Gold scores a minor Victory 8/26/12

Gold has been going sideways in a triangle for 3 months now and finally broke out of the triangle heading upwards, scoring a minor victory. See the chart below where I drew in the green upper triangle line and the red lower triangle line. If it had broken to the downside, that would not have bode well for Gold buffs.

As it stands, GLD is now bumping up against another resistance level shown by the blue bold line touching the tops of a larger triangle. For now I am on the long side of GLD and saw a modest increase in my holdings.  See the entry signal. It had been a little confused before and had been consolidating.

The contrary picture is of course the US Dollar. As GLD has gained strength, the dollar has weakened, This is the Yin Yang of currencies - a strong negative correlation in statistical terms. As holders of UUP (US $) take flight, there is a rise in GLD. Of course if you were simply trading the US$ you could also place your money into UDN which is the reverse of the US$.

UDN goes up when UUP goes down.

Gold is much more beautiful though and any time I take a look at my wife’s 1 oz coins or better still, her Indian 22 kt jewelry, I am awed by its shine and luster.

In trading however, GLD or IAU is the way to buy Gold holdings. No emotions there. When there is the down signal, I exit and sell…

Is CREE finally changing? 8/18/12

CREE has had a rough going over the last year. Reaching a high of $72.47 in 12/10/2010 it has tumbled all the way down to $20 before recovering and sitting at $28.35 and right at its 200 day exp moving average shown as a black line on my chart below.

Is the worst behind CREE now? Has all the selling ended?

Hard to predict the future very far out but the technical analysis certainly shows a change in character. Why I say that is because CREE has now established a higher low for the first time since it started its dramatic drop in December 2010.. Next step for CREE will be to achieve a higher high above $33.10. Or it may go sideways for a while before it picks up from here. Still, this is encouraging for the stock.

Maybe the world of LEDs is looking up for CREE finally…

Otherwise, SPY is still pointed up. PCP turned in an Up signal and I am long in it now. Same with SCCO. Still long on SNDK and GLD. And still hanging on to my losing Q’s  put options for no reason at all other than the market has to take a breather somewhere! I have been violating my system direction on the Q’s which has been pointed long for a while and have felt the pain for doing so. Fortunately the max loss is a small limited amount based on my holding a small option position but this is exactly why traders lose – having a plan and not following it. Can happen in a hurry… and get out of control... I will need to learn my lesson here and change direction.

Yin and Yang 8/12/12

Yin and Yang. Two complementary principles of Chinese philosophy. One is negative and dark and feminine and the other is positive and bright and masculine. TLT and SPY are like Yin and Yang in the market. Currently we have an Up signal for SPY whereas last week TLT dropped and produced a Down signal. That is the current state of the market today.

I was expecting a drop and then a strong buy point but the market chose to ignore the drop and just went up. My system triggers were spot on.

I am much more heavily biased towards the up side in my 401K as I wrote last weekend. But I do have some offsetting put options and a position in TLT that I closed last week when I confronted the sell signal on TLT. I remain holding put options on PCP and HOG which still point down. I am long on GLD, and have been for a while as it stays in a sideways position. Also long on SNDK. I closed my position on Ford F with a small profit. And I am guilty of incurring losses on put options on the Q’s and copper against the up signal that my system gave me. I felt that the stochastics were reaching high and it would soon take a breather and go down, and I would exit. Wrong… best to just follow the systems.

I need to continually remind myself that I do not know what the market will do next; but my portfolio will do fine if I just follow my well tested systems in the long haul...

401K Analysis - 8/5/12

The S&P500 (SPY) points long. This sets the stage for going deeper into equities in my 401K and less in bond funds like Fidelity Government Income.

I am expecting a pullback in August and then a push up but it will be hard to time that and easier to just follow my monthly analysis. In any case, the fund selections are somewhat mild and weighed with bond funds to partially neutralize any steep drops.

Going into my current company’s 401K the top funds selected by my monthly analysis are Fidelity Equity Income, Fidelity Fund and Fidelity Government Income fund.  See charts below on all these funds. I will move some money out of the money market and place it into Fidelity Fund and Fidelity Equity Income Monday. I already have monies in Fidelity Govt Income.

