New start for the New Year

In order to tailor to the new format using $100,000 as an initial investment portfolio, I deleted the 2010 portfolios and started 2 new one. Needless to say the portfolios in 2010 resulted a loss and that's what the experiment was about - learn from the mistakes, march forward and not to repeat the same mistake again. The mistake was not following the stops loss strategy properly and led to the bigger loss in certain positions. On top of that I had an error with the calculation on the trailing stop loss formula on the spreadsheet.

The 2011 portfolio will start with $100,000 each on the Ocean Portfolio and TSP Portfolio. Daily moving averages cross-over will be the primary indicators as the entry point. (refer to the strategy listed on the lower right-hand side of the page). Stop loss trigger will be using a combination of ATR, RSI, ADX and Moving Averages indicators.

There were small positions in both portfolios to start off the new setup.

Happy trading and have a wonderful New Year.

Ocean

SPY looks good - up trend

 

20 EMA is above 50 EMA, the trend is up

Year 2010 is coming to the end

December is half gone and the year of 2010 will soon be over. The overall stock market is considered to be good following last year's huge gain. The SPY of ETF index fund which is equivalent to S&P 500 posted a gain of 7.8% year-to-date. Meanwhile my first year Ocean Portfolio using ETFs as the investment portfolio has been disappointed due to my improper used of stops and subsequently let the loss accumulated.

In coming year,  I will continue to use moving averages with cross-over as the lead indicator for trend following. I will use daily average instead of weekly and I will apply the ATR, RSI, ADX indicators as extra filters for profits and stops as opposed to the fixed percentage that I used this year. 

In general, my method is as follow: the daily moving averages (DMAs) for trending following will be 20 and 50 days, when DMA-20 crosses above DMA-50, the trend is up. When DMA-20 crossed below DMA-50, the trend is down. I will start off with $100,000 each as the hypothetical portfolio for two portfolios I am tracking. (1) Ocean Portfolio and (2) TSP portfolio - the government retirement system for federal employees. I hope these two portfolios will achieve better results in 2011 than this year.

New positions established as of Oct 1 market closed

The general markets began to show sign of strength indicated from the moving averages and momentum indicators such as RSI. By following the market trends, new positions are established as follow:

Ocean Portfolio:
1. Long: EEM 20%
2. Long: EWZ 20%
3. Long: EFA 20%
4. Long: VWO 20%
5. Long: TUR 20%

TSP Portfolio:
1. Long: IWM 50%
2. Long: EFA 50%

(out AGG 100%)

Trader's Pick:
1. EEM 50%
2. TUR 50%

Ocean Port and Trader Pick port go cash

Sold all inverse ETFs in Ocean portfolio and Trader Pick portfolio. YTD returns on both portfolios are negative. I will wait for a clear setup to re-enter.

Still holding the same positions for all simulated portfolios

It's been a while for me to add new posts here. Currently the three portfolios are still holding the same short positions except the TSP port is in AGG ETF bond. My short experiment in this blog is frustrated and the results showed that it is difficult to go long and reverse to short using the weekly chart by following the trend with crossover moving averages unless the trend exists for a rather long period of time. It doesn't feel good no matter when it is either long or short but the markets go against the holding positions either way.

To play it more conservative in the Ocean Portfolio, I may try using the ETF bonds such as AGG, TLT or SHY when the trend is down and get back into long ETFs when the trend is up. As for now, I am betting the market is trending down for now and so I am holding the shorts until the next signal shows.

A reader had asked me if the EFZ in the Ocean Port hit the stop yet. It did but I was holding it because I used the other 50% of ETF (SH) for gauging the 12% stops which the entire port did not hit the 12% yet.

I had been looking at the pairs trading strategy which I will try it using the Trader's Pick portfolio as an experiment. Basically "Pairs trading" is buying long and selling short with a pair of equities at the same time where they are highly correlated. You get in the position when they are diverged away from each other and you close out all positions when this pair "Return to mean". By doing that, you can profit the difference in gain and loss from the pair. Pair trading sometimes is referred as "Market neutral" with the principle of hedging. If you want more info or definition about Pair Trading or Market Neutral, please google it and it will give you much more information on this subject. It is profitable and stable than other trading strategies. So they say ...

Ocean

Added remaining 50% on EFZ (inverse)

S&P 500 index closed below its major signal of 50 weekly moving average as closed of June 4. It indicated to me that the market may still be going down more. I added the remaining 50% capital into the inverse EFZ in the simulated Ocean Portfolio.  

