of a small portion in Lazard Emerging Markets and that has turned Southwards in a hurry. I am still in it due to fidelity’s rule about being in a fund 30 days. Of course I am down in that fund more than the 1 to 2 % fees redemption fees they charge for getting out quickly, not to mention all the threats about stopping you fund trading (investing). I have purchased PUT OPTIONS ON QQQ to offset any losses on emerging markets but Lazard fund has been on a sharp decline and is not well correlated to QQQ.

In my current employer’s funds the top choices for this month are FID Puritan, S&P Spartan 500 Index ADV and NB MDCP GRTH Trust.  International funds have been taking hard hit. See chart on Fidelity Div Intl. Royce Opportunities is sitting as the worst performer of all our funds.

In my previous employer’s funds, top choices are Fidelity Contra funds, Fidelity Growth and Domini Social EQ and Artisan MidCap Val Instl.

Fidelity Government income has started doing much better, a sign of things to come?

Slowing 92914

My trading system on SPY (S&P500) flashed a down signal. This is about the 3^rd time it has put in a buy signal only to turn around, take a small loss and head to the exit. Eventually one of these will be a big down trend. As for me, I am mostly out except for my entry into an emerging market fund in my 401K in a small quantity that is underwater. Emerging markets has a down signal also of course and it is only the ridiculous Fidelity 30 day rule in my 401K that has me in it and feeling the pain. I hate these rules the big companies put in to stop us from doing what we want with our money when the real crooks are those that concoct the fancy schemes to dupe the public.

I am attaching a couple of charts on SPY and QQQ… Both show down signals now. Real estate funds like IYR or VNQ have been taking big hits. So has the commodity index DBC or ETFs like GLD or NUGT. The US dollar UUP has been rising inversely. Ford took a big hit today; but it too has been showing a down signal for a while and there was plenty of room to exit. I do see strength in GD (General Dynamics). Must be the ISIS strikes pumping it up. But mine is not to reason why...

Quantitative Investing for the Modern Portfolio Manager 9/20/14

MTA (Market Technicians Association) had an outstanding all day event on 9/20/14 in Charlotte, NC. Top speakers included Meb Faber, Perry Kaufman, Mathew Verdouw and Charlotte’s own Carson Dahlberg.  I rate the event an A+. I will do my best to summarize this event but realize I could not do it justice in this short blog space.

Meb Faber, whose work in “Ivy Portfolio” was outstanding, kicked off the presentations. Meb’s talk was on “Global Value. How to Spot Bubbles, Avoid Crashes and Earn Big Returns”. Robert Shiller in his book “Irrational exuberance”, the term made famous by Alan Greenspan, defines CAPE as Cyclically average inflation-Adjusted Price Earnings ratio over the last 10 years. Meb says “Valuation is all about avoiding buying the expensive as well as buying the cheap. Through Cambria funds Meb puts his money where his mouth is… and invests using the notion that where the blood is also offers the real opportunity to make good returns.

Blood   CAPE <7         1 yr return 31 %  3yr return 18 %   5yr return 21 %

Bubble CAPE>45        1 yr return -9 %  3yr return -4 %   5yr return  -1 %      

Using CAPE values for various countries, the best investing opportunities are Greece, Russia, Ireland, Hungary, Argentina and the worst places for investment are with the highest CAPE such as Malaysia, Colombia, Philippines, USA, and Indonesia…. However he notes that the current CAPE for US is at 26.6, and that there is still room for higher valuations and growth.

How do you identify a Bubble? “When my Mom e-mails me….” And then Meb gets serious and says CAPE of  5 close your eyes and put your money in, CAPE of 30 consider a Yellow flashing light and 40 as Red.

