Saturday 30 June 2012

Week of 2012 JN 29

SPY rose by 2.2% this week, while my account rose 1.7% and erased its last month of losses.  The loss-floor has risen to -9.7%.

Euro news: At this week’s summit, nothing of substance was definitely decided, but in the background there were several mega-purchases on stock markets.  For example, on Thursday at 3:30pm there was a single trade on the S&P 500 futures market whose notional value was $3 billion.  Somebody with a large credit line wanted to be *seen* propping up the stock market!  If the buyer used newly-printed money from a central bank, then this trade was inflationary—especially if they have to do it again next week to continue postponing the crash.  Goldman Sachs has suggested that $50 billion of inflationary stock purchases would be needed every month just to maintain the status quo.

Friday’s allocations:
Daily % gain
Max loss
Sym  Buy Fri Mon Tue Wed Thu Fri Beg   End
TZA  JN21 -0.5  15  +0.2  16  +0.0  15  -0.2  15  -0.2  15  -0.2  15 -1.3 -1.3
URTY  JN22 +0.2  15  -0.4  15  -0.3  15  +0.3  16  +0.3  16  +1.4  17 -1.3 -1.0
TNA  JN29 +0.2  15 -1.9 -1.9
SPY +6.3 +4.6 +5.2 +6.1 +5.8 +8.5
me -9.2 -9.2 -9.2 -8.8 -8.9 -7.5
floor -11.5 -11.5 -11.3 -10.2 -10.1 -9.7

Stock-trading robot

Buy dateBuy priceSell dateSell priceAcct Profit
ModelActualMAModelActual M AMA
TZA  (Do not buy)  JN 21 14:04 $20.73 JN 27 10:00 $20.49 0.0% -0.2%
URTY JN 22 11:00 $53.93 JN 29 13:00 $59.45 +1.2% +1.4%
TNA JN 29 11:00 $52.88 $52.86 (Not yet)

TZA: Never did get a “buy” signal for this.  In my records I recorded that at JN 26 13:10, I had a hunch that this thing should be sold.  Price would have been $20.90, for a +0.1% overall profit instead of the -0.2% loss that the robot got via its “alternate sell rule”.  I am pleased that my hunches were correct twice in a row (also for TNA last week), but for now I think I’ll just paper-trade my hunches and use the robot for real-money trades.

URTY: First URTY trade is a winner!  Because URTY has such low volume, I got exactly the expected prices—but my profit was greater than expected because URTY actually does better than 3× IWM over short periods.

TNA: Normal trade in progress.  The max-loss is uncomfortably large due to the recent run-up.  The market will have to stay “up” until Wednesday before there will be a big improvement in the max-loss.

Stop updates: Monday’s update failed due to Schwab changing their login-code; apparently this was a momentary self-correcting glitch?  Thankfully, this failure prevented the robot from making an erroneous SRTY purchase due to a bug (holding URTY did not prevent SRTY purchases at 10am, only at other times).  Bug has been fixed.  The rest of the week’s stop-updates were successful.

Gold trading

I have heard that, win or lose, President Obama will have to devalue the US$ by about 20% after the election, to ensure that the USA can continue as a going concern.  Of course I should buy gold *before* the devaluation, but when?  The obvious choice is “just before the election” but maybe somewhat earlier would be better.

Here is my new model:
Using weekly indicators for IAU.
Buy signal:
  • Time = Friday at 4pm (after-hours trade).
  • MACD(14,25,9) is greater than 0.
  • MACD(14,25,9) has been less than 0 since last sale.
Sell signal:
  • Time = whenever US markets are open.
  • Current price < 90% of highest price seen since purchase.

The 10% trailing stop seems a bit much.  Previously I had determined that 5½% is enough to hang on during a parabolic uptrend, but more is needed to stay on during sideways periods between uptrends.  This model could probably generate much more profit with some additional tweaking.

Because this is a weekly model, I will run it manually rather than installing it into the robot.  This allows me to buy after Friday’s close and to use real-time trailing stops, which the robot cannot do.  I can use my automatic downloader for Yahoo quotes rather than the manual system for fetching from  Two problems:
      Splits:  In general, for purest MACD calculations, I want data that has been adjusted for splits, but not for dividends; Yahoo offers either both these adjustments or neither.  So my downloader selects “neither”, but then I had to manually adjust the data for the 10:1 split in IAU that happened in 2010.  If I start using more non-hourly models then something should be done to improve the Yahoo-quotes downloader.
      Limited archives:  Stockcharts has data for IAU going back to 1990, while Yahoo has only back to 2005.  Because weekly MACD needs about two years to ramp up to speed, this means I can backtest only to about 2007 or so.

This model trades very rarely, about once per year.  Here are all trades for the last 5½ years:
2007 JA 192008 MR 20+6.5%
2008 DE 122009 MR 03+1.5%
2009 MA 222009 DE 17+2.1%
2010 AR 302011 AU 25+6.7%
2012 FE 242012 AR 04-1.4%

This is only about 2.8% profit per year because the tranche size is only ⅟₇ of my account and IAU is not leveraged.  Maybe, if an IAU trade is in progress in late October, I’ll dump my remaining cash into it to jack up the profits (if any) from the devaluation (if it happens).

Some people think that IAU is not a good investment because it is “paper gold”.  I think paper gold is safer than physical gold, in the case where the US government confiscates all physical gold again (like in 1933).  For IAU they would just replace my gold shares with dollars; for physical gold, if I were the last recorded receiver of a nugget, they would dig up my yard looking for it.  I don’t think the fact that my yard is actually in Canada would necessarily stop them, if they are desperate enough to try a gold confiscation.

Currently, the weekly MACD for gold is quite negative.  I don’t expect a “buy” signal for at least a month.

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