Buy 50% Inverse ETF at closing today

Position 50% inverse ETF in the Ocean portfolio at the close of the market today

Market ended with late day rally on Friday but it is not enough ..

The market came back in the black on late Friday but the damage had been done for all 3 simulated portfolios. YTD returns of these portfolios are in the negative territory now.

The overall markets seemed to be heading downward according to the moving average indicators. The S&P 500 Index closed below its 39 weekly moving average (WMA). The Ocean Portfolio will initiate some inverse ETFs buy once the 4 WMA crosses below the 39 WMA. The TSP portfolio is now sitting on the AGG bond index and the Trader's Pick portfolio is holding the PSQ (inverse) as of end of 5/21.

No position now except AGG in TSP portfolio

I will update the portfolios over the weekend.

Major markets continue to slide

The market trends began to switch downward. I will liquidate all long positions in 3 simulated portfolios today and look for the short entry in the Ocean and Trader's portfolios. As in TSP portfolio, I will initiate a AGG buy.

Trailing stop-loss triggered

The week of May 3 was tough for the markets. Some of the holdings in three simulated portfolios had been triggered and resulted in an unpleasant loss.

hit trailing stops

Most positions hit the trailing stops today. Will get out the these positions at the Friday closed tomorrow.

Continue to hold

Despite the recent drop of the markets, I continue to hold the current position of all three simulated portfolios.

Markets regained its upward momentum

After a slight pulled back, the markets regained its strength and continued to move upward. All 3 simulated portfolios are now fully invested.

Long IWM in Trader's Pick portfolio

Long 50% IWM in Trader's Pick portfolio

Just took some short term profits

I decided to take some short term profits anticipating the short term pull back. Will go long again in a few days or so.

Will take some profits at the close of the markets today

Will sell all holding of the 3 simulated portfolios at the close of the markets today

Markets finished strong last week

The trend is still up and the month of April is historically good for stocks. All 3 simulated portfolios are still long.

Continue to hold the current position

Holding the long position for all 3 simulated portfolios. The general markets seemed to have room to move upward.

Long EWW on Ocean Portfolio

Sold FCX and KOL with some profits and replaced it with EWW. I believe EWW will trend upward faster than FCX and KOL.

The general markets regained its momentum to move upward. All three simulated portfolios are fully invested now and will see how it plays out.

                                   (click image to enlarge)

Long EWZ on Trader's Pick Portfolio

Took profits on IYR and replaced with EWZ. I think IYR is still good but EWZ may move faster than IYR in a near term.

Long EFA and IWM on TSP portfolio

The moving averages showed upward trends on both the daily and weekly charts. Sold all AGG and replaced with EFA and IWM with 50% each.

Long ILF in Trader's Pick portfolio

Sold USO for a small profit and replaced with ILF.

Mark Mobius' view on good investing

Mark Mobius is known as a legend in the emerging markets investment and he has spent over 30 years in Asia continued seeking every opportunity in investing in this area. I recently found that he has an active blog and it is worth to mention for those of you are interested. The link is http://mobius.blog.franklintempleton.com/

One of his blog stated that he believed it needed to be optimistic in investing in the emerging markets and the personal qualities are the building for good investing.

"In emerging markets investment, I believe it is necessary to be optimistic. While one can certainly learn numerous technical skills that help in making investments or managing a portfolio, a large percentage of investing is still psychological. Both buyers and sellers act on a combination of instinct, information and logic. The development of certain personal characteristics could play a key role in contributing to your investment success."

Click here for the full story Personal Qualities

Long on IYR in Trader's Pick Portfolio

Established a long position on IYR as the daily chart triggered a buy signal.

                                  (click image to enlarge)

Long on USO in Trader's Pick Portfolio

Initiated a long position on USO with 50% of the Trader's Pick portfolio. The moving averages on the daily chart triggered the buy signal. The holding period may be just a few days or so since this portfolio is to be designed as swing trade.

                                  (click image to enlarge)

New Long Postion Established

The weekly moving average cross-over had triggered a buy (long) signal on the Ocean Portfolio. Here are the new positions for 4 ETFs at the market closed today:

1. EWZ
2. ILF
3. FCX
4. KOL

I am watching the EFA chart for its entry on the government TSP (401K equivalent) retirement system. When it triggers, I will replace the AGG with EFA.

The inverse SH on the Trader's Pick portfolio was sold with a loss as I anticipated the market may move higher from this point. The desired ETFs that I am watching have not been triggered yet. The watch list included:

1. EFA
2. EWZ
3. ILF
4. FXI
5. TUR
6. EWY
7. ECH
8. EEM

(click image to enlarge)

 

Do Top Endowments follow Ivy Portfolio strategy ?