Perry Kaufman spoke about “Risk Management using a Relative Value Arbitrage Trading Strategy” and describes this as one of the 3 trading strategies he uses to trade his own money. Perry noted that “it is more important to trade diversified strategies than markets”. He also uses a trend following strategy as used by 60+% of funds and also a pattern recognition strategy. Arbitrage – buy the cheap and sell the more expensive stock, fund or similar market involves finding two stocks or ETF’s that have a correlation between 0.3 to 0.8, and use a ratio of the two to find overbought and oversold levels. Stocks such as Ford/GM or Amazon/Wal-Mart are examples. He uses stochastics and an indicator referred to as Stress indicator to determine Oversold OS or Overbought OB. Oversold means price has dropped over the last period of time. Ford is OS relative to GM when the Stress indicator is below 10. We use this as an entry to buy F. Exit when stress indicator greater than 50 as it is neutral then.

He mentioned his book “Alpha Trading” and how he took the concepts further. I have known of Perry since I had a copy of his adaptive moving average indicator many years back and highly respect his work. I certainly feel I cannot do justice to him in this short blog but was intrigued by his arbitrage method. He mentioned how the market is biased towards the upside, and that the hedge usually loses money. Still, he likes to place a hedge when the market trends down cutting his losses by half. He admits to losing money in bear markets as it is very difficult to make money shorting.

Perry says “I hate stop losses” as they fight the system. Trend following systems require one or two large big moves to make all the money and with stop losses that can be taken away. He uses a 15% price stop from point of entry just as an emergency.

My own past work using Metastock and back testing many stocks and systems shows that stop losses degrade performance and that only very wide stop losses are of any use. I think Perry is right on.

He mentioned arbitraging stocks such as AMZN against QQQ. He would only take the long side of the AMZN trade based on the low OS value of the stress indicator; and add the hedge only if the trend is downwards. Otherwise he bets on the fact that markets are biased towards the long side. He determines his trend based on 30, 60 and 120 day moving averages. He typically likes to place a 1/6 hedge when price drops below each of these moving averages.

More information on relative value arbitrage can be found at  

http://kaufmansignals.com/timing/

Mathew Verdouw’s talk on “Portfolio Optimization using Relative Rotation Graphs RRG’s” was the last presentation of the day and certainly equally interesting. The power of RRG’s is in normalization. RRG was developed by Julius de Kempenaer. Using 4 quadrants one could take the various sectors of the S&P and see if each sector is in which quadrant - leading, weakening, lagging or improving. Looking at the quadrant and finding sectors that have a hook and are moving from a lower lagging or weakening quadrant to the higher improving and leading quadrants gives us which sectors we should focus on. Then we can pick the stocks in that sector using the same RRG methodology and determine the largest opportunity.

Following Meb and Perry’s logic; Mathew points out that the better opportunities are with stocks that have pulled back to the lower quadrants. RRG gives a great visual tool to see the behavior of the stock and when to get in.

A quick Yahoo search on my smart phone yielded that you can get RRG’s from Bloomberg, Stockcharts.com and certainly also from Mathew at

http://www.mav7.com/relative-rotation-graphs/?cname=RRG

https://www.relativerotationgraphs.com/

Mathew has moved from Australia to Charlotte, NC and is working with some larger corporations who are incorporating RRG graphs. This is a business he started about 17-18 years back and my hats off to him and the others who made Saturday a memorable event for me….I apologize for not giving Carson the blog space he deserves but this blog is long enough.

By the way my SPY chart finally popped in a buy signal… and using my Ivy portfolio ETfs, all are down exception of SPY and VTI Vanguard Total Stock Index.

401K Sellers Remorse 9/6/14

It is time for my monthly 401K analysis. Having exited my 401K accounts on the last exit signal (shown as a blue bubble in the chart below for SPY), I missed out on about a 3% increase in the markets. And if I had followed the monthly systems recommendations to keep money in the strongest funds, that increase would have been more. Do I have seller’s remorse… yes I do have seller’s remorse. This arises from exiting and then finding the market rises after the dip. It makes me think of ignoring the technical systems.  But after one dip too many the markets can suddenly start ripping downwards and catch me on the wrong side of the tracks. My only salvation is that I am still invested in stocks and funds in my R/IRA accounts based on individual entry signals. Still, I have to do some rethinking as my current approach may be too cautious.

