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March System Updates

I figured out a way to do my benchmarks a lot faster – so I’m going to continue to post them after all.  I like keeping an eye on them because you can often lose the forest for the trees if you know what I mean.  Max continues to grow at a great pace and is definitely where I should be placing most of my time – so I’ll be spending time on that!  Ok – onto the system results.

MR1 was the bigger winner in March.  Stats are below.  Disappointing is that all the strategies significantly underperformed the market – I’m not really shocked at this given the huge change in trend during the past month – but it is disappointing nevertheless.

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.  None of these system count dividends.

MOMO1:

  • Return for March-09: 0.5%
  • Return YTD: -1.4%
  • Current holdings: IEF,GLD,SLV

TREND1:

  • Return for Feb-09: 1.5%
  • Return YTD: -1.3%
  • Current holdings: IEF, AGG

MR1:

  • Return for Feb-09: 2.3%
  • 2009: -6.0%
  • Current holdings: See blog for updates.

Benchmarks (from Feb 27,2009 till March 31,2009):

  • S&P500:
    • March-09: 8.54%
    • 2009: -11.67%
  • DOW:
    • March-09: 7.73%
    • 2009: -13.30%
  • Nasdaq:
    • March-09: 10.74%
    • 2009: 2.09%
  • IWM (proxy for the R2000):
    • March-09: 7.41%
    • 2009: -14.60%
  • EFA (proxy for developed foreign markets):
    • March-09: 8.39%
    • 2009: -16.21%
  • EEM (proxy for developing foreign markets):
    • March-09: 16.86%
    • 2009: -0.64%

As always – thanks for reading and I hope you have a good April!

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As part of creating more discipline for myself in terms of posting, I’m going to steal an idea from Headlinecharts and start making specific days of the week the time when I do repeated postings. So, I’ve decided that Thursdays are for Relative Strength. I’m posting two views of Relative Strength – one using my proprietary 100-day view and the other using a simple ratio.

I also wanted to mention a few other things before I get into specific markets:

  • The Skills Index hit 85% – that’s pretty much as high as I’ve ever seen it get – so I’m not looking for a ton of further upside here without some pullback.
  • I need to point readers to a new blog called Trading the Odds – it has just started but the content is already terrific.  Added to the blogroll!

New strength: XLY/XLP

Continuing strength: GLD (Gold), Foreign Developing (EEM/SPY), Growth over Value (IWO/IWN), Nasdaq (QQQQ/SPY)

Fading strength: 10-year bonds (IEF/SPY), Gold (GLD/SPY),

Relative Strength – Custom Indicator:

relstr-03-26-09

Relative Strength – Ratios:

ratios-03-26-09

Rubber band (Elastic).
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Dr. Brett is always writing interesting stuff – this caught my eye today – Demand and Supply: Measures of Stock Market Momentum. In the article, he outlines a method for measuring market momentum by counting the number of stocks breaking over a Bollingerband and below it:

Significant momentum is defined by a stock’s closing above or below its Bollinger Band; i.e., above or below the volatility envelope surrounding its short-term moving average. The larger the number, the greater the number of NYSE, NASDAQ, and ASE stocks that are trading with significant momentum.

Well that’s right up my alley.  So I used the S&P 500 for my tests. And to make it more interesting, I compared it against another momentum indicator I look at – the number of stocks making RSI2 > 90 or RSI2 < 10. First, it’s interesting that the two are close. But what is also interesting is that there may be more subtly in the BB approach – for instance, during the most recent sell-off, notice how the line starts to fall off as the index trends down – perhaps indicating that the trend is weakening.

Here’s a graphic:

rsi-bb-comparison

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CNBC.
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It wasn’t even close – Cramer must have come on the show thinking that Stewart was going to be, as I too expected, his normal nice guy in terms of a personal interview.  But I think Stewart took the “comedian” and “variety show” comments very personally, and instead he showed himself for what he truly is: a great political satirist.  I was watching it downstairs and then ran upstairs to see that my wife was also watching it – we were both just amazed that Cramer didn’t get up and walk off the set.  He got creamed.  At best he looked like a bold faced liar. If you missed it – you have to check it out.

One of the main arguments that Stewart brought up was that CNBC (which, for the record, I very rarely watch) should try and do some actual reporting.  I remember an old boss of mine described the blog Engadget (which I read and enjoy) as “snarky comments plus press releases” – and I think CNBC suffers from this same issue.  There is no thoughtful reporting – caused, I would guess (and as Jim pointed out) trying to fill 17 hours of television per day.  So I started to come up with a list of stories that they really should have been ahead of the curve on instead of, as Stewart said, being an infomercial for the financial industry.

