Week of 2011 OC 28

SPY rose 3.7% this week, while my account fell once again, by 1.8%.  This is my second-lowest balance ever!

The weekly PPO is now strongly positive.  It looks like the crash is not going to be soon.  I need to switch my investments over to a ”bullish” stance.

Euro news: On Thursday, Europe’s leaders announced that Greek bonds will get a 50% haircut with no CDS payout.  The global market jumped!  Best case: this means CDS will now fade away because everyone knows the insurance will never pay out.  Some pundits think this was Europe’s version of the ”Bear Sterns moment” from 2008, when the US banking system went off a cliff but the authorities denied the obvious.  The market rose for the next three months, until the ”Lehman moment” when the obvious could no longer be denied and the market crashed.

		│	Daily % gain size owned												│	Max % loss		│	Results
Symbol	since	│	Fri		Mon		Tue		Wed		Thu		Fri		│	Beg	End	│
RWM	JL01	│	-0.9	20 50	-2.5	20 50	-1.2	20 50	-2.1	20 50	-4.6	19 50	-4.4	19 50	│			│
old puts		│	-2.4	0 0	-2.3	0 0	-2.4	0 0	-2.3	0 0	-2.2	0 0	-2.2	0 0	│			│
RPRX	JL25	│	-35.4	2	-35.6	2	-35.1	2	-29.9	2	-28.9	2	-29.6	4	│	+15.5	+15.5	│	+20.6%
NOp7½	JL25	│	25.5	1.6	25.6	1.5	25.5	1.6	20.6	1.6	18.5	1.6	7.6	0	│	−23.2	−23.2	│	−28.0%
TZA#1	OC17	│	-11.2	18	-19.8	18	-7.1	18	-17.6	18	-30.8	0			│	−12.1	−12.1	│	−12.4%
TZA#2	OC19	│	-4.9	5	-14.1	0									│			│	−1.4%
TNA#1	OC24	│			1.1	6	-7.2	5	-2.7	6	12.6	6	11.2	0	│	−15.2	−13.1	│	−6.9%
IAU	OC25	│							0.1	13	1.3	13	1.5	13	│	−2.2	−0.3	│	+1.6%
TZA#3	OC26	│							-3.9	4	-19.3	4	-18.1	4	│	−15.7	−11.5	│	−14.9%
TNA#2	OC27	│									0.8	20	0.8	20	│	−15.1	−12.7	│	+2.3%
SPY		│	0.0		1.2		-0.7		0.3		3.8		3.7		│			│
me		│	0.0		-0.8		-0.8		-1.3		-2.2		-2.1		│			│

RWM: Should have sold this two weeks ago.  Sell on a dip next week.

RPRX: Exercised the option on Friday.  I don’t understand why the final gains don’t match the max-loss figures.  More math problems.

TZA^#1: Stopped out at Monday's open.

TNA^#1: Whipsaw!  Market started to go up, then plummeted after I bought.

IAU: Bought on the after-hours market Tuesday night, upon Zero Hedge’s recommendation.  Sold on Friday because PPO had turned negative.  Gold *might* be going up a lot soon, depending on what the US dollar does next.  Still, a point for Zero Hedge: I made money on their stock tip.

TZA^#3: Bought because PPO finally reached -1.0.  Then Europe announced their ”solution” to the insoluble debt problem!  According to my MACD-based trading system (see below), this should have been my biggest loss of the year.  Thankfully it was a small bet.

TNA^#2: I wasn’t nimble.  I waited until noon to buy this, although my system said I should have bought at 11 AM.  In the meantime, the market rose a lot and I missed out on those gains.  Sold because PPO went negative.

me: I’ve been calculating these daily-change values incorrectly.  The final change for the week is only -1.8%, not -2.1% as shown. Fixed going forward for next week.

MACD-based trades

I have extended my market simulator program to handle inverse ETF’s.  (Previously I was just winging it by eyeing the charts.)

Hourly TZA trading rules:

• Buy when IWM’s PPO(5,30,10) < -0.5, but only when IWM-price < SMA(20) and fell during last hour.
• Buy when PPO drops by 2.2 over the course of 11 hours.
• Sell when PPO > +0.7 and IWM-price rose during last hour.
• Sell when IWM-price rises by 5.2% from its lowest point since purchase.
• Sell when PPO rises by 1.45 over the course of 11 hours.

Note that my chart-eyeballing rule that required PPO < -1.0 was too strict.  The problems I've been having were not due to buying TZA too early, but because October has been a difficult month for my system.  Over the last year, this system would have had 13 gains and 9 losses, for a total of 102% gain!  For October there should have been one gain and two losses.