In my current employer’s 401K the strongest funds are Spartan Ext market, WFA SPL MidCap VL and Fidelity Puritan..

In my previous employer’s 401K the top funds are Lazard Emerging market, Cohen & Steers Realty and Domini Social fund.

One approach I will consider is from Taleb. If I were to focus on trading Lazard Emerging Markets using a slow timing signal and a smaller portion of the account could I achieve lower volatility and similar gains than using all my account and putting it all under risk in the event of a catastrophic event? And yes… there is a minor entry signal on LZEMX now.

A Conservative Fund Trading System 8/29/14

Which funds are rising under the radar and propping up your portfolio? A quite unexpected group I might add. Bond funds are the answer.  The media is focused on the Dow Jones 30 but no one talks about bond funds usually.

Look at charts on AGG and TLT bond funds. Both are clearly rising with entry signals and multiple chances to get in. Make a modest amount of money and get out. In fact it gives me a great idea for conservative investors that might go against the grain of the diversification advice of portfolio managers. Let us say you are over 55 and want to make money in the stock markets and don’t want to take high risk. How can you invest in bond funds and do that? Aren’t interest rates supposed to be rising and bond funds crashing according to the pundits? Yes… that too could happen so I will not rule it out. A simple timing system could enable making money as bond funds go up or down.

What if I took a larger portion of my portfolio and bought bond funds using a timing system? Yes – it would certainly work but don’t expect huge returns like with individual stocks. What could I do if the markets were to drop these bond funds – lets say interest rates were rising and bond funds were dropping. Well the answer is to put money into a fund like TBF. This is the Pro Shares Inverse Bond fund. The charts below will show it has been dropping steadily as bond funds have been climbing.

Yes – One could trade just bond funds using a timing system and have a modest income without taking all the risks that go with individual stocks in the stock markets. For example one could enter half at a primary entry signal and bring in the remaining half to be invested at the secondary entry signal and exit half at the secondary exit signal. This system would work in an up or down bond market using TLT, AGG and conversely TBF.

Below are the charts to show what I mean…but yes yes… the future will not be identical to the past and one would still be susceptible to a rapid one day 8-9% sell off against the trend… there is always risk in everything we do.

401K Monthly Analysis – Still in Stocks? 8/3/14

In my monthly 401K analysis, I select which funds I should be in every month. My first decision to participate in my 401K is based on whether S&P500 (SPY) is up or down. I will not participate if it bears down as the market typically takes everything down with it. As such, SPY has an exit signal and is pointed down. I have already pared down on my 401K. I am still holding on to some funds that require longer hold times otherwise I pay high redemption fees.

In my current employer’s 401K funds the top funds are WFA SPL Midcap VL, and Fidelity Equity fund.

In my previous employer’s 401K funds the top choices are Lazard Emerging Market and Cohen & Steers Realty. I still have positions in those and have purchased put options on SPY to start taking some downside protection. The chart on LZEMX has a short term down arrow. I would not enter this fund at this time.

The SPY chart posted earlier on Friday shows an exit long; but the moving averages are still in very stable territory and it is likely that short term weaknesses may change later to another upward move. Still, I will plan on getting out of these funds on a bounce.

SPY Gives a Down Signal 7/31/14

Markets got whacked today.... think it was the biggest down day this year. My trading system on S&P500 (SPY) gave an immediate exit signal so I will start paring down immediately. I know I can get whipped around but I need to follow my systems. The Dow Jones 30 (DIA) system had given a down signal a few days back. Would have been nice if I had acted on it but complacency in the markets has set in. Today all 30 stocks in the Dow Jones 30 showed down. That is unusual....Still, the moving averages are all in healthy positions. The only problem is markets can drop 10% before people get around to reacting to it.