As far as the 401K analysis on my previous employer’s funds, I see that top of the picks is Cohen & Steers Realty fund that I have already been invested in. No change required for that. Next picks are PIMCO Real Retn Admin and American Century Equity Income Instl..  I will move money away from the PIMCO Glbl Bond and Fidelity Contrafund into these two on Monday.

Fidelity typically requires you to keep money in funds for 1 month minimum, 30 days I think. Otherwise they hassle you with real threats to freeze you from changing investments and make you feel like a common criminal. Some funds have longer requirements for investing otherwise they charge a redemption fee. I think the funds selected here are not affected by that; but it always weighs on my mind.

SPY gives another signal 7/28/12

Every signal is a valid signal but how long the signal is valid for, depends entirely on the market and the next signal. A friend asks whether the market has changed direction and if it is Up or Down.

The current signal is Up on SPY (S&P 500 ETF). The signal triggered on 7/2/12. Last Friday end-of-day there was another potential buy signal generated with a 139.07 buy stop. That means if SPY goes above 139.07 which was Friday’s high, then the second buy signal will trigger. There is no information available on how long the signal will last; but the market is trending up for now.

A well known market analyst says that the market should rise until early August and then will fall precipitously until the middle to end of September after which the low of the year will come and offer an intermediate buying opportunity. If he is correct, then a cautious buy is all I can suggest. Unfortunately I am not a soothsayer past tomorrow…

The suspense is terrible. I hope it will last…  Oscar Wilde

A Simple System for Market Direction 7/20/12

Do I buy or sell? How do I determine direction without constantly changing my mind? Well, it is possible to determine that relatively simply using a weekly chart of SPY. Each bar is a week of data. By using a simple crossover of the 20 exponential moving average (ema) with the 50 exponential moving average (ema), we can see which way is the momentum for buying or selling.

The technical system says to buy when the 20 ema is higher than the 50 ema. Sell when the 20 ema is lower than the 50 ema, suggesting shorter term momentum is lower. By using a weekly chart, I have programmed Metastock to show these transition points as Up or Down arrows. We can see that the system picked up the buy and sell points very well over the last 10 years. By following this system, one would have completely missed the massive drop in the market in 2008. And if one traded both directions, the equity curve would certainly have looked quite nice.

The direction currently is still Up for SPY, as says my daily indicator system, which is a lot more complicated.

Creating a Portfolio with Low Risk 7/15/12

Trading is a mental challenge. Often it is easier managing money when you do not look at your account frequently. Unfortunately that can also have you lose excessively in a bad year. My goal is not to have a losing year, and while we are positive this year, it feels like I am being taken through the wringer and nothing good is happening.

I just finished reading a book called 7Twelve. It is about portfolio management and the author advocated a portfolio divided into twelve segments – wide diversification with about 50% in bonds when you are 50. The percentage of each of the segments is not equal, as there are lesser categories for bond funds. The segments included:

Large-cap stock           6%       Emerg non-US stock    6%       Bond                20%    

Mid-cap stock              6%       Real Estate stock          6%       TIP                  20%

Small-cap stock            6%       Natural Resources        6%       Intl Bond          6%

Dev non-US stock        6%       Commodity                  6%       Cash                6%

By allocating similar to this and rebalancing once per year, he showed an average return of  7.7% per year over the 2000 – 2009 time frame, I recall. Unfortunately in 2008 there was a 24% drop even with such a diverse allocation. A 24% drop is completely unacceptable to me and there lies my problem with diversification and letting things ride for a whole year and re-balancing once a year.

Instead if I let each segment run using my timing systems, the only major risk that would remain would be for a terrorist incident overnight. I could lose a large percentage before the markets would even open after such an attack. If I hedged the stock trades with put options, I would reduce the risk; but also reduce the reward. I would need to also do a dynamic hedge and trade the downside to make up for the cost of the hedge. I listened to a sales guy on TV yesterday promoting their wealth management system and he seemed so confident. That is ultimately just a lie. The process of trading or investing has risk and reward entangled together. You can act as confident as you want; but the future is not known, and best thing you can do is follow a system and stick to it through thick and thin. Just make sure it is a decent system. 

This time I am not attaching any charts; just a scene from Roger waters' concert "The Wall" -- it was fabulous...

" Money

It’s a crime

Share it fairly

But don’t take a slice of my pie

Money

So they say

Is the root of all evil today

But if you ask for a raise

It’s no surprise they are giving none away”    Roger Waters