Weekly RWM trading rules:

• Buy when IWM’s PPO(5,30,10) < -1.55, but only when IWM-price < SMA(25) and fell during last hour.
• Buy when PPO drops by 4.5 over the course of 3 weeks.
• Sell when PPO > 0 and IWM-price rose during last week.
• Sell when IWM-price rises by 4.0% from its lowest point since purchase.
• Do not sell just because PPO rises over the course of 3 weeks.

The big surprise here is the small trailing stop value of 4%.  I had thought that the RWM I bought in July should be held for months, but actually I should have bought MA29 and sold JN05 for a 3.6% gain, then bought AU07 and sold AU14 for a 6.4% gain.  As it is, I’ll be lucky to get a 1% gain on the original shares bought JL01.

For Monday: Since weekly PPO is now positive, buy SCHA as a weekly hold.

Week of 2011 OC 21

SPY rose 1.1% this week, while my account fell once again, by 2.0%.  I am back to the account balance from six weeks ago.

The weekly PPO for IWM is now positive, for the first time since February — but not positive enough for a ”buy” signal.  Still, this is awfully bullish for my “market about to crash” thesis.  This week, the Japanese yen reached its highest value since WWII.

		│	Daily % gain size owned												│	Max % loss		│	Results
Symbol	since	│	Fri		Mon		Tue		Wed		Thu		Fri		│	Beg	End	│
RWM	JL01	│	-0.8	20 50	0.7	20 50	-0.7	20 50	0.2	20 50	0.1	20 50	-0.9	20 50	│			│
old puts		│	-2.4	0 0	-2.4	0 0	-2.4	0 0	-2.4	0 0	-2.4	0 0	-2.4	0 0	│			│
RPRX	JL25	│	-32.2	2	-35.6	2	-34.6	2	-36.7	2	-35.9	2	-35.4	2	│	+15.5	+15.5	│
NOp7½	JL25	│	22.3	1.5	24.3	1.6	25.4	1.6	25.8	1.6	25.7	1.6	-25.5	1.6	│	−23.2	−23.2	│
TZA#1	OC17	│			0.3	10	-8.1	9	-2.3	9	-5.0	19	-11.2	18	│	−15.1	−12.1	│
TZA#2	OC19	│							2.5	5	1.8	5	-4.9	5	│	−1.4	−1.4	│	−1.4%
SPY		│	0.0		-1.9		0.0		-1.2		-0.7		1.1		│			│
me		│	0.0		-0.6		-0.7		0.4		-0.7		-2.0		│			│

TZA: Bought a little early: PPO=-0.75.  Tuesday: got down to -10.0% with my stop at -10.5%!  Wednesday: tried buying more, with a tight stop, but stopped out within minutes, so shown above as #2 separate purchase.  Thursday: PPO finally hit -1.0 with a negative candlestick, so I bought more, just before the death of Ghaddafi was announced!

Pretty charts

Here is a chart.  I don’t know what it means.  The stock prices show a “megaphone” pattern, which some people say is bullish and others say 50/50 can’t tell what it will do next.  The PPO waveform shows a ”descending wedge” pattern, which is probably bullish.  The breakout has already occurred.  How often do false breakouts happen on MACD-type waveforms?  Dunno.

Week of 2011 OC 14

This week, my account fell 1.9% to the same value it had on September 23rd, while SPY rose 5.9% to its highest value since July. This was SPY’s largest weekly gain of the year so far.

It seems the pundits don’t know what to make of this surge.  Toby Connor predicted in late August that the market would spike above the 200-day moving average in early October before moving down again—but here we are in mid-October and SPY is still several percent lower than that.  He wrote then, “This is going to be a very, very convincing rally.  The tendency is going to be to buy into the media hype, that this was nothing more than a severe correction in an ongoing bull market.”  Yet on October 4th he wrote, “I think we probably just saw a major turning point today. One that should mark a bottom for at least a couple of months.”  Has he been convinced by the media hype?  Or is the market really going up for awhile?  No one knows.

Scott Redler says, “A daily close above 1220 opens the door for a quick move to 1245-1265 in the S&P” and Friday’s close was 1224.58.  But Deron Wagner writes, "However, the lack of volume and overall weak internals suggests that bears may soon wrestle control of the action and that we could be headed for another leg lower” — volume seems only a little lower than average to me.  The perma-bear blog Zero Hedge says the last two weeks have been a “short squeeze” postponing the inevitable and eventually there will be no more weak hands to squeeze and the market will “soar inversely”.  They have a nice chart showing how the most-shorted stocks somehow find a new set of buyers every couple of days, and imply that this is caused by market manipulation, but I don’t know how much to believe in that.  The market’s current behaviour is irrational, but sometimes the market behaves irrationally for months on end.  This is called “climbing the wall of worry”.  The pessimists refuse to trade, so the ticker shows only the optimists’ view.

