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Archive for November, 2008

Israeli pediatric...

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Despite my best efforts to kill the patient (aka my accounts), I think he/she/it is still alive – finally, I’ve got some better movement in the systems area.  Nothing that makes me want to run out and throw all my money at them, but hey, it’s a start.

November has finished up with MR1 basically flat, while MOMO1 and TREND1 seem to have finally caught onto to something – namely bonds and gold.  Both of them are in bonds, and MOMO1 has held gold since October and continues to hold it (we’ll find out more next week when we re-rank the ETFs).

Now, as I’ve mentioned over and over – I haven’t been trading these systems in November because the master signal is off.  The master signal (aka Skills Index) flipped to an on position briefly, then off again.  But things change fast in this market, so I’ll note that the Skills Index just flipped back on.  Only problem here is that the market is so obviously overbought I don’t plan on adding to any positions right here.

I’m also waiting for the systems to trade above their 50d moving average in terms of their equity curve as well.  So MOMO1 is about there, TREND1 isn’t, and MR1 slightly above it at this point.

As normal, you’ll find the individual strategies pages (MOMO1, TREND1, MR1) have updated equity curves, statistics and current holdings. As was true of my last update – all the trading systems below assume an Interactive Broker‘s-like commission plan – for these, it is .01 cent per share with a $1 dollar minimum.

MOMO1:

  • Return for Nov-08: 9.3% (does not include dividends)
  • Return YTD: -23.2%
  • Current holdings: SHY, TLT, GLD

TREND1:

  • Return for Nov-08: 3.6% (does not include dividends)
  • Return YTD: -30.1%
  • Current holdings: IEF

MR1:

  • Return for Nov-08: -0.5% (does not include dividends)
  • Return YTD: 5.3%
  • Current holdings: See blog for updates.

Benchmarks: All my benchmarks are from Google Finance – so your results may be slightly different.

  • S&P500:
    • Nov-08: -4.71%
    • YTD: -38.96%
  • DOW:
    • Nov-08: -2.6%
    • YTD: -33.44%
  • Nasdaq:
    • Nov-08: -6.91%
    • YTD: -42.1%
  • IWM (proxy for the R2000):
    • Nov-08: -2.29%
    • YTD: -37.64%
  • EFA (proxy for developed foreign markets):
    • Nov-08: -2.23%
    • YTD: -46.8%
  • EEM (proxy for developing foreign markets):
    • Nov-08: -1.67%
    • YTD: -54.15%

As always – I welcome any questions or comments you might have, and I hope you caught the move up last week!

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Principal fissures and lobes of the cerebrum v...

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I’ve been playing around with a website called Typealyzer this morning for fun as I have no trades on or to be done.  Basically, the software analyzes a website and then decides on the “personality” of the writing of the website.  So, for fun, I’d run all my favorite trading blogs through them to see where everyone comes out.  Shockingly, I have been paired with the great Rob Hanna at Quantifiable Edges, a point of shame for him I am sure. I felt sure I would be classified as IAMLAZY.  ESTJ – “The Guardian” is the most common, and the most common thread is that everyone is about hard work.  HeadlineCharts I think is mislabeled as ENTJ – the writer doesn’t seem overly assertive, but hey, what do I know.

ISTJ – The Duty Fulfillers

Blog(s): Skill Analytics, Quantifiable Edges

The responsible and hardworking type. They are especially attuned to the details of life and are careful about getting the facts right. Conservative by nature they are often reluctant to take any risks whatsoever.

The Duty Fulfillers are happy to be let alone and to be able to work int heir own pace. They know what they have to do and how to do it.

ENTJ – The Executives

Blog(s): Headlinecharts

The direct and assertive type. They are especially attuned to the big picture and how to get things done. They are talented strategic planners, but might come off as insensitive to others needs and appear arrogant. They like to be where the action is and like making bold and sweeping changes in complex situations.

The Executives are happy when their work let them learn and improve themselves and how things work around them. Not beeing very shy about expressing their ideas and often very outgoing they often make excellent public speakers.

ISTP – The Mechanics

Blog(s): Bill aka NoDooDahs

The independent and problem-solving type. They are especially attuned to the demands of the moment are masters of responding to challenges that arise spontaneously. They generally prefer to think things out for themselves and often avoid inter-personal conflicts.

The Mechanics enjoy working together with other independent and highly skilled people and often like seek fun and action both in their work and personal life. They enjoy adventure and risk such as in driving race cars or working as policemen and firefighters.

INTJ – The Scientists

Blog(s): TraderFeed, Kirzner Fervor

The long-range thinking and individualistic type. They are especially good at looking at almost anything and figuring out a way of improving it – often with a highly creative and imaginative touch. They are intellectually curious and daring, but might be pshysically hesitant to try new things.

The Scientists enjoy theoretical work that allows them to use their strong minds and bold creativity. Since they tend to be so abstract and theoretical in their communication they often have a problem communcating their visions to other people and need to learn patience and use conrete examples. Since they are extremly good at concentrating they often have no trouble working alone.

