Wall St Rises on Commodity Plays – Buy United States Oil (USO) March 29, 2010
Posted by Marlowe Cassetti in DBC, RSP, USO, UUP.trackback
Stocks rose on Monday as miners and energy companies advanced on dollar weakness and investors bought recent high fliers as the quarter’s end approached.
But overall volume was light at the start of a holiday-shortened week that will cap the S&P 500′s .SPX fourth straight positive quarter. Although the underlying tone was positive, slippage in financial shares, including a 3.3 percent drop by Citigroup curbed a broader market advance.(commentary by Reuters)
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I am in the process of elaborating on the RSI System by providing pages defining the system. The first such page discusses and contrasts RSI with the Turtle Trading System (TTS). This page is here. As other pages are developed I will announce their arrival.
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I plan to feature a chart or two of RSI’s picks that are still being held and give some observations and comments. I will concentrate on those that I hold, but I will try not to ignore those picks that I chose not to buy.
The first is DBC which had a great day today after languishing for many weeks and as in the headline this commodity fund got a boost.
It has been hugging the lower ascending trendline since early February. During that time it has underperformed the US stock market as highlighted by the violet line on the second chart. A downward sloping plot means the the stock in question is underperforming the S&P 500 Equal Weight Index RSP. So now the question is.. will today’s strong showing translate in a profitable advance? To answer that question I want to see this ETF hold its own or exceed the market. The lower chart is the 20 day Average True Range (ATR) that I have mentioned times. I measure volatility as 2.5 times this ATR and I use this number to set stop loss, profit alerts and position size. With an ATR reading of $0.385 gives a volatility of 4.11% which falls into the low range of volatility. Okay, so the dollar falls and commodities rise. Let’s look at RSI’s last pick on the dollar rising….UUP.
As I observed when RSI first picked this last Friday, it is trading at its upper band plus it has very low volitility. I would wait on this one.
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And finally what you all have been waiting for:
- Buy 173 shares United States Oil (USO); stop loss $5.69 below the entry price; trailing stop alert $17.06 above entry price
If you are dismayed and bewildered as to the position sizing and stop/alert price levels, bear with me for a moment. This RSI pick is from its long-term, trend following module. To be viable long-term the thresholds must by necessity be wide. And for the same 1% portfolio risk, the number of shares must be scaled down. Does that make sense?
If you figure that a 173 share stake in USO will cost $6,913 plus commission, or about half of what other RSI modules would normally generate. As we look to generate long-term profits our risk percentage must be cranked up. If you are still confused, please add a comment.
Thank you for your indulgence. Catch you after the market closes Tuesday.
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