Here is the chart on SPY

Trading Successfully Short Term 7/20/14

If it is too good to be true, it’s not true... I know enough of trading to know what is real and what is not.
I cannot predict whether the market will go up or down other than either take a chance on a pullback in an uptrend hoping it will continue, or hold on to the tail of an existing trend till it is no longer your friend. Technicals give you fewer losses, and also reduce your upside.

I did back testing on NUGT and found with a shock that all 25 odd trading systems of mine failed to make any money... never had that before. NUGT is a Gold Miners ETF and is very volatile. It moves 5-8% in a day, so it is not for the faint hearted and be wary trading it with any amount of monies as it can move quickly against you.

Typically I get 40% to 100% of the trading systems are profitable based on past back testing. So what I did was take my worst system, largest loss, and flipped the buys to sells and sells to buy... now it looks good... trading successfully is a challenge under any circumstances, and more so when we do it part time. Successful short term trades are best entered when you don't feel like entering...  throw logic out. But keep an entry and exit rule.

401K – Moving on Up 7/5/14

My ICE system on SPY gave a second Up signal as pointed out in my last blog post along with a chart. This means stay long in my 401K choices for me.

My current employer’s 401K plan analysis shows that the top 3 to be in are WFA SPL MidCap VL. Spartan GLB XUS ADV, Spartan 500 Index ADV. The S&P 500 is showing good momentum, better than other funds.. MidCap is also showing strength.

In my previous employers 401K fund choices, the top ones to be in are Lazard Emerging markets, Domini Social Eq, Allianz Sml Cap followed by Fidelity Growth Co. Cohen & Steers Realty still looks Ok; but lagging a little.

A Dividend Paying Strategy for the Rich 7/5/14

Last week ICE gave a second confirming Buy signal on SPY. That does not make the signals stronger or predict the future any better than one signal but it is clear the direction remains up. The Dow Jones 30 seemed determined to break through 17,000 which it did. Next S&P 500 is at 1,985 and headed for 2,000. Nasdaq 100 is at 3,923 and is moving like a magnet towards 4,000. These things will happen.

People who like to enter the market when it is low; but actually don’t are in a real bind. The market has run away from them and any drop will always seem not big enough. A 10% drop in the Dow Jones will still keep it above 15,000. Is that low enough for someone to get back in? Or would you feel that it will go lower before getting in?

I am working on another project. Last year I listened to a Wealth Manager speak at our local AAII (American Association of Individual Investors) meeting. He spoke about how he managed this rich lady’s account. He put all her money into 15 high quality stocks that paid good dividend (around 3%). All the lady needed was the dividend money. 3% is certainly much higher than what a bank would pay (<1% now). As the stocks increased in value over the years, her dividend increases and keeps her ahead of inflation. She did not care whether the stocks went up or down but obviously she has done real well in the last 10 years and her dividend has grown. My thoughts were to add solid technical systems on these stocks and put some money into these stocks for the long haul. I still cannot tolerate seeing my capital shrink during recessionary times and therefore I will need to have trading systems on them. This weekend I have been back testing my best systems and deciding which ones need to go on which stock.

Here are the 15 stocks: ABT, COP, INTC, KO, JNJ, MDT, MMM, PEP, PG, PFE, SYK, SYY, UTX, WMT, and XOM. Also shown is a chart on PEP with my trading system on it. 

SPY finally offers a change in signal 6/21/14

While the rest of the trading world has been basking in an up signal, my system on ICE had only offered a “Possible Buy” opportunity that had not materialized last month. It finally changed last week. Someone as technical systems bound as I am, stayed frustrated to see the markets rise while I sat on the sidelines in my 401K. Yes, I have been trading my R/IRA with the Ivy portfolio as well as stocks; but this has otherwise been frustrating for me. But I need to forget results, focus on following the process and not let emotions matter as the results do come over time..

