10/28/2012 rotation: selling AM; buying CFI

Small Portfolio	XLF & IAU	16.99%
Position	Date	Return	Days
DECK	6/15/2012	-38.57%	134
RIMM	7/16/2012	4.41%	103
OKE	9/25/2012	-1.40%	32
SEAC	9/25/2012	10.04%	32
CAJ	9/25/2012	-6.16%	32
DDAIF	9/25/2012	-8.40%	32
SSD	9/25/2012	-0.30%	32
AM	9/25/2012	16.51%	32
NSC	10/8/2012	-6.17%	19
WMK	10/22/2012	0.17%	5
S&P	Annualized	3.52%
Small Portfolio	Annualized	12.05%
Large Portfolio	Annualized	15.13%

 

Scheduled rotation: selling AM; buying CFI.

AM is in the Publishing industry, and CFI is in the Furniture industry.  Although AM has been a profitable trade, and may become more profitable still, it’s also a great opportunity for profit taking and repositioning into a technically stronger industry.

The move into Furniture is related to the SSD position in the Building industry.  More indication that the efforts of Bernanke to back mortgage related securities are gaining traction.

The CFI position also represents the first stock selection using the new adaptive fundamental model, which will gradually fine tune the fundamentals that are most synergistic with the technical environment targeted by the Mousetrap.

The first adaptation is to add an examination of long term Growth Persistence.  A stock with seemingly good fundamentals has less of a chance of being a value trap if it has persistent earnings growth.  That’s not fool-proof, of course, since of all the stocks on the NYSE, DECK is considered the best value by the model.  That MAY be true NOW, but it was certainly something of a value trap when I entered the position five months ago.

In any case, the adaptive model will slowly update the fundamental selection process until it reaches a (hopefully more profitable) equilibrium.  Although the model is outperforming the S&P by an 11-12% annualized rate, I think it can do even better with these steady adjustments.

Time will tell.

Tim

 

10/21/2012 selling AF; buying WMK

Small Portfolio	XLF & IAU	18.53%
Position	Date	Return	Days
DECK	6/15/2012	-22.73%	128
RIMM	7/16/2012	7.03%	97
OKE	9/25/2012	-0.40%	26
SEAC	9/25/2012	2.33%	26
CAJ	9/25/2012	-5.15%	26
DDAIF	9/25/2012	-2.31%	26
SSD	9/25/2012	0.00%	26
AF	9/25/2012	-4.11%	26
AM	9/25/2012	15.42%	26
NSC	10/8/2012	-1.88%	13
S&P	Annualized	4.69%
Small Portfolio	Annualized	13.30%
Large Portfolio	Annualized	17.12%

 

Scheduled rotation: selling AF; buying WMK.

AF is in the Thrift industry, which is losing breadth and money-flow relative to other industries.  WMK is in the Grocery industry, which is showing technical strength.

This is a net negative for the broad market, since Grocery is a defensive industry.

In any case, WMK is the last selection to be made on a pure Benjamin Graham style fundamental filter.  The model now has enough data to begin a self-adjusting fundamental selection process.  Fundamentals will progressively fine tune to best perform in the specific technical environment selected by the model.  Rotation periods and fundamentals will each self-adjust to the other until they reach long term equilibrium.

Don’t really have much to say about the broad market.  It’s under obvious pressure, but the most pressure is on defensive sectors like utilities.  So far it’s a healthy pause.  We’ll see how long that continues.

As always, a negative gap between AF and WMK will prevent the trade.

Tim

 

10/14/2012 when "no opinion" is an opinion...

Small Portfolio	XLF & IAU	18.40%
Position	Date	Return	Days
DECK	6/15/2012	-24.07%	121
RIMM	7/16/2012	7.59%	90
OKE	9/25/2012	-0.02%	19
SEAC	9/25/2012	1.59%	19
CAJ	9/25/2012	-9.10%	19
DDAIF	9/25/2012	-4.63%	19
SSD	9/25/2012	-4.54%	19
AF	9/25/2012	-1.91%	19
AM	9/25/2012	15.83%	19
NSC	10/8/2012	0.57%	6
S&P	Annualized	4.51%
Small Portfolio	Annualized	13.39%
Large Portfolio	Annualized	16.82%

 

There are no scheduled rotations going into the week.  Nice boring hiatus for a potential transition in the markets.

The market has very obviously stalled, but the question is what it will do next.  At the risk of stating the obvious – I don’t know.  But I want to emphasize that last phrase, because I don’t even have an opinion.

Since people tend to forget when they are wrong and kick themselves for not acting when they are right, they very urgently want to have an opinion.  Any opinion.

Well, I don’t have one.  The sector configuration is long term bearish, intermediate term bullish, and short term mixed.  Breadth and funds flow are turning down, but only in sync with the market.  It’s merely confirmed that the market had acted in an orderly fashion in its recent stall.

I do think we are at an inflection point, but it’s too early to tell one way or the other.  This is no problem for the Mousetrap, since it doesn’t time.  But market timers are in a tricky spot.  Tight stops should be called for in either direction, but whipsawing could wipe out any recent gains in a matter of days.

Tim

 

10/7/2012 selling DVN; buying NSC

Small Portfolio	XLF & IAU	20.24%
Position	Date	Return	Days
DECK	6/15/2012	-25.05%	113
RIMM	7/16/2012	13.38%	82
DVN	9/7/2012	3.11%	29
OKE	9/25/2012	3.30%	11
SEAC	9/25/2012	1.84%	11
CAJ	9/25/2012	-8.55%	11
DDAIF	9/25/2012	-3.06%	11
SSD	9/25/2012	-1.54%	11
AF	9/25/2012	-2.39%	11
AM	9/25/2012	13.86%	11
S&P	Annualized	6.36%
Small Portfolio	Annualized	14.96%
Large Portfolio	Annualized	18.01%

 

Scheduled rotation on Monday: selling DVN and buying NSC.

DVN is in the GASDIVRS industry, and NSC is in the RAILROAD industry.  Although much has been made in the press about transports getting slammed, the weakness in that sector is specific to the AIRTRANS industry, while the more conventional RAILROAD industry has slipped into the gap.

The order I am entering for this trade will be an automated conditional order – my first experiment with this little device.  I’ll set the rotation to occur if, and only if, DVN is at or above Friday’s closing price and NSC is at or below Friday’s closing price.  They will have to both be true for the trade to happen.

In the broader market, there continues to be weakness, and the Australian dollar is plunging in a bizarre parallel to what www.marketanthropology.com has been predicting for months now.  I don’t understand what that blogger is doing and can’t comment on it, but it’s always fascinating to watch!

So what does that mean?  Maybe nothing; maybe deflation – which would explain the coordinated Japan, Europe, and U.S. quantitative easing efforts.  The general market is weakening, but the most defensive sectors (XLP, XLU, XLV) are even weaker still.  I noted last week that the BUILDING industry is strong, and the FURNITUR industry is strengthening as well.

Just looking at the inter-market relationships, I’d say we are still in a place where a nimble investor can buy dips.  But I would put emphasis on the word “nimble”.

I’ll be offline Monday, so I’ll set it and forget it and see what happens.  If nothing happens Monday or Tuesday, I’ll revisit the trade.  Until then…

Have a great Columbus Day!

Tim