  1. Madoff: No shocker here – the evidence was clearly kicking around as was the whistle-blower Markopolos.  They should have been on this one.
  2. The Housing Bubble:  I remember in 2006 watching a CNBC program that was a roadshow on the housing industry where they traveled around talking to real estate “professionals” who all said there was no bubble and no issues with the mortgage industry.  Yet even I knew there was something dramatically wrong with the situation.  All they needed to do here was just ask tougher questions and read some blogs.
  3. FDIC funding:  This just came out a few days ago, but I was amazed they weren’t on this – namely that the banks had not paid any premiums and the FDIC was now, essentially, broke and would require a $500b guarantee from the government.
  4. Leverage: CNBC got lost in the weeds of argument about whether the CRA/Fannie/Freddie caused the housing crisis – but they completely missed the big story – that leverage was being employed all over the place.  First at the banks, then at AIG (via unfunded CDSs) and then by hedge funds using borrowed money to buy assets.  Cramer actually stated last night something to the effect of “if you’re returning 30% a year no one asks questions” – well, if you are actually earning 5% and then using leverage to get it to 30%, that’s a very different story and they should have been asking questions.

Got others?  Post ’em!

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The old stocks at :en:Chapeltown, Lancashire. ...
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Madoff goes to prison – frankly I am amazed that he plead guilty and it was all over so quickly.  I figured that he’d try and prove himself innocent – I wonder what he got in return?  A better prison?  An agreement to leave his wife alone?  I expect we’ll know the deal in the next few weeks as it comes out.  Bottom line – this guy deserves nothing except pain.

Ok – onto the market: one of my measures for the level of “overboughtness” in the market is the number of stocks hitting RSI2 greater 90 and the number stocks hitting RSI2 of less than 10.  Right now, on the S&P 500, we have 51.6% of stocks with an RSI2 of greater than 90, while the number of stocks with an RSI2 of less than is at 0.2%.

And, at the same time, we have the Skills Index going on a buy.  So, how to play this?  Short term, I’m looking at shorts (or longs in inverse ETFs), including (but not limited to): SDS, DUG, TWM, SMN and MZZ.  On a retracement, we’ll look at whether or not it makes sense to go long.  Again, we’ll look for a rise in the percent of stocks in the S&P 500 with an RSI2 of less than 10.  Now, this isn’t a timing indicator – it is meant to be a macro view of the market and where we are likely to go – but not necessarily when.  RSI2, like an oscillator, can get pegged.  So what makes sense here is to start legging into the trades.

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As part of creating more discipline for myself in terms of posting, I’m going to steal an idea from Headlinecharts and start making specific days of the week the time when I do repeated postings.  So, I’ve decided that Thursdays are for Relative Strength.  I’m posting two views of Relative Strength – one using my proprietary 100-day view and the other using a simple ratio.

New strength: OIL (OIL/SPY), Small cap vs. Large cap (IWM/SPY)

Continuing strength: GLD (Gold)

Fading strength: Growth Vs. Value (IWO/IWN), 10-year bonds (IEF/SPY), Nasdaq (QQQQ/SPY)

Relative Strength  – Custom Indicator:

relative-strength-03-16-09

Relative Strength – Ratios:

ratios-03-16-09

February System Updates

Well it took me way too long to get up these stats – and, sadly, I think I’m going to have stop posting them due to time constraints.  The new reality of having a newborn, combined with my job really picking up steam has left me with much, much less time than before.  I’ll try and continue to update the basic stuff – but this will be the last month for the comparative stats – just takes me too long to put together.  If anyone really screams I’ll update them, but I get such a small amount of feedback on these strategies at the moment – probably because they have struggled in this bear market – that it just doesn’t seem to be worth the time.

MR1 was the bigger winner in January and it is the big loser here in February.  Stats are below.

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.  None of these system count dividends.

MOMO1:

  • Return for Feb-09: 1.3%
  • Return YTD: -2.9%
  • Current holdings: IEF,GLD,SLV

TREND1:

  • Return for Feb-09: -0.9%
  • Return YTD: -2.6%
  • Current holdings: IEF, AGG

MR1:

  • Return for Feb-09: -10.6%
  • 2009: -5.3%
  • Current holdings: See blog for updates.

Benchmarks:

  • S&P500:
    • Feb-09: -10.99%
    • 2009: -16.44%
  • DOW:
    • Feb-09: -11.72%
    • 2009: -19.52%
  • Nasdaq:
    • Feb-09: -6.68%
    • 2009: -8.65%
  • IWM (proxy for the R2000):
    • Feb-09: -11.98%
    • 2009: -13.73%
  • EFA (proxy for developed foreign markets):
    • Feb-09: -10.39%
    • 2009: -22.69%
  • EEM (proxy for developing foreign markets):
    • Feb-09: -6.27%
    • 2009: -14.98%

As always – thanks for reading and I hope you have a good March!

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