ICE has coughed up an Up signal on SPY (S&P500). See chart below. I am back in my 401K in a large way; but remain partially committed. There must be a pullback due? How long can we keep climbing up? As long as the system says up. Here are a couple opf stocks I am in also... AES and TAN.

I have noted that Gold is perking up as evidenced by the rise in the ETF NUGT. This one will be ripe for entry on a pullback. Meanwhile I must also start thinking about how one can take advantage of the down side coming down the road.

Moodiness of a Trader 6/1614

Traders are human and are subject to moodiness based on events in their own lives. I have often wondered why Wall Street hires young smart people and gives them millions of dollars of money to manage when they have so little experience. I believe it is because young people are fearless, and do not know what losing money means. It is still a game. They have not experienced life enough to face failures and fear. Brash, cocky, confident, are best described of people who are young. As I see the Soccer World Cup and I see countries come back from a loss to overcome opponents that are supposed to win and beat you, I think of that term “Know no Fear”. I can overcome anything.

I used to be that way …. when I played soccer for my School and College. I remember being the freshman defender of my soccer team. Regardless of my size and puny weight, I knew no fear. There was no player that I could not beat in a tackle.  Foolish, overconfidence of a young man. Yet it was so right.

We have a Collie at home. His name is Roscoe Bear. He is about 10 months old, 70 lbs weight and still a puppy. A very handsome beautiful dog like Lassie. With us he has no fear. But take him outside and he is afraid of skateboarders, people walking their strollers, kids playing; yes; pretty much everything. Where is his “Know no fear”… but he is a beautiful dog and we enjoy the love he brings to the family.

I now want to weigh in on the intraday trading system that I have developed for Nasdaq futures. It looks good. I now have 3 indicators on it. Two main indicators, two main systems intertwined, and one more indicator to allow me to get out early when a trend takes place and then starts weakening. I believe this system could make me far more money than my current job. I could make a Million a year (or lose my seed money for the trades). But my age gives me the wisdom that says I cannot afford to take a risk and give up the job I have, a job that will never make me really rich, just keep us fed and taken care of. What is it we want in our lives? Don’t we want to take a risk and see if we can make it on our own? But what if we fail? Then what are we left with? Business people and entrepreneurs take that risk all the time. That is why some of them are so rich, but many have failed and we never hear about them. We fantasize about those who made it. History books are about the winners. Never the losers..

I can do this on my own, but never will. Moodiness of a trader….

401K Analysis – Summer Rally? 6/1/14

Are we looking at a no sell in May and go away and instead a Summer rally? Merrill Lynch fellow thinks so… and they think there will be a “nasty” correction later this year without defining what “nasty” entails. The media show knows how to latch on to these people and create a story out of nothing. The only thing we know definitively is the market is showing no signs of giving up its upward swing. And we know that by looking at the past behavior which is always correct. For now, my ICE system on SPY remains irritatingly exit long. Which means I am not invested long in my 401K. I should point out that I am taking long trades on my quicker get in and out stocks in my Rollover IRA, as well as invested in my Ivy portfolio system. Still, I will do the monthly 401K analysis and look at what are the strongest funds one should be in and here they are….

In my current employer’s 401K, the funds with the greatest momentum are Spartan 500 Index, Fidelity Equity Income and Fidelity Large Cap. WFA SPL Midcap VL has also started showing some movement upwards.

In my previous employer’s 401K choices, I see Cohen & Steers Realty, Domini Social Eq, Vanguard Inst Index as the strongest although Lazard Emerging Markets fund has been on a tear lately. I have been looking at the Lazard Emerging Markets Index and it has enough volatility to make me start thinking about using a technical trading strategy on it to make some profits. This is a weekly chart and does not require a daily monitoring at all. In the last 3 months it gave an up signal at $17.52 and it is now at $19.70. That is over 10% in 3 months… Also I notice that this fund had a very very steep drop in 2008. The trading system prevented the drop and exited well before the damage was done; but when the entry signal came back in 2009, it rebounded with over a 100% gain that first year... this happens once in 10 years, but it is something to be aware of to load up and capitalize on...I will have to integrate that as part of my strategy for 2015. No hurry.  I wish Fidelity and the other fund companies would not have all these rules about market timing and how frequently one could enter and exit a fund. After all it is my money…but then I am the little guy.