US news: The city of Harrisburg PA has declared bankruptcy.  The #OccupyWallStreet revolution *is* being televised and this is putting the lie to all attempts by the aristocrats to incite violence and then blame it on the protesters.  The protests are good news for Barack Obama, who took lots of money from Wall St. in exchange for promises to protect them from the pitchforks-and-torches crowd.  Clearly they need to pay up now for another four years of protection!

Euro news: Berlusconi survived his confidence vote, which was followed by rioting in the streets of Rome.  On Monday a bailout was announced for Dexia Bank and the market soared, even though that was also the day when Proton Bank in Greece and Max Bank in Denmark went belly-up; after Friday’s close the Dexia bailout was rejected by the ECB, so that bank is now a zombie being kept alive by government handouts that have been ruled illegal.  On October 23rd the leaders of Europe are supposed to come up with a recapitalization plan for their continent’s banks, which apparently will involve raising the fractional-reserve requirement up to 10% of loans outstanding.  Some banks are threatening to sell their gold and US stocks to avoid having to raise more capital.  On Friday the USA announced that it was not going to loan any more money to Europe via the IMF, but this could be just bluster.

Market news: Google’s quarterly earnings were very, very good.  Next week is Options Expiration week, when the Big Boys spend lots of money to prop up stock prices so they don’t have to pay off all those put-option bets they took from speculators.  But if Zero Hedge is correct and the Big Boys have been having to spend lots of money this week to prevent a crash, and next week the bears will be trying harder before the options expire, can the prices stay up for another week?  No one knows.  If the European banks decide to sell US stocks before the October 23rd meeting, this could turn into a “bankers war” which could be entertaining for us nonbankers—but I’m not breaking out the popcorn just yet.

		│	Daily % gain size owned												│	Max % loss		│	Results
Symbol	since	│	Fri		Mon		Tue		Wed		Thu		Fri		│	Beg	End	│
RWM	JL01	│	3.6	21 50	1.2	20 50	0.9	20 50	0.2	20 50	0.2	20 50	-0.8	20 50	│			│
old puts		│	-2.5	0 0	-2.5	0 0	-2.4	0 0	-2.4	0 0	-2.4	0 0	-2.4	0 0	│			│
RPRX	JL25	│	-38.9	2	-40.4	2	-39.3	2	-39.9	2	-39.1	2	-32.2	2	│	+15.5	+15.5	│
NOp7½	JL25	│	26.4	1.6	29.2	1.7	28.9	1.7	30.3	1.8	30.1	1.8	22.3	1.5	│	−23.2	−23.2	│
TNA#1	OC05	│	1.1	9	8.6	9	10.8	9	21.6	0					│			│	+6.4%
TZA	OC07	│	-0.3	6	-13.4	5	-15.3	5	-19.1	5	-18.9	0			│	−14.8	−14.8	│	−10.4%
TNA#2	OC10	│			1.9	14	3.9	14	8.4	14	8.1	14	14.6	0	│	−15.1	−11.3	│	+3.6%
SPY		│	0.0		3.3		3.4		4.4		4.1		5.9		│			│
me		│	0.0		-1.3		-1.2		-1.5		-1.4		-1.9		│			│

RWM: This is where 1.6% of the weekly loss came from.  The Russell 2000 rose over 8%, so RWM fell over 8% and it is ⅕ of my account.

TZA: Shouldn’t have bought this! PPO was only -0.5 and I should have waited for -1.0. Thankfully it was a small bet.

TNA^#2: Sold because PPO turned negative, but PPO remained near zero for the rest of the week while TNA continued upward.  Anyway, I made enough on this to mostly cancel out the TZA loss.

Cash: The USD fell this week.  I wish there were something worth buying.

Pretty charts

In this chart of the last 14 weeks, note that a straight line can be drawn connecting three of the weekly highs and another straight line (with a sharper downward slant) can be drawn connecting three weekly highs and this week’s low.  This is called “resistance becoming support” and it is a bullish sign.  But it is only a sign and there is no guarantee.  A chart like this can also occur due to a “false breakout” where the market jumps out of its doldrums for a week or two, then moves sharply in the opposite direction for months.  There is no way to know which will happen.