I am a great fan of Mebane Faber's research paper titled "A Quantitative Approach to Tactical Asset Allocation" using monthly moving averages to enter and exit an underline stock position. It was first published in the Spring of 2007 and his research was so brilliant that it attracted a lot of followers including myself. I didn't know about his paper until late last year and I wish that I could find out about it earlier so I could avoid the "Crash of 2008".

Faber's Ivy Portfolio book was published in early 2009 which he further described the detailed technique and asset allocation using ETFs with different sectors and how to invest like the Top Ivy League Endowments. The technique is definitely a winner disregard what the Ivy Leagues' investment approach will be.

For curiosity, I looked at one of the Ivy League endowment's EDGAR Report filed by Yale University Investment managed by David Swensen. As of Dec 31, 2009, the endowment's stock portfolio contained 10 equities as follow:

1) BIOD, 2) EFA, 3) GRIF, 4) INFN, 5) OEF, 6) OPEN, 7) SPY 8) TDI, 9) WWW and 10) XTXI

The portfolio contained 3 ETFs, 3 stocks with price under $10 and 1 stock that was issued in mid 2009. It seemed that not all equities managed by Swensen following Faber's Ivy Portfolio using 10-month moving average for either entering or exiting of a position. But it really doesn't matter, I am sure David Swensen knew what he is doing with his investment disregard it was an Ivy Portfolio strategy or not. Again, the Ivy Portfolio by itself already has great merit and one should not ignore as stock investor.

Set trailing stops from 10% to 12%

I realized that most of the ETFs that I am tracking are pretty volatile in terms of price movement. I've been experimenting with different trailing stop setups and found the 12% stops resulted a better outcome than the 10% with fewer transactions. So I re-adjust it to a 12% trailing stop and will see how it plays out.

Potential buy for these ETFs from the weekly charts

The major indexes had some gains this week as the DOW rose 0.9%, the NASDAQ rose 2% and the S&P 500 made 0.9%. The gains were not much but at least it stopped the prices from falling as it was in the last few weeks.

I looked at the weekly charts and found that there are few ETFs which may be a potential buy as a long position in the Ocean Portfolio. These are EWZ, ILF and EFA.

EWZ and ILF are closed above the weekly moving average MA-39 with the MA-4 is above MA-39 and the EFA is also approaching it. To determine the right time to re-enter as the long position, I basically use MACD, RSI and other filters to confirm my entry point. As for now, these three ETFs will be on the close watch list.

                                  (Click image to enlarge)

Ocean Portfolio is in cash as of Friday closed

It's been a pretty tough 2 weeks for the Ocean, TSP and Traders Pick Portfolios. All selected ETFs finally hit the protective stop loss targets and were sold out. The Ocean Portfolio is in 100% cash now but after a total loss of 9.14% when I began tracking on 12/11/2009. The other two portfolios were not doing that well either. But with stop loss already established, the damage could be control in a reasonable manner. 

Well, I will wait for the next entry point to get back in. It really doesn't matter either its a Long or Short as long as the trend is established noticeably with the moving averages.  Have a nice weekend.

Markets continue to drop

DOW dropped 286 points and S&P 500 lost another 34 points on Thursday. TUR has been stopped out on the Traders Pick portfolio based on the daily closing price dropped below the MA-39 moving average. I initiated an inverse SH (Short S&P500 ProShares) purchase with 50% of the portfolio and tried to catch the near term down trend market.

Set trailing stops to 10%

With some of the more volatile ETFs such as EWZ, ILF that tend to have deeper price fluctuation, it may need to increase the trailing stops higher to avoid the whipsaw condition. I changed the trailing stops from the current 8% to 10% to see how well it will adjust to this situation.

EFA weekly chart

The EFA weekly chart showed MA-4 crossed below MA-18 and the closing price is near the MA-39. The candle bars from the last two weeks looked pretty nasty. However if this position was entered in May 2009, there should be some healthy gains even it got stopped out this week.

(click image to enlarge)

Markets retracement is occuring

Both Emerging Markets and International ETFs got hit pretty hard and hit its 8% stop loss from its entry. The EFA weekly moving average MA-4 crossed below MA-18 and is approaching MA-39.  EWY MA-4 is approaching its MA-18. As of Jan 29, both ETFs were stopped out based on the 8% trailing stop.

Currently only TUR with 20% of the Ocean Portfolio is still on hold and 80% is in cash. I will continue to observe  these moving average charts to determine what my next move will be.