ESTJ – The Guardians

Blog(s): Woodshedder, InVivo Analytics, MarketSci, Vix and More, WorldBeta, The Big Picture

The organizing and efficient type. They are especially attuned to setting goals and managing available resources to get the job done. Once they´ve made up their mind on something, it can be quite difficult to convince otherwise. They listen to hard facts and can have a hard time accepting new or innovative ways of doing things.

The Guardians are often happy working in highly structured work environments where everyone knows the rules of the job. They respect authority and are loyal team players.

ESTP – The Doers

Blog(s): The Trading Digest, Macro Man

The active and play-ful type. They are especially attuned to people and things around them and often full of energy, talking, joking and engaging in physical out-door activities.

The Doers are happiest with action-filled work which craves their full attention and focus. They might be very impulsive and more keen on starting something new than following it through. They might have a problem with sitting still or remaining inactive for any period of time.

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Update on market

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Ok, so in my prior post I said the market hadn’t chosen a direction.  My mistake.  It has.  And it is straight down.

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CNBC's

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As expected, yesterday the Skills Index closed below its moving average.

So, what this means is that I’ll be looking on the short side rather than the long side for opportunities.  Meanwhile today, the market seems to be having trouble deciding which way to go.

skills-index-11-19-08

I’ve come to the obvious conclusion that all bets are off and have been off for while as to where this market goes.  And I’ve come to the conclusion that listening to most people – particularly talking heads on CNBC and Bloomberg that I normally don’t listen to anyway – has zero value in this market.  My strategy is all short term swings/day trading for now.

Other have made the argument that risk is all priced in and stocks are now at an excellent value.  Well, they also said that 10% ago.  For me, I’d rather suffer by missing the first 5-7% of a move up than face the downside of, say, another 10-15% haircut.  But that’s just me.

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volatility

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A few weeks back, I was emailing with Woodshedder about the problem of volatility targeting in tradings systems.  This cause him to write this better sumary of my point in this post:

Finally, Damian from over at Skill Analytics reminded me that traders can get hit with larger than expected losses when using ATR stops. This would occur when volatility has died down, which would cause the ATR stop to get tighter and tighter. If a system is using a percent-risk formula for position-sizing, as the stop gets tigher, it is buying bigger and bigger positions. If volatility suddenly returns, the system may experience some large losses, until the ATR stop has time to catch up with the market volatility.

Well, I was a bit amused today to read via AllAboutAlpha, that the folks over at the major quant fund AQR recognized this as one of the main reasons for the Quant Bloodbath in August 2007.

According to Asness and Berger, quant managers often target constant volatility not constant dollar exposure.  As a result, they lever up in times of low market volatility and lever down in times of higher volatility.  The problem last August, they say, was that many quant managers were using higher leverage than usual at that point in the cycle.  As a result, a pure Fama/French model with no leverage would have actually performed much better that month than most quants.

It’s important to note that they are talking about using volatility not as a stop in this case, but as a way of judging how much leverage one should have.  This is why I believe you need to have minimums in volatility-based position sizing to insure that in low-vol environments you don’t get taken out on a stretcher.  So it is rather shocking that these guys would let volatility alone determine the amount of leverage.  The fact that these guys overused leverage, however, isn’t really all that shocking – it is the opinion of this writer that many hedge funds are selling alpha while delivering nothing more than beta * leverage.

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Bespoke has note up this morning about the Yield curve (the separation between the 10y yield and the 3m yield).  So I realized that I hadn’t really looked at it in a while, and pulled it up.

yieldcurve

While we’ve reached an interesting upside point on the curve, it is important to notice that even having reached that point in 2001, there was still a lot of downside before we started to see the markets move up again.

Mike over at MarketSci has an interesting short term strategy for trading the SP-500 based on the yield curve.  I’ve replicated some of it although I haven’t been able to match his results.

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Momentum Top Signals

And the Lion created the oceans..(The last pho...

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I wanted to follow-up on a post over at Big Picture that had to deal with momentum tops and bottoms.  Looking over the post, I don’t quite have the programming skill to look at exactly what is being discussed, but I did think it would be interesting to take a look a simple indicator – the number of stocks, for a given index (in this case the SP-500) that are below $10.  Why $10?  Totally arbitrary.  But it produced an interesting graph that I’ve reproduced below:

below10

The first graph is raw count with some moving averages thrown on them.  The second graph is a percentage of the total stocks in the index – and the S&P 500 is at the bottom with a 200 day MA thrown on it.

I don’t have a lot of comments on this at the moment – I’d just comment that we have now approached the same percent of stocks below $10 as near the market low in 2002.  I’m working on figuring out how it might be used in a system.

Geek note: There is survivorship bias in this chart as the SP-500 has obviously changed in terms of its members and I’m using a fixed version of the index.  Man, I wish one of the software developers would create the idea of a dynamic index that can change as the members of the index change.

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