DOW JUMPS 204 TO HIGH FOR YEAR AS DOLLAR SLUMPS – REVIEW OF RSI’s PICKS

The Dow Jones industrial average stormed to its highest level in more than a year Monday as a falling dollar boosted prices for gold, oil and other commodities. Stocks also jumped as investors grew more confident that governments around the world will keep interest rates low to help the global economy. Energy and materials stocks led the market. The major indexes rose 2 percent and the Dow jumped 200 points for the second time in three days, reaching its highest level in 13 months.

The stock market sure acts like it is on fire. RSI has been on the right side of this rally by picking commodity funds and recently a small cap value fund. Let’s  review of RSI’s recommendations since its reemergence in its new incarnation. Note I deleted the leveraged picks since they have been purged from the database, for reasons previously noted. So here they are in the order they were recommended.

October 20, 2009

• Buy 380 shares of United States Gasoline (UGA). After purchase set a stop loss @ $2.67 below entry price and a profit target $4.00 above entry price.
• Buy 1900 shares of ELEMENTS Rogers International Commodity Energy ETN (RJN). After purchase set a stop loss @ $0.52 below entry price and a profit target $0.79 above entry price.

October 21, 2009

• Buy 486 shares iPath DJ AIG Platinum TR Sub-Idx ETN (PGM) at the market open. After purchase set a stop loss @ $2.05 below entry price and a profit target $3.08 above entry price. PGM has a volatility of 6.09%.

October 23, 2009

• Buy 430 shares of GSG – ISHARES S&P GSCI COMMODITY-INDEX at Monday’s open with a $2.31 stop loss under your filled price and a $3.47 profit target above your filled price

October 27, 2009

• Buy 560 shares of DBE – PowerShares DB Multi-Sector Commodity Trust Energy Fund at tomorrow’s market opening. Place a stop loss order $1.79 below your entry price and a profit $2.68 above the entry price.

October 28, 2009

• Buy 370 shares of Market Vectors Russia ETF (RSX) tomorrow on the open. Enter a stop loss $2.67 below your entry price and a profit target $4.01 above entry price.

November 2, 2009

• Buy 300 shares Rydex S&P SmallCap 600 Pure Value (RZV) tomorrow on the open. Enter a stop loss $3.33 below your entry price and a profit target $5.00 above entry price.

All these positions had a good gain today, ranging from 1.51% to 6.07%. It is way too soon to crow about these results. Give it a bit more time.

And, before I forget, RSI had no picks today. I’ll catch you tomorrow.

STOCKS POST MODEST GAINS AS JOB LOSSES SLOW – RSI PICKS ZILCH

Investors undaunted by a surprisingly weak jobs report found enough positive news to nudge stocks higher Friday News that the nation’s unemployment rate rose above 10 percent last month for the first time in 26 years didn’t derail the stock market’s strong gains in the week, which lifted major indexes more than 3 percent.

Well that was the week that was. And to cap it off RSI had no picks for you to consider this weekend. The shame of it all. LOL.

Have a nice weekend. I’ll catch you after the market closes on Monday.

STOCKS SURGE ON JOBS DATA, CISCO FORECAST – WHY ETFs?

A drop in unemployment claims and an upbeat forecast from Cisco Systems Inc. gave investors a jolt of confidence a day before a key government report on jobs. The Dow Jones industrial average jumped 200 points Thursday to its first close above 10,000 in two weeks, while the Nasdaq composite index led major indexes with a gain of 2.4 percent after Cisco, the maker of computer-networking gear, predicted its revenue would grow.

Well this news may be the springboard that propels the markets higher. At this point it is anybody’s guess. Remember the RSI system isn’t based on forecasts, hope and crossing fingers. I confess I’m a podcast addict, and it is interesting how many diverse opinions there out there. Listen to the Bloomberg News podcasts and hear the diverse economic forecasts. It’s a rather confusing picture.

Why ETFs? I received a query that asked the question “Why limit RSI to ETFs? How about using it on the general stock market?” Good question and I will answer it with the following:

ETFs cover a wide range of stock market sectors both domestic and international. But this is not all. ETFs go way beyond the stock market. They cover currencies and commodities as well as many exotic financial instruments too numerous to mention including short and leveraged funds. The most important feature is that each ETF is tied to an individual index. This makes them transparent (the index is well disclosed) and it dampens their volatility to individual stock price shocks. An added benefit is ETFs can be purchased within a tax deferred account which opens up the world of short and leveraged funds. And the frosting on the cake is that ETFs are the fastest growing investment instruments and the universe of opportunities are ever expanding.

