Man Defeated by Life in Epic Matchup

Onion SportsDome

Stop Worrying

Update: 3x2 System / Crash System

The variant of the StockPickr 'Crash System' that I follow has just moved up to a new equity high.


The variant of the StockPickr '3x2 System' that I follow has noticeably broken out to new equity highs since the last update in July.

Do You Feel Luck

Trend: Near Perfect Straightness

The trend continues to be near perfectly straight up. The time the 15 day trendiness has remained at an extreme level above 0.9 (gray line) is now longer than during the market collapse from February to March 2009. See the plot above. We cannot be too far away from some sort of counter trend move?

Dividend Aristocrats / Low Beta Low R-Squared

The 'Dividend Aristocrats' and Low Beta/Low R-Squared stocks in general have just not been of much advantage over the last year. The first plot above shows the performance of the Dividend Aristocrats over the past year compared with the performance of SPY. The Aristocrats have shown an advantage that was sometimes significant. The second plot above compares the set of 20 low beta/low R-Squared stocks that I follow. This set of stocks has demonstrated very little advantage over SPY. The high correlation of everything during the crash rendered most diversification schemes value free.

Used Car Prices Up

The Manheim used car price index continues up. Has the value of the index as an indicator been reduced due to the various auto stimulus plans? Is the index indicating that the collapse of the economy has stopped? The current auto stimulus plans are moving future demand for cars to the present. Car sales may slow significantly after the government subsidies expire.

Health Care

Will the health care reform schemes affect your portfolio?

The "Logan's Run" approach might allow big savings in health care expenditures.


The "Soylent Green" approach is another way to go. Remember, Tuesday is Soylent Green day.

Luftballons

The market continues up. Everyone think happy thoughts.

Trendiness Extreme

The 15 day trendiness has reached an extreme level. (See the plot above.) It is now over 0.9 (horizontal gray line). There will likely be some interruption of the straight line move up in the near future. In late February/early March 2009, the trendiness stayed elevated as the market collapsed. Are we in an equivalent panic period or will we quickly see a counter trend move?

I remember reading something that made a reference to the three week time period as being significant in terms of the human mind accepting a change. I believe that it was related to plastic surgery. Anyone know of the paper referenced, or the three week period as being significant in human psychology?

Welcome!

via videosift.com

I for one welcome our new Goldmanite Overlords!

The overlords want you to buy.

QQQQs Up 9 Days in a Row

The QQQQs have been up nine days in a row. What happens after the QQQQs have been up eight or more days in a row? The chart above summarizes the results for purchasing at the close and holding for one, two, five, and ten days after purchase. The results are good for a two, five, and ten day holding period. The results for a single day hold are not good. We may be looking at short term weakness followed by a further continuation of the rally.

Indecision

After the big move up from the Mach 2009 lows, should we begin to exit long term passive positions and move to a more active trading approach?

Update: 3x2 System / Crash System

The '3x2 System' is still holding near its high water mark of the last two years.


The 'Crash System' equity curve has also moved up nicely and is closing in on its highs.

A diversified portfolio of active trading methods certainly looks to be the way to go. However, the massive drawdown of these two methods during the crash of late 2008 suggests that some sort of disaster filter is needed.

Fear

Fear is the path to the dark side. Fear leads to anger. Anger leads to hate. Hate leads to suffering.

Set Realistic Goals

Obama Drastically Scales Back Goals For America After Visiting Denny's

Make sure your trading goals are realistic for your experience level, skill level, and available capital.

The New Normal?

The statistics for the broad market indices (daily data) have become stationary for the past year. The plot of SPY above shows the stationarity for a rolling one year, two year, and three year period. When the colored lines are below the critical value (horizontal gray line), the statistics for the corresponding period are stationary. The statistics for the past two years and three years are not stationary. The past year has become the new normal. Will the coming year exhibit the same tendency for monster moves as the last year?


The more volatile emerging markets (EEM) also have stationary statistics for the past year. The statistics for the last two years and three years are not stationary, but are closer to the threshold than SPY. Will emerging markets continue to lead the way?


The long term treasury bonds (TLT) statistics are not stationary for the past one, two, or three year periods. TLT was even more destabilized by the October 2008 market crash than the stock indices. Can there be an economic recovery with instability in the bond markets?

Shannon Rebalancing Revisited

What if we were to apply the Shannon method to the Permanent Portfolio discussed last week? The Permanent Portfolio used for testing was equal parts of VTI, TLT, SHY, and GLD. The plot above shows the results for the last three years for buy and hold and for Shannon style rebalancing. The rebalancing has helped a little bit since March 2009.


If we add a short SP-500 position (SDS) to the asset mix, the results are of course better as the market has had a rough couple of years. But, notice how much better the Shannon style rebalancing has done compared to buy and hold. This plot above shows the results for the last three years for a portfolio consisting of equal parts TLT, SHY, GLD, and SDS and a double allocation to VTI. Perhaps active rebalancing between an index and a short position in another index is what is need in uncertain times?


The correlations of the portfolio components are listed in the table above. Are there any asset classes that have a negative correlation to the stock market other than bond funds and short funds?

Crisis is Not Over

Deflation is a very real threat.

The mortgage delinquency problem still exists.

TrimTabs says go short.

There is always 2012 (video above).

Update: Long Term Investment Portfolio

A correction from the prior post -- The original version of the Permanent Portfolio does use just four asset classes (stocks, bonds, gold, cash). The performance for the last three years using equal positions of TLT, SHY, GLD, and VTI is show above. The portfolio works because of the relatively low correlation between the asset classes. (See the table below.)


The Permanent Portfolio Fund (PRPFX) adds four more asset classes to the portfolio (silver, real estate, natural resource stocks, and Swiss Franc). The correlations for eight ETFs representing these asset classes is show in the table above. The additional asset classes do add much in the way of reduced correlation.


The additional asset classes do not modify the performance over the last three years by a large amount. The plot above shows the equity curve for the portfolio using the following ETFs and weightings: TLT/18%, SHY/17%, GLD/20%, SLV/5%, IWM/15%, ICF/8%, IGE/7%, and FXF/10%. The extra asset classes seem to have increased the variability of the portfolio a bit. Addition study will be required to determine if the additional asset classes (implemented with ETFs) are really worthwhile additions to the four class portfolio.