WALL STREET PLUNGES AS WORRIES ABOUT CONSUMERS MOUNT – ANOTHER STOP HIT October 30, 2009
Posted by Marlowe Cassetti in AGQ, DIG, DYY.add a comment
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 27th. 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 October 29, 2009
Posted by Marlowe Cassetti in RSX.add a comment
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 October 28, 2009
Posted by Marlowe Cassetti in AGQ, RSX.add a comment
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 October 27, 2009
Posted by Marlowe Cassetti in DBE, DIG.add a comment
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.
STOCKS SLIDE AS RISING DOLLAR HITS OIL PRICES – RSI PICKS OIL & GAS October 26, 2009
Posted by Marlowe Cassetti in DIG, EZA, UCO.add a comment
Today’s selloff hurt our commodity positions. I hope you remembered not to pull those corks off the champagne bottles. Anyway, today RSI picked another ultra energy fund, leveraged to get twice the bang for the buck. So here it is:
- Buy 240 shares of Ultra Oil & Gas ProShares (DIG) at tomorrow’s open. Place a stop loss $4.18 below the filled price and a profit target $6.27 above the filled price.
This pick of an ultra energy ETF is quite volatile at 12%. However, with the risk of volatility comes the prospect of reward, in this case $6.27/share profit. This fund is not unlike Friday’s pick of UCO, which I chose not to purchase today. Likewise I choose not to buy DIG. See chart below:
Another bit of news, today’s dollar spike cause my position in iShares MSCI South Africa Index (EZA) to trip a trailing stop for a small, but nice profit.
I’ll catch you tomorrow.
DESPITE A DOWN MAKET TODAY, RSI MAKES TWO COMMODITY PICKS October 23, 2009
Posted by Marlowe Cassetti in GSG, UCO.add a comment
Wall Street ended the week on a down note today, but that didn’t keep RSI from continuing its picks favoring the commodity sector. There is certainly a trend emerging within the RSI trading system. Out of the several hundred ETFs to select, there is definitely a tilt towards commodities/energy. So here they are:
- Buy 540 shares of UCO - ULTRA DJ-AIG CRUDE OIL PROSHARES at Monday’s open with a $1.86 stop loss under your filled price and a $2.78 profit target above your filled price
- 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
As I have pointed out in my prior discussions on the RSI methodology and the mechanics of trade initiation, the number of shares represent a $1,000 risk or 1% risk on a $100,000 portfolio. Please scale up or down accordingly based on your own portfolio and/or risk tolerance. As an example, UCO has a high volatility of almost 13% with a Ns volatility based on an ATR of $1.86. If the trade goes sour, the $1.86 stop loss represents a $1,000 loss (not including commission and order execution slippage) or 1% of a $100,000 portfolio. UCO closed at $14.35 on Friday, so the dollars invested in 540 shares equates to $7,749.00. Likewise the lower volatility ( 7%) GSG investment is $14,134 (again assuming the opening on Monday is close to Friday’s close of $32.87). Of these two funds I prefer GSG over UCO. The chart shows the volatility differences.
Over this weekend I have to decide if I want to buy GSG Monday morning. I have investments in commodity funds as it is so I need to quantify my total commodity exposure and the attendant risk.
At the end of this week my positions in RSI’s picks are ahead:
- AGQ - ULTRA SILVER PROSHARES 4.16%
- DYY - PS DB COMMODITY DBLE LONG ETN 3.25%
- RJN - ELEMENTS ROGERS INTL COMMODITY ETN 0.62%
Remember this is super short term results, so please keep the corks on the champagne bottle.
Anyway, you have a great weekend.
TIMING IS EVERYTHING & STOPS CAN BE PERPLEXING October 22, 2009
Posted by Marlowe Cassetti in PGM.add a comment
Timing for this blog is everything. Not just timing the trade, but publishing this blog in a timely fashion. Synchronizing the data feed, running RSI models, evaluating and double checking the picks [a huge time eater] can push publication into the wee hours of the evening/morning. My target is to complete and post this blog before 11:00PM Mountain Daylight Time (1:00PM Eastern). So I end up writing about the details of the RSI methodology at an earlier time and then meld it in with the real exciting stuff [the real trades] and there you have it.
The Topic of Stops: I have made some progress on the “Profit Target Stop” dilemma, I previously mentioned. To refresh your memory taking profits at 1.5Nx can be premature in some situations that can be better served by a trailing stop. Active Trader Magazine has had a series of articles on the topic of stops that really has highlighted the detrimental effect on profits that stops impose. I have seen this in my own studies. One system I have produces phenomenal results without stops, but its draw-down is larger than I can tolerate. If I modify RSI’s stop criteria, you will be the first to know. Stops can be perplexing!
