4/30/2015 Trade Notice

The Full Model sold CRR and bought CCL with a better than 4% favorable gap.

4/28/2015 Trade Notice

The Full Model sold UVV and bought HUN with a .70% favorable gap.

4/23/2015 A Change of Pace

The blog has had a change of pace -- partially from life and partially from tactics.

My family moved to another home and promptly experienced the stress of changed commutes.  Just today I had a two hour commute instead of my typical short one because my wife needed to see a child in the hospital and I had to pick up my own kids, then cook, etc.

Immediately after the move the entire family got the flu.

And then my home computer died.

I'm writing this on another computer while I wait for a replacement.

So, a change in life pulled me away from the work on the model and the blog.

I've also had a change of tactics.  Instead of posting the trade ahead of time, I calculate a target trade gap and only trade if that gap happens.  Today the trade would have been SSYS to DRQ if there was at least a 1% favorable gap.

The gap never happened, and so I didn't make the trade.  The calculated gaps range from 9% to 0% (i.e. ANY favorable gap).

On top of that I've been planning for some further studies in CAPE trades -- not for the market as a whole but instead for individual stocks.  I have my own formula, and DRQ certainly qualifies.  But the idea is to invest in stocks that could be held long term in case I'm no longer around.

(Yes, I just had a birthday and was reminded of my mortality).

In any case, I have further testing to do.  The data is on file -- it's just a matter of studying it.  The ideal portfolio is one that is capable of both a quick profit or a long term investment in case you aren't in a position to trade for a long time.

More to come...

4/17/2015 Trade Notice

The Full Model sold DECK and bought CRR with a 1% favorable gap.

4/14/2015 The only way to avoid illusions is to stop looking at them

Sector Model	XLU	-3.28%
Full Model	Date	Return	Days
UVV	12/2/2014	23.39%	133
JOY	12/8/2014	-24.71%	127
RS	12/11/2014	-1.79%	124
AGCO	1/23/2015	6.96%	81
SSYS	3/3/2015	-9.44%	42
PWR	3/9/2015	1.34%	36
BHE	3/31/2015	0.29%	14
CBI	4/2/2015	4.45%	12
DECK	4/2/2015	1.33%	12
MTZ	4/9/2015	-2.17%	5
(Since 5/31/2011)
S&P	Annualized	12.09%
Sector Model	Annualized	22.30%
Full Model	Annualized	19.65%
S&P	Total	55.55%
Sector Model	Total	118.02%
Full Model	Total	100.30%
Sector Model	Advantage	10.22%
Full Model	Advantage	7.57%
	Previous	2015
S&P	53.06%	1.63%
Sector Model	122.60%	-2.05%
Full Model	101.13%	-0.42%

 

The Sector Model continues to consolidate around its benchmark:

 

It’s a strange pattern – expected, but a bit too well behaved.

The good news is that the model does indeed perform as expected by back-tests.  The strangeness is how it’s hovering almost too exactly to that expectation.  No back-test is that good.

This would be about the time that a market technician would announce “it’s going to make a big move to break out [one way or the other]!”

Well, duh.  The current tightening of the pattern is merely an accident of the moment.  We are noting that it is tight at the moment because we are picking a tight moment to look at it.

I make this “point” of sorts to paint a broader picture of the problems of technical analysis.  If you look for a pattern, you’ll find one.  And if you don’t find one in one stock or market, then you’ll look in another.  A common form of chart watching is to look for a trend.  If you see a stock retreat to a rising trend line then it is likely to pop off of it to the upside (or so the idea goes).  If not, you put your stop loss just enough under the trend line for you to get out without too great of a loss.

The problem is that stocks only look like they are going to pop up from a trend-line when you find a stock that’s been popping up from its trend-line.  You ignore those that haven’t been – because, hey, that wouldn’t be a trend.

The pattern is an illusion.

In truth, stocks have to be measured by the money behind the price.  For fundamental investors, that money is money in the business itself: growing cash flow, book value, earnings, sales; low debt.  If the company is gaining more money than the stock in price, then there is a reason to expect the price of the stock to catch up.  Doesn’t always happen, but at least there is something behind the price other than some amorphous trend.

In the same way, technical measures should be price against money flowing into an industry or sector.

Both fundamental and technical measures should be price against an inflow of money: fundamentally into the company and technically into the sector.

The rest is illusion – patterns and trends most of all.

Tim

 

 

4/9/2015 Trade Notice

The Full Model sold COG and bought MTZ with a 2% favorable gap.

4/6/2015 Sit back and kick off your shoes

Sector Model	XLU	-2.56%
Full Model	Date	Return	Days
UVV	12/2/2014	20.61%	125
JOY	12/8/2014	-23.66%	119
RS	12/11/2014	1.02%	116
AGCO	1/23/2015	7.52%	73
SSYS	3/3/2015	-15.91%	34
PWR	3/9/2015	0.39%	28
COG	3/25/2015	6.40%	12
BHE	3/31/2015	0.00%	6
CBI	4/2/2015	0.08%	4
DECK	4/2/2015	0.45%	4
(Since 5/31/2011)
S&P	Annualized	11.80%
Sector Model	Annualized	22.68%
Full Model	Annualized	19.44%
S&P	Total	53.65%
Sector Model	Total	119.65%
Full Model	Total	98.12%
Sector Model	Advantage	10.88%
Full Model	Advantage	7.63%
	Previous	2015
S&P	53.06%	0.39%
Sector Model	122.60%	-1.32%
Full Model	101.13%	-1.50%

 

Long birthday/Passover/Easter weekend for family and friends.  I’m waiting to fly back to Long Island to get back to work.

The market remains in limbo as everyone tries to process whether the economy is sound enough to withstand a rise of interest rates this summer.  The news is getting old, and my guess is that folks will get bullish out of boredom at just the wrong time, then sell in a panic, then miss out on the next move up (whenever that happens).  It’s a reasonable guess since it is what the market does 99 percent of the time.

The Sector Model is floundering in utilities:

 

But the Full Model shows a majority of bullish industries in play:

PUBLISH	Bear
TOBACCO	Bear
UTILCENT	Bear
ELECTRNX	Bull
ENGCON	Bull
HEAVYTRK	Bull
RAILROAD	Bull
SHOE	Bull
STEEL	Bull
COAL	Top
OILPROD	Top

 

The most significant to DOW theory is Heavy Truck and Railroad – both bullish for the economy.

I may be blind as a bat, but nothing here points to any reason for panic.

Open a newspaper, light your cigar from an old coal oven, turn on the stereo, and kick off your shoes.  That’s what Mr. Market is doing, at least.

Tim