As Warren Buffet said, the first rule is never lose money and the second rule is never forget rule1.

Market wants to break out 5/26/14

The market wants to breakout, my bones say. It has pushed its head above the sideways range it has been bound by. But I don’t follow what my bones say and without my ICE buy signal on SPY, I will stay out on my 401K and only trade individual stocks like GD, SU, TAN, CL and look towards trading NASDAQ e-mini futures (NQ) using a daily system. That is likely to move a lot more. Even 1 contract of NQ can move $1,000 on a daily basis… and I will only be watching it end of day. The charts do not show any real signs of breakdown yet. But one can make a lot more money on NQ when the markets fall...

I have been reading a book called “Timing the Markets”. I will write about it after I finish reading it. Interesting theories combining the November – April buy stocks and sell in May, along with Presidential election cycles, as we are now in mid-term. Research done by Vakkur. I was surprised to find that we have not had any down years during an election year cycle over many past such events. I will have to do some research on this myself. Combining the two with technicals and loading up sounds very attractive.

SU has now given a down signal and I have an open sell order on limit for my Call options for Tuesday. Today is Monday, memorial day and a holiday. I will buy put options and look to trade the down side on it, although I don’t expect a reversal as it made such a strong mover upwards. But mine is not to question and follow my signals.

See chart on SU below.

Next I have a sell order on GD which I have been trading in and out. Fairly frequent signals and it has done quite well. See chart on GD.

Finally I have a trade active again on RFMD. Just got in. Also see a buy signal on TAN and I will go ahead and place a trade on that as well for market buy tomorrow morning.

I missed taking advantage of the upward momentum from the Indian elections. After Narendra Modi (NAM) was elected, the Indian markets have been on a tear upwards. There is a lot of hope that he will fight the lethargy and old school thinking that had pervaded the previous Government.. 

401K Monthly Analysis – A Sideways Muddle 5/11/14

The S&P500 (Exchange Traded Fund known as SPY) has been muddling sideways for over 2 months now. Longer if you consider a small movement irrelevant. The Dow Jones just established a new high but the Nasdaq 100 continues to show weakness keeping SPY balanced sideways. There are two possible outcomes. Up or down. Which way will it go? My chart on SPY still points to an exit long, or down, so that is the stance I will continue to take. That means I am exited MY ENTIRE 401K funds and sitting in money market type fund.

Meanwhile my monthly 401K system still wants to keep me in various stock funds. In my current employer’s 401K top of the list is Spartan 500 Index, then Fidelity Eq Income and Fidelity Large Cap… interestingly those are some of the ones that are contributing to making Dow Jones 30 stocks hit its record highs.

In my previous employer’s 401K I see a more aggressive selection. Topping the list is Cohen & Steers Realty, then Domini Soc fund, followed by Vanguard Inst Index. Lazard Emerging markets is also perking its head behind these.

Such is the story on momentum based fund selection in our 401K. Me – I will sit out till the weather clears. It is cloudy. No storms yet. The clouds may very well clear or maybe not. I set up my rules and follow them.

Making Big Money 5/4/14

How does one make big money in the stock market?

George Soros’ Chief Technical Analyst was asked the question that since he figured out the trades for George, what was the difference between him and George Soros in trading? After all George was following his direction regarding the currency trade that almost brought the Bank of England down. The answer given was George had a lot more “Kahunas” then he had. In other words George was a much bigger risk taker. In order to make big money, one has to take more risks and put more money down on the table. That goes contrary to what I want to do, as I am not a big risk taker. Therefore even with my great technicals. I make small amounts of money as I take small risks..