And finally … no new picks from RSI. It is a waiting game.

STOCKS GIVE UP GAINS IN LAST HOUR, FINISH MIXED – NO RSI PICKS TODAY

A late-day slump left stocks mixed Wednesday as investors couldn’t hold on to their optimism after the Federal Reserve gave an encouraging assessment of the economy.

I don’t think of myself as a trader** but rather an investor and not a speculator. Yet anyone who is a trader or an investor is really a speculator if you don’t have a positive expectation. Yes, I understand that the positive upward drift of the market makes very long term buy and hold investing a potential winner, depending on your timeframe. But let’s not go there for now. Being able to model the RSI trading system gives me a degree of confidence that I am investing with a statistical edge.

** While it may seem that I trade a lot, that is not my intent. Frequent trading is a consequence of risk mitigation. My intent is to find a trend and ride it until it ends, hopefully for a long period of time.

RISING COMMODITY PRICES LIFT STOCKS – RSI LOVES IT

Stocks have ended mostly higher as rising commodity prices lifted energy, industrial and materials companies. Investors are drawing some comfort Tuesday from billionaire investor Warren Buffett’s decision to pay $100 a share for Burlington Northern Santa Fe in a deal valuing the railroad at $34 billion.

RSI has been picking commodity heavy ETFs and today’s market action has been a degree of validation. Last night I entered an order to buy Rydex S&P SmallCap 600 Pure Value (RZV) and it was executed this morning at the open. I was pleased to see that I got a good fill on that order and even more pleased to get a good 2.89% one day gain on that transaction. There were no picks for today, so hold your positions and make sure your stop orders in in place.

STOCKS END HIGHER AFTER JUMPY TRADING; ECONOMIC DATA DON’T QUIET WORRIES ABOUT PACE OF GAINS – RSI PICKS SMALL VALUE

Stocks ended higher Monday after another day of big swings. Stronger reports on manufacturing and housing gave the market an early boost but a rise in the dollar and worries about the soundness of an eight-month rally chipped away at the gains.

Today’s pick is:

• Buy 300 shares Rydex S&P SmallCap 600 Pure Value (RZV) tomorrow on the open. Enter a stop loss $3.33 below your entry price and a profit target $5.00 above entry price.

I like this pick and I will buy this in the morning. The chart below shows its strength since the March low and its recent selloff in October. RSI’s pick indicates its belief in a reversal of this downward move. We shall see. RZV sports a volatility of 12%, so honor the stop loss mark.

 

Sorry this blog post was late tonight. Have a good night.

WALL STREET PLUNGES AS WORRIES ABOUT CONSUMERS MOUNT – ANOTHER STOP HIT

Stocks plunged Friday, erasing all of the previous day’s big gains, as a drop in consumer spending fanned worries that the economic recovery won’t be sustainable.

Today’s Trading – Well initially I equivocated about buying Ultra Oil & Gas ProShares (DIG) for several reasons, see my blog of October 27^th. Anyway DIG stopped out today and I took a loss equivalent to 1% of my trading portfolio. So with this sale plus AGQ the other day I have only one more leveraged fund in my portfolio, PowerShares DB COMMODITY DBLE LONG ETN (DYY). I mentioned that I purged RSI’s data base of all leveraged ETFs. I have tested it and this change will aid future performance.

RSI had no picks today.  

Yesterday I mentioned my opinion that we are in a bear market rally. I just received the following chart that puts our current rally into perspective. It has exceed all the great depression rallies in both magnitude and duration. See Chart of the Day for more details.

Remember, my opinion has little bearing on how I execute RSI’s ETF picks because it is mechanical. Have a great weekend.

INVESTORS RUSH BACK INTO STOCKS AS ECONOMY GROWS – A RUSSIA FUND TRADE – THOUGHTS ON MARKET OPINIONS

Stocks logged their best day in three months as investors rushed into the market on word the economy grew faster than expected during the summer.

TRADING ACTIVITY: I bought the requisite number of shares of RSX at the open this morning. Unfortunately the open gapped up over 4% from yesterday’s close. However, I followed the methodology and entered my stop and profit orders. I hate to miss that 4%, but that is the nature of the beast. So we press on from this point going forward. As it turned out the position gained another 4% from the open. There were no new ETF picks from the RSI system today.