Today’s Market: First off RSI had no new picks…not unexpected. I didn’t follow the market today, but I did notice iPath DJ AIG Platinum TR Sub-Idx ETN (PGM) the pick from yesterday, which I sidestepped for portfolio correlation concerns, was off close to 2% today. I just discovered that this fund is being suspended.
Catch you tomorrow……
TODAY’S TRANSACTIONS & THOUGHTS ON VOLATILITY October 21, 2009
Posted by Marlowe Cassetti in DYY, PGM, RJN, UGA.add a comment
TODAY’S TRANSACTIONS:
As prescribed in yesterday’s blog, this morning I purchased the requisite number of shares of DYY at $8.00, UGA at $36.62, and RJN at $6.48. The first two transactions were within a half an hour of the market opening and they were market orders. As for RJN I didn’t like the bid/ask spread so I placed a limit order @ $6.48. This was filled at a later time. I also placed stop loss and profit target OCA (one order cancels another)** as prescribed in yesterday’s blog.
THOUGHTS ON VOLATILITY:
One of the very key elements of the RSI system is the concept of an individual ETF’s volatility. One can measure individual volatility by a variety of methods, such as Standard Deviation, True Range…etc. The pundits in the financial media will talk about the Volatility Index (VIX) as a measure of fear and complacency in the marketplace. What I believe is important is the measure of how much the price of an ETF bounces around. I like the Average True Range (ATR) measured over 14 weeks. It is common in most technical analysis circles to measure ATR over 14 days. Within RSI daily daily ATR is converted to a 14 week ATR. I use this metric, which I call Nx as an important parameter to define Stop Loss and Profit Targets as well as the number of shares to trade for a defined portfolio risk level.
End of Day Wrap Up:
Well, RSI hit a triple today. All three picks made good gains today. At the end of the market close DYY, UGA, and RJN were up 3.50%, 2.63% and 2.01% respectively (reading off my broker’s web site). I cannot guarantee results like this, in fact these numbers surprised me. I am reading a great book on trading (more on this in a future blog) where the author, who is an expert trader, cautions to focus on the long term trading system performance and not on the plusses and minuses of each and every trade. This is tough to do and it all has to do with the topic of behavioral finance.
Lastly there was an additional picks after RSI digested the end of day ETF data.
- 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%.
Since RSI has already loaded us up with other precious metal and commodity funds I choose to sidestep this trade. If you have not taken advantage of RSI’s previous picks, you are welcome to give PGM your consideration.
** For conditional orders such as OCA, not all brokers offer this feature. Check with your broker to find out how you can implement this strategy.
THREE COMMODITY PICKS October 20, 2009
Posted by Marlowe Cassetti in DYY, RJN, UGA.add a comment
Today, RSI cast three votes for commodity funds. One a double ETN, another a gasoline ETF, and the third International commodity ETN. These trades are to be executed at the market on Wednesday’s market opening. So here they are:
- Buy 1300 shares of PowerShares DB Commodity Double Long ETN (DYY). After purchase set a stop loss @ $0.77 below entry price and a profit target $1.15 above entry price.
- 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.
Remember, the suggested number of shares is based on a $1,000 risk.
A couple of words to the wise…DYY is a leveraged, double fund with a volatility of 9.62%. It is also an Exchange Traded Note (ETN). There are some investors who do not like the ETN structure and avoid them, so do your homework. Likewise RJN is also an ETN. however it does sport the name of the famous commodity guru, Jim Rogers. These three picks were from one of RSI’s trend following modules which tells me RSI is expecting a change in trend to the upside. As such, expect to hold these funds for a few weeks to several months, as long as the trend remains in place.
Again I will be eating my own cooking and purchasing these three funds tomorrow morning. I’ll report on this in tomorrow’s blog plus a discussion on volatility and how I measure it. You should find this interesting.
Nothing… October 20, 2009
Posted by Marlowe Cassetti in AGQ.add a comment
No new picks from the RSI system for start of trading today. As I mentioned in a previous blog, the revised and enhanced trading modules have far fewer ETF buy picks than its predecessor generated. Unless otherwise noted I will not publish this blog unless there is a change in the trading model. So far our one ETF pick AGQ is still being held and is profitable. Stay tuned for future picks.
I received an inquiry as to plans to include CEFs in the system. I am working on this and it will be done, if it adds value to the trading model.