Here are a couple of examples of stocks that have done well that I trade. RFMD is the first one. I made a modest amount of money on it. I missed the re-entry signal and after placing a couple of limit orders, did not manage to get in. Meanwhile an associate of mine purchased $75,000 of RFMD and rode it up from $5.50 to $8.65. His trade netted him over $45,000 and he is still in it. The risk he took was that this trade was on an account that was about $95,000. His position sizing suggested a significant risk, although I should point out he had thoroughly checked out the company;s fundamentals and felt he was on solid ground. I am back in it with a small position again based on technicals. Incidentally the trading system I am using is simply a MACD with a 9 exp moving average cross. See chart below.

The next trade I am in is SU. This is a company that makes oil from sands… the latest energy craze. In this case I saw that there is very good option activity on the stock. So instead of risking capital by buying the stock, I purchased straight call options. Call options increase in value as the stock goes up. Back in March I purchased June call options at a $34 strike price. The price has shot up from $33 to $39. My call options are up 400%. I made decent money but not obscene money. Why? Because I did not buy a very large number of call options. I am still in this trade but the old adage goes “No risk no gain”.. I remind myself that the rich got there by taking large risks at some time in their lives. I feel I cannot do that with our portfolio as I am obligated to provide funds to my family when I am no longer here….the downside of making lots of money is losing lots of money…

You might be a Trader if …. 4/19/14

The only cable channel number you know is CNBC

You might be a trader if you know that Head and Shoulders isn’t referring to a shampoo

You start referring to companies by their ticker symbol

If you know who Jim Cramer is

If you start seeing charts in your dreams

Last thing you look up before falling asleep is what the Asian markets are doing

You know who Fibonacci is

You celebrate your 61.8^th birthday

You know the difference between a Stochastic and a MACD

Your trading room has more monitors than your TV room.

You know what an iron condor is

You run to the nearest Starbucks or Panera Bread to close out your day trade when you lose power at your home

Only your charts know the market direction and you don’t

You know that an Elliott wave has nothing to do with Physics

Your best friends are from Mcubed….

You know what a Put/Call ratio is and you have forgotten Poisson’s ratio

You look at a mountain range and only see highs and lows

You bought two hundred shares of a company but you have no idea what it does

You trade what you see and not what you think

And finally a few serious words of wisdom if you are a trader wannabe…

"The key to successful trading is consistency and discipline. Almost anybody can make up a list of rules that are 80% as good as what we taught. What they can't do is give (people) the confidence to stick to those rules even when things are going bad." Richard Dennis, on Turtle Trading

Where is the Exit? 4/13/14

My last down signal capitulates and joins the other three that I posted last week… my ICE trading system on SPY (S&P500) fired off an exit long signal after Friday’s close. This is translated as a down signal in this system. That means I need to exit my mutual funds in my 401K with the exception of any that actually have an inverse relationship to the S&P500. The chart on Dow Jones 30 had already given a down signal and so had the chart on the Nasdaq 100 QQQ much earlier as well as my faster system on SPY.

I am headed for the door.

3 Down Signals with One exception 4/7/14

My regular trading systems on DIA and SPY both gave down signals tonight after the second consecutive steep down day. These systems tend to whipsaw me at times. There have been two signal changes within a week. Still, these down signals currently align DIA and SPY with QQQ - all in the down signal mode. 

The only remaining upward signal is my ICE system on SPY. The weight of signals is certainly burdening downwards now and I need to go into a more cautious mode. Still I will remain vested in my 401K in the long direction till ICE flips me although I will take a closer look at individual fund charts.

Here is a chart on the Q's - this one has been the first to show weakness... and last two data points show increasing volume. In certain cases after a sustained down move could signal a climax to a downward move but I don't think so in this case... Caution ahead!