Are you enthusiastic on the state of the economy? Unfortunately a high percentage of the US public doesn’t believe the recession is over. Without the public sector support this economy and maybe the stock market is not on a firm footing. This is my opinion and that leads me to believe that we may be in a bear market rally. You may have a different opinion. You may be a raging bull or maybe a nervous bear. Opinions shape our reactions to events as they unfold. Regardless of my opinion I follow a strict investment methodology. Because this system is quantifiable and testable, I have more confidence in its ETF recommendations than my own feelings and opinions. That is the beauty of having an evidence-based, testable method. It is why I don’t buy lottery tickets or go to the casino to gamble. Why play when the house has the edge. With the Rocket Science Investing system I know I have an edge, not unlike the house’s edge at the casino. This is not bragging, this is the statement of my investment path and I “put my money on the where my mouth is”.

I could write many paragraphs on the topic of investing versus trading versus speculation. But in the long run, isn’t it all about achieving your personal financial goals? What I do with RSI may appear to be speculative trading, but I think of it as investing. It is my best solution to achieve my goals and it fits within my lifestyle. It is really automatic, like flying on autopilot!

STOCKS SLIDE AS NEW HOME SALES FALL – RSI TAKES A HIT BUT KEEPS ON PICKING

The market took quite a bath today as economic worries took center stage. My position in AGQ was stopped out for a loss. I will check out RSI’s other picks to see if they too hit stops and if there are any I’ll report tomorrow.

Not to be deterred, RSI made a surprising pick tonight:

• Buy 370 shares* of Market Vectors Russia ETF (RSX) tomorrow on the open. Enter a stop loss $2.67 below your entry price and a profit target $4.01 above entry price.

One could say picking a Russia fund is in keeping with the theme of commodities that RSI recently favors. Russia is a major producer of energy as well as other commodities. RSX has a Ns volatility of 9.7%, a reasonable expense ratio of 0.62% and it is actively traded at several million shares per day. It suffered a 7.45% loss today, so RSI is looking to benefit from a price rebound.

I’m seriously considering entering an order for RSX at tomorrow’s open. I’ll let you know tomorrow.

I have been reviewing RSI’s back-tested historical results and I concluded that the leveraged funds are detrimental to the performance of the system. I therefore removed all leveraged ETFs from RSI’s database. So in the future you won’t see AGQ but instead SLV, or that’s what I expect to happen.

Have a good evening. We are bracing for a major winter storm.

* remember 370 shares represent a 1% risk on a $100,000 portfolio. Scale your position accordingly.

STOCKS END MOSTLY LOWER ON MIXED DATA ON HOUSING, CONSUMERS

Yes, the market had the blahs today however RSI made one pick today (see below). However I find it instructive that RSI’s recent picks tilt in the energy/commodities direction. These two sectors are influenced by a multitude of factors, but in general, a recovering economy sustains higher energy/commodity prices. So indirectly RSI is predicting a continuation of the economic upturn.

I have to do some explaining. In yesterday’s blog I mentioned I would pass on Ultra Oil & Gas ProShares (DIG), due to my current commodity exposure plus the fact that DIG is leveraged at 2X and hence has a high volatility. This morning I reviewed my analysis and thought otherwise. My decision was influenced by my investigation of previous back-testing history. RSI has a tendency of picking a bunch of funds, especially at important market junctures. But by the time I placed my order DIG had made a nice gain of about $1.00 off the opening price. So I ended up getting in a bit late and missed a bit of the move. Lesson learned?  I hope. So there is a lot more to this game than having a mechanical trading system. One must be disciplined.

One of the problems bothering me is my attempt to diversify exposure. This was emphasized in the Turtle Trading Experiment as a risk mitigation technique. However if RSI wants to pile onto energy/commodity funds, should I stand in the way? My present stance is to accommodate, but only to a reasonable degree.

Today’s pick is:

• Buy 560 shares of DBE – PowerShares DB Multi-Sector Commodity Trust Energy Fund at tomorrow’s market opening. Place a stop loss order $1.79 below your entry price and a profit $2.68 above the entry price.

Okay, I’ve said enough about being tapped out on commodity funds, but give it a good look and please do your due diligence.  Catch you tomorrow.