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Archive for May, 2008

It was another good month across all three published strategies – you’ll find the individual strategies pages (MOMO1, TREND1, MR1) have updated equity curves, statistics and current holdings.  But as will be the norm going forward, I’ll update the monthly performance here.

MOMO1:

  • Return for May-08: 11.5% (does not include dividends or commission charges)
  • Return YTD: 19.0%
  • Current holdings: EWZ, SLX, OIL – no change from the prior month

TREND1:

  • Return for May-08: 5.5% (does not include dividends or commission charges)
  • Return YTD: 13.7%
  • Current holdings: UNG, PPA

MR1:

  • Return for May-08: 5.5% (does not include dividends or commission charges)
  • Return YTD: 25.1%
  • Current holdings: IEF, TLT (changes frequently)

Benchmarks:

  • S&P500:
    • May-08: 1.18%
    • YTD: -4.53%
  • DOW:
    • May-08: -1.42%
    • YTD: -4.71%
  • Nasdaq:
    • May-08: 4.55%
    • YTD: -4.89%
  • EFA (proxy for developed foreign markets):
    • May-08: 1.19%
    • YTD: -2.28%
  • EEM (proxy for developing foreign markets):
    • May-08: 3.16%
    • YTD: 0.67%

So – by just about any measure we beat the major benchmarks – please let me know if there is a specific benchmark you’d like me to compare the strategies.

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MR1 Update

Well, that was quick – just a single day holding period on XLB and we’re outta there.  Bought at 43.63, sold at 44.43 (both at the open) for a return of 1.83% (not including commissions).

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I read a lot of economic blogs, mainly because I find the subject interesting.  But I ignore them in terms of my trading/investing.  Why?  Because most of the time, sadly, their reporting is not actionable.  It can range from interesting information to paranoia – particularly on certain websites such as Bill Cara’s website.  Now I know some people, perhaps Bill himself, will find his way to my website and say “hey, I’m not paranoid, this is really going on!!!”  And that may or may not be true.  Plunge Protection Teams, interest rate cabals, the US causing 9/11 and AIDs – it all might be true, but it doesn’t help me on a daily basis.

Mish’s Global Economic Trend Analysis has a lot of interesting posts – like this one.

Here’s a great quote from the article:

“What we are experiencing is a demand shock coming from a new category of participant in the commodities futures markets: Institutional Investors. Specifically, these are Corporate and Government Pension Funds, Sovereign Wealth Funds, University Endowments and other Institutional Investors. Collectively, these investors now account on average for a larger share of outstanding commodities futures contracts than any other market participant.”

Now, this may be what is really causing the rise in commodities.  Seems to make sense to me.  But the question is how do I profit from this information?  Does that mean this trend is on-going?  Or is it about to come to an end?

In contrast with this, my MOMO1 system has been long OIL since 4/2/08.  The system has picked up on this momentum.  Now, like most momentum systems – momentum giveth and it taketh away.  So I fully expect OIL to give up some gains at some point.  The position is up about 24% after being up as much as 29%.

So what am I concentrating my time on?  Figuring out how to make my MOMO1 system unload holdings at the top – now that’s something to spend time on.

In short – stop worrying about what you cannot control – focus on what you can control.

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MR1 cashed out of IBB this morning and took a position with XLB which was bought at the open.  IBB gained 1.08% on the position (including commission) – so not great, not bad.  XLF continues to be held as well, with the position continuing to be in the red.

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This is what is important to remember on Memorial Day:

(Image courtesy of Mother Jones)

I’m completely against the War in Iraq and this is one reason why – putting our honorable military people in harms way for what I believe is a useless war.  But regardless of how I feel about the war, we have to think about and honor those people who serve our country.

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Know What’s in Your ETF and How the ETF is Calculated : Trader Mike

Mike looks at the DUG ETF and why it’s been acting so funny.

World Beta – Engineering Targeted Returns and Risk: Rebounding

World Beta takes a look at investing in stocks/ETFs that are down for a given month and presents a strategy.

Quantext – “Humble Arithmetic”

Quantext looks at portfolio construction and risk levels/factors.  Part of a great series by them.

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IBDIndex continues the RSI(2) testing…..at this rate, the combination of bloggers working on this will be able to publish our own research paper on the strategy.