401K Monthly Analysis – Confirming Signal 4/5/14

It is time for my monthly 401K analysis. The backdrop is very interesting. I see a second confirming up signal from my ICE trading system on SPY (S&P500). Since this is the system I use to decide whether to stay long in my 401K or not, I am invested in 401K although not at a 100% level due to my conservative nature…During the week, DIA (represents a tradable fund for Dow Jones 30) showed an up signal and Friday on the pullback I received a minor up signal. On the other hand recency data from Friday says the market turned down in an ugly manner particularly the Nasdaq 100 tech sector (QQQ). As I pointed out in a previous post, the Qs are showing a down signal and continue to move downwards. This is interesting as SPY and DIA are still up while the QQQs are tugging the market downwards. Unfortunately no one can really predict which side will win this tug-of-war. All I need to do is follow my rules and not over think this conundrum..

In my current employer’s 401K the top choices are Fidelity Large Cap, Spartan 500 Index, Fidelity Eq Income, while WFA SPL Midcap VL has been showing some recent strength again and is a good pick.

In my previous employer’s choices I see Domini Soc Eq, Vanguard Inst Index and Spartan Ext MKT as the top picks. Lazard Emerging Mkt is showing recent strength and is also a possible pick. However it is far more volatile and can go up or down much faster than the market.

Beyond these choices, Ford stock has given me a buy signal. Interestingly it has broken its downtrend line and MACT is also rising. I bought a position into it and will consider adding on a pullback. My call options on SU are doing well as SU has been on a fast track upwards since my buy signal on 3/25/14 and break upwards from the down trend line.... see chart below. Of course this cannot go on forever and a sharp pullback is in order. My thoughts are to sell half my call options now and buy back more on a pullback.

March Madness and My Stocks 3/28/14

My 200th post!! And NCAA college basketball fever is at a fever pitch. The Elite 8 will now fight it out for the Final Four and my favorite team Michigan State (MSU) is going all the way, so I hope. Warren Buffet threw out a Billion dollar challenge knowing that the odds of winning a perfect bracket are so low it is a sure bet that no one will win. In trading there are no sure bets. We try to place odds in our favor, cutting losses quickly and letting winners run. I am mindful of the saying “Sell in May and go away”. Coming back long in October or November is the best. Maybe the rich get hefty bonuses early in the year through April and then the buying dries up. I remind myself that mine is not to reason but to observe my charts and act based on the chart data. Let me start of by saying that my base trading systems are showing some sell signals on DIA (Dow Jones 30 ETF), SPY (S&P 500) and QQQ (Nasdaq 100). My tried and true ICE system on SPY is still long. I am showing a chart of SPY below. My trades for these is to sell vertical call options spreads for credit for the next month just above the resistance level, which represents the high over the last three months. Right now it is a slow grind. If the funds go sideways or go down in the next month, the vertical call spreads will end worthless and I would have taken advantage of time decay on the options. If the funds jump upwards, I may close them out and sell more further out as long as the directional signal remains down. 

I have selected a few stocks in diverse sectors and applied back testing with my top 30 trading systems. After carefully analyzing the results I am now trading these in their own pattern using the trading systems that yielded the best results. Which of these will be stars like MSU? Which ones will disappoint like Ohio State?

The US stock market has paused but we are still not sure whether it will move back up or tumble down for a correction. That means I will continue to trade the stocks I have pre-selected for quick in and out trading.

The first one I will show is GD General Dynamics. I had several good trades in a row. These are quick in and outs and trade duration is 3-8 days and typical gain is 1-3%. I have decided to only enter the long signals when I see a down trend with buy stops above the previous bar’s high. Otherwise in a typical long trending mode I enter market open next day, and I place my trades the previous night. See chart below.

Another one I am trading is SU (Suncor Energy). This one I am trading with straight put or call options as I have noticed that the options have a tight spread between bid and ask and I want to take full advantage of the directional move risking only the value of the options. I am currently showing a long signal so I am long call options that are at-the-money and about 3-4 months out.

March Madness… Florida Gators is looking strong, although I would prefer MSU, Michigan or Kentucky to win. How do I pick stock winners? Based on  their track record, back testing and with tried and true trading systems.