The TSP portfolio suffered the same way that EFA is stopped out and I replaced it with 100% AGG.

Traders Pick still holds 100% TUR as of now.

EFA and EWY hit the daily stops

The DOW dropped another 116 points and S&P 500 lost 13 points. Both EFA and EWY hit the 8% stops at the market closed on the Ocean Portfolio. Normally the stop applies to the weekly chart which follows the market closed of the week (Friday closed). I will wait until tomorrow market closed to take action if appropriate. At this point, it doesn't look good but I just stick to my rule.

What a week for the markets

This week had been tough for the major markets. S&P 500 dropped more than 44 points from 1136.03 to 1091.76 with a 3.9% loss this week. The emerging markets dropped even more. Some of the ETFs in the Ocean Portfolio had been stopped out with a 8% stop.

Normally the Ocean Portfolio will take the signal at the end of the week with the weekly chart but I took the stops with the daily signal seeing that the downward momentum on these ETFs were stronger such as EWZ. EFA is also near the trailing stop price and will see how it plays out.

                                (click image to enlarge)

Stopped out on EWZ and ILF

Both EWZ and ILF hit the 8% stop loss today from its entry and both ETFs were out at the market closed. Keep the cash on the sideline for now and rebalanced the portfolio with proportional ratio of 20% each for easy calculation. Will continue to monitor the market trend.

Add TUR in Ocean Portfolio

Sold FXI and added TUR with 20% in the Ocean Portfolio at the market closed today. Close price of TUR was $58.89. FXI resulted with a small loss of 1.12%

Sell FXI at the close today

In my simulated Ocean Portfolio, I will sell all FXI at the close of the market today which is equal to 20% of the portfolio. FXI is near the 8% trailing stops since the acquisition on 12/11/2009.

Sold FCX in Traders Pick Portfolio

Sold FCX for a 3.42% gain and started a new position with TUR on 1/19/2010

Moving Average Crossover Index - MACI

What is Moving Average Crossover Index (MACI) ? You may say that you'd never heard of it. You are  correct that the MACI term does not exist even I tried to google it. I guess I just made it up and created a new acronym.

My definition of MACI is the as follow:

MACI = (FastMA - SlowMA) / SlowMA * 100

Example:

Let's use FCX with the daily chart and identify the numbers of the simple moving averages at the closed of Jan 15, 2009 using MA-4 (4 days) and MA-39 (39 days).

The numbers are: MA-4 = 85.08, and MA-39 = 83.34.

Then use these numbers and plug in the follow MACI equation I created it (I am sure other people have been using this method and nothing is new)

MACI = (MA4 - MA39) / MA39 * 100

maci = (85.08 - 82.15) / 82.15 * 100
maci = 3.56

During the trending market, the higher the number of MACI, the trendier the underline equity will be (in theory and nothing is guaranteed). If I can only select one equity over the other, I would pick the one with higher MACI and continue to monitor its trend.

There are two ETFs currently with its MACI is much higher than FCX. These are TUR and ECH and its MACI are 10.81 and 9.53 respectively. On my simulated Traders Pick portfolio, I will replace FCX with either one of these two ETFs tomorrow (Jan 19, 2010) at the market closed and see how it will play out.

SPY daily moving average and performance

SPY does not work so well using the daily moving average of MA-4, MA-18 and MA-39.

                                (click image to enlarge)

FCX daily moving average and performance

FCX works well using these daily indicators. Chart showed the result of FCX from its inception.

(click image to enlarge)                

SPY weekly chart as of Jan 15, 2010

SPY weekly chart indicated that the one day drop of 12.43 points should not be worried since it is still trending upward.

(Click chart to enlarge)

DOW dropped more than 100 points. So what shoud we do ?

DOW had one day dropped of 100.90 points and S&P500 gave up 12.43 points on Jan 15. Given the DOW had reached the highest level since Oct 2008, its momentum is still trending upward and it is not a big factor at the point we should worry yet as it showed on the weekly moving average charts.

As for my simulated Traders Pick portfolio, the daily chart for FCX showed sign of weakness but it did not reach the selling point yet (as showed in the chart). Once the MA-4 touches the MA-18, I will sell it and look for another opportunity to get back in.

I found some of the ETFs can be traded using daily charts with MA-4, MA-18 and MA-39 moving averages and crossover signals. These ETFs tend to stay in one direction longer. Using these moving averages and crossover signals really work well for these selected ETFs, but there are some ETFs, actually more ETFs don't work well by using these daily signals.