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I don’t know if it is just the case of like-minds thinking alike, but I just was over at Dog’s site and found a discussion of using the percentage of stocks on RSI(2) < 10 as a breadth indicator.  Funny that – as I was working over the past two days on just such a system.  Of course, this is what I love about the internets – you have a group of people that have never seen each other being working together in all sorts of interesting ways.

Here are the details:

  • I started by taking the stocks of the S&P500.  I ran an Amibroker scan on them summing up the number of stocks, over time, with an RSI(2) < 10 and RSI(2) > 80.
  • I then graphed this data – screenshot below.
  • Then I setup a simple system – buy when the RSI(2) > 80 crosses over the RSI(2) < 10.  Sell on the opposite event.  For the test I used the SPY as a proxy for the S&P500 in order to make the breadth indicator do the hard work – in other words, I didn’t want individual stocks’ performance affecting the results.
  • The end result: STOCK TRADING SYSTEM FAIL!  The system is currently very poor.  Winners only 44% of the time which wouldn’t be so bad except it’s not a trend following system.
  • In any case, I’m posting the results and some screenshots – if anyone has any ideas, let me know.  If anyone wants some code samples just email me.   Also, if anyone wants my generated RSI(2) data on this stuff to play around with, I’m happy to provide it – just hit me with an email.  Let me know the group of stocks/index and any other settings.

System Fail

Here’s what the indicator looks like on-screen:

RSI Screenshot

System Statistics:

Initial capital 10000
Ending capital 12938
Net Profit 2938
Net Profit % 29.38%
Exposure % 68.40%
Net Risk Adjusted Return % 42.95%
Annual Return % 1.28%
Risk Adjusted Return % 1.88%
All trades 469
Avg. Profit/Loss 6.26
Avg. Profit/Loss % 0.08%
Avg. Bars Held 8.66
Winners 209 (44.56 %)
Total Profit 52080.3
Avg. Profit 249.19
Avg. Profit % 2.01%
Avg. Bars Held 11.89
Max. Consecutive 5
Largest win 1699.6
# bars in largest win 24
Losers 260 (55.44 %)
Total Loss -49142.3
Avg. Loss -189.01
Avg. Loss % -1.46%
Avg. Bars Held 6.05
Max. Consecutive 7
Largest loss -1119.8
# bars in largest loss 22
Max. trade drawdown -1931.6
Max. trade % drawdown -11.44%
Max. system drawdown -8072.9
Max. system % drawdown -43.98%
Recovery Factor 0.36
CAR/MaxDD 0.03
RAR/MaxDD 0.04
Profit Factor 1.06
Payoff Ratio 1.32
Standard Error 1657.56
Risk-Reward Ratio 0.06
Ulcer Index 19.44
Ulcer Performance Index -0.21
Sharpe Ratio of trades -0.17
K-Ratio 0.0051

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Quantifiable Edges: Nasdaq Net New Highs Potentially Ominous

Rob worries about the lack of net new highs on the Nasdaq and if this is a bad thing…

Kirzner Fervor: The Hedge Fund strategy that wasn’t?

Kirzner – if you haven’t read him – he’s incredibly smart.  This piece walks through an interesting strategy idea that he ultimately decides it isn’t really working anymore.  Great stuff.

VIX and More: The Big Question for the VIX

I never thought I’d hear of the VIX jumping the shark, but there it is.  What will you do now Bill?  🙂  I kid, I kid.  The VIX certainly has the ability to become the next "dry ships" index or whatever that was – but I think both the VIX and Bill have a longer career ahead of them.

 

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So, I bought the IBB as promised this morning.  I did look at the options but they were so thin in the trading I decided to just go with the stock.  Too bad – I’d be up 18-20% on the position already if I had!  As it goes, however, I’m still up, albeit small, on the IBB entry.

This is a great example of why I like system trading.  I never, never would have looked to IBB on day like today – hell, I barely notice it most of the time because it is so up and down.  But my system “found” it and so far it’s been a good call.  Suffice to say I’ve probably now jinxed myself and it will plummet tomorrow.

The XLF trade continues to mull around – my options gained about 4 or 5 cents after being down yesterday.  So, still down on the position.

On the Ultra side, UYG was up quite big early and has settled into being up about 1.3% – a nice start.  Meanwhile, UCC is down about 0.50% as of this writing.  The paper trading on this will continue for a bit.

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