Dear Diary: I hope you liked last week’s annotated chart of my swing trades.  I thought it was much easier to read than the daily-progress table above.  I maintained that chart all week, making occasional touch-ups.  I was going to show it to you — really I was! — but after Friday’s close I decided to first make this IWM chart.  Although I started with a blank slate, after I clicked “Upload” the stockcharts.com program decided to overwrite my swing-trade chart with this clunker.  There are no backups and no obvious way to control when an upload creates a new chart vs. overwriting an old one.  It seems the stockcharts.com system is not suitable for this purpose.  I could make my own charting system — it’s not a difficult PHP program to write — but I didn’t do that this week.

Week of 2011 OC 07

SPY rose by 2.3% this week, while my account rose 0.3% to its highest value in eighteen weeks.  Not bad, especially considering what happened on Tuesday: After the expected market drop on Monday, the market then rose 5% in just the last hour of Tuesday!  I think a lot of traders lost their shirts that day.

Euro news: A bank called Dexia has failed.  The government of Belgium is talking about nationalizing it, but Dexia’s liabilities are greater than Belgium’s GDP.  This *might* be the beginning of the cascading worldwide banking-system failure that some pundits have been predicting for months (and others have been predicting since 2007).

		│	Daily % gain size owned												│	Max % loss		│	Results
Symbol	since	│	Fri		Mon		Tue		Wed		Thu		Fri		│	Beg	End	│
RWM	JL01	│	5.0	22 50	7.8	22 50	4.1	21 50	3.4	21 50	2.3	21 50	3.6	21 50	│			│
old puts		│	-2.6	0 0	-2.6	0 0	-2.6	0 0	-2.5	0 0	-2.5	0 0	-2.5	0 0	│			│
RPRX	JL25	│	-40.2	2	-43.3	2	-36.2	2	-36.4	2	-36.2	2	-38.9	2	│	+15.5	+15.5	│
NOp7½	JL25	│	27.9	1.6	31.1	1.6	25.7	1.6	23.3	1.5	24.5	1.5	26.4	1.6	│	−23.2	−23.2	│
TNA#0	SE26	│	-6.8	9	-21.2	0									│			│	+7.0%
TZA#1	SE29	│	9.7	13	19.5	28	-3.3	26	-7.3	26	-13.7	26	-7.0	0	│	−6.3	+5.9	│	+5.9%
TNA#1	OC05	│							2.4	8	9.2	9	1.1	9	│	−15.2	−7.9	│	+6.4%
TZA#2	OC07	│											-0.3	6	│	−15.4	−14.8	│
SPY		│	0.0		-2.8		-0.7		1.1		3.0		2.3		│			│
me		│	0.0		4.9		-0.0		-0.1		-0.2		0.3		│			│

RPRX: Another solid week of red underlines every day, indicating that the put-options are underpriced.  As long as that continues, I can’t sell the option and then ride the stock back up (not that it looks to be going up a lot any time soon).

Cash: I’ve been keeping a large pile of cash in recent weeks.  That’s okay as long as the US dollar is rising (up 0.22% this week compared with other G7 currencies; up 6.0% for last month).  I am keeping a lot of “dry powder” in case I need to pile into TZA for the once-per-generation crash that many are predicting.

MACD-based swing trades

This week, all the action was in the TNA/TZA swing trades.  In the chart at right, the brown line is the 20-hour moving average.  The bright green and red lines indicate buying and selling, while the dark green and orange symbols are justifications for buying and selling.  The light blue histogram is the PPO(5,30,10) indicator.

Last Thursday, the market’s PPO was down to -1.0, so I bought TZA.  Last Friday afternoon there was a cusp on the PPO histogram while the corresponding peak on the price chart stayed below the moving average, so I bought more TZA at Monday’s open.  This went very well and I made more money on Monday than ever before, but I had to give it all back on Tuesday when the market zoomed up during the final hour, triggering my trailing sell-stop.  The net effect was that the second tranche of TZA got sold for approximately what I paid for it, but the profits on the first tranche were saved.  My trading system worked!

On Wednesday, when it became clear that Tuesday’s zoom-up was going to be more than just a one-hour wonder, I bought TNA.  I sold it on Thursday because PPO had declined more than 0.35 over an 11-hour period.  The price of TNA continued to rise for several hours after that, but then sold off so “close enough”.

On Friday I bought TZA again, even though PPO wasn’t really quite negative enough yet to justify that.  I was at a bowling alley and pleased to find that they had wi-fi!  Also, I wanted to have plenty of bearish tilt in my porfolio to prepare for the Monday morning gap-down if we get one.  The market then went up for several hours after my purchase, plummeting back to my entry-point in the final half-hour.  I feel like I am now well-positioned for next week.