ETFs that I found which work well from the TradeStation platform back-testing are:

1. EWY
2. EWZ
3. FCX
4. ILF

Signals will not work for ETFs are:
1. SPY
2. QQQQ
3. GLD
4. XLK

I will show some results of the back-testing in the next few threads.

Fundamental Analysis in Emerging Markets

Although my Ocean Portfolio is based on the technical analysis, occasionally I do look at how the fundamentalists think about the stock markets. Apparently there are still opportunities in the Emerging Markets. Here is an article published (Jan 10, 2010) in SeekingAlpha.com by Hao Jin who is a Chartered Financial Analyst (CFA) and Certified Management Account (CMA).

"Forbes’s Fundamental Opportunity Index is based on the idea of value investing: buying underpriced, fundamentally sound stocks. Many people believe that emerging markets, which were up more than 70% in 2009, are likely to pull back, or at least take a breather in 2010. Nonetheless, there are still opportunities in those markets.

The most popular ETF to provide emerging markets diversification is iShares MSCI Emerging Markets Index Fund (EEM), which provides investment results that correspond to publicly traded securities in emerging markets.

Top 5 Countries within EEM

Country ETFs are another great way to find undervalued opportunities. Following are the top 5 countries and their ETFs within EEM:

Fund (Symbol)	Assets	P/E
MSCI Brazil Index Fund (EWZ)	$11.4B	25.3
MSCI South Korea Index Fund (EWY)	$3.1B	18.2
FTSE/Xinhua China 25 Index (FXI)	$10.3B	24.8
MSCI Taiwan Index Fund (EWT)	$3.7B	27.8
MSCI South Africa Index Fund (EZA)	$0.5B	17.5

Over the past decade China has spent massively on roads, bridges, ports and other infrastructure. Even though China's infrastructure is already superior to that of many other developing economies, it still continues to expand: now it focuses on high speed railroads and subway.

However, investors (especially people near retirement) face two main financial concerns – longevity risk and inflation. In order to boost your overall returns, emerging markets should remain 10%-20% of your long term portfolio."

For a full story of the article, click this link.

Interest Rate Policy: Outlook for 2010

Will interest rate remain the current level which is considered to be very low now? It is under pressure as Christine Birkner of FuturesMag.com had written in this article:

Christine Birkner (published 1/1/2010):

"Whether 2010 will be a year when the economic recovery begins to take root could depend on what happens in the Treasury complex and the outlook for interest rates. The global economic crisis kept interest rates frozen near zero throughout 2009. In a November speech before the Economic Club of New York, Federal Reserve Chairman Ben Bernanke reiterated the Fed’s stance that economic conditions would warrant low levels of the Fed funds rate “for an extended period.” The Fed’s actions likely will weigh on the dollar and the economy at large in 2010."
 

Analysts expect Treasury yields, which are relatively low, to climb a bit in 2010. “I can’t imagine [Treasury yields] moving much lower. Until the Federal Reserve implements policy action, these rates will be reflective of supply and demand for safe assets,” says Mike Kimbarovsky, principal, Advocate Asset Management. “[Three-month Libor] would be the first to react to any uncertainty or volatility [in the market]. It will maintain a low level until there’s uncertainty, and then it’ll spike.” 

For a full story of this article, click here.

Ivy League Schools Invest Heavily in ETFs

Wish you all a Happy, Prosperous, Successful and Healthy New Year.

Starting off a new year 2010 this morning and having a fresh cup of coffee after a late night New Year Eve party, I am sitting in front of my computer and wondering how many of those top endoments invested in ETFs. It comes to my mine that there are two sites 1) Alphaclone.com and 2) StockPickr.com that I know published these information which these sources are publicly available.

After some searches, here are my finding: The trend of the top Ivy League schools are heavily invested in ETFs and carrying the similar position into 2010. According to their track records, these school all had their fantastic performances in the past except 2008. In 2009, schools with top endowments such as Yale University, Harvard University, MIT, University of Texas and Standford University which they had more than 20, 30, 40, 50 and even 60% returns on their portfolios.  Harvard University took the lead and resulted with 65% returns in 2009.

You may wonder what investments they had invested in 2009 and the answer is ETF. Not only they invested in ETFs but they focused in the selective markets such as Emerging Market, International Market, Country specific and Major Market Index fund.

Here are some of the most popular ETFs that are still being held by the top endowment management.

1. EFA
2. VWO
3. EEM
4. EWZ
5. FXI
6. EWY
7. SPY
8. OEF

To my surprise, my simulated Ocean Portfolio contains 4 out 5 of these ETFs that I am tracking. Let's see how these ETFs will play out in 2010.