Friday, August 31, 2012

T3 Rankings Hold Steady

The top 3 T3 rankings remain the same as those posted this morning..GLD, QQQ and IWM.

TAQK Update ...8.31.12

We're closing out the month with a nice little run.  The model has slightly underperformed SPY, but on a 5 day basis it's outperformed SPY.  Ditto for the 8 week and year to date results.

The Current vs Normalcy numbers have turned all green, indicating an outperforming equity curve.  The TrendX and SpreadX are both upslope at the zero line and suggest more short term gains are likely.  These conditions could be considered an ACCUMULATE situation for smaller infusions of new capital although I think we'll have some better opportunities in the near future.

Rebalance of the position allocations is set for next Tuesday.. We may get some adjustments to these numbers based on today's big move and final numbers will be posted Monday based on today's close.
Tech continues to dominant the momentum rankings both in the model and in the T3 SITUATIONS portfolio shown below.

Just to clarify:  The ON signal above the Mosaic RM model short term returns means the model is active and not in a cash position.  When risk conditions prevail the model goes to cash and the signal is CASH.

T 3 ...8.31.12

Going into today's action early signals project the current rankings will hold through the close.  A closing update will be issued at 12:30 PST.

Thursday, August 30, 2012

T 3 Volatility...8.30.12

This is another look at the T3 composite price chart posted Monday.  Yesterday we looked at the similarity of XLV, XLU and XLP (health care, utilities and consumer staples) short term and this 2 year chart shows that correlation is the norm.  That's important when viewing the T3 component ranking because when these 3 amigos don't show up in consecutive order it typically signals an impending change in the equity/bond balance.

GLD is pretty much in a pattern class all to itself.
SPY, QQQ, XLE and IWM display the equities pattern at various volatility levels above XLV,XLU &XLP.
TLT, TIP and AGG display the bond pattern, again with various volatility levels.
Note that all components have increased in value over the past 2 years...another important factor in constructing any model portfolio and previously noted.  

At the same time, the safety net we build around the portfolio is the diversification of risk, which is typically accomplished by using non-correlated assets or sectors.  As can be seen in the chart above, that's easier said than done.  We could easily include ETFs reflecting the financials, materials, real estate, transports and retail sectors in the model to test that theory and I've spent many, many hours building and testing such trial and error portfolios.  The performance metrics on all such efforts are dismal compared with T3 and TAQK.

Will market dynamic change? Will adjustments need to be made to the portfolio to maintain our target equity curve?  Can the low drawdown risk profile be sustained?
YES to all 3 questions.  It just takes a little work and a little oversight.

Going forward next week we'll look the difference between a tactical and an adaptive approach to keeping our portfolio on the right track.

Wednesday, August 29, 2012

T 3 Momentum Tool...8.29.12

As mentioned on Monday, this matrix is the basis of the Situations T 3 momentum calculations.  The tool combines both daily momentum signals with real time data to quickly examine both the individual performance of each component and the performance of each component relative to the larger portfolio.  This is, of course, the TC2000 platform and while it looks a lot like the platform (also a Worden Bros. product), there's a lot of custom programming possible in TC2000 that cannot be accomplished in FSC.
That's not a solicitation for TC2000, just a notice that they are different products.

The MOSAIC tab reflects a custom daily bar momentum indicator, while the T3 and T7 tabs reflect real time relative strength  (shown in 10 minute bars on this chart).  T3 greater than T7 for a component indicates increasing relative strength while the +3 thru -12 tabs rank current strength and momentum relative to the past 12 days.

In today's case XLV is showing strength relative to the rest of the pack while still showing weakness per the +3-12 scale.  The resolution of those conflicting readings is therefore a neutral position in the ranking scale
This same analysis could be applied to XLU and XLP with minor adjustments and tomorrow we'll look at why this alignment is important when looking at the larger context of the portfolio.

Tuesday, August 28, 2012

TAQK... 8.28.12

The TAQK model performed well last week, yielding a better return than SPY.  The Qs still hold  #1 momentum rank, even thought TLT has been on a tear and appears to be headed even higher.  XLK, as expected, is #2, and both the Qs and XLK have been largely driven by Apple, which comprises more than 18% of the Qs.

The TrendX has turned up nicely and our equity curve is once again solidly rising versus the M14 and M30.

This weekend I'll unveil the LAZY MAN model, which is truly for the lazy investor since you only have to rebalance the portfolio once a month.....that's it.  No portfolio replacements, no fiddling around with position sizing. Just buy and hold.  We'll track it back to 07 and see how it performed in and recovered from the 08 crash.  You may be surprised to see it includes SPY.  We lose something in the overall return, but the equity curve is very attractive.

Monday, August 27, 2012

T 3 Update...8.27.12

Here's our T3 model after Friday's close.  As predicted at 12:30 PST Friday is looked like momentum was going to resolve to maintain Thursday's ranking.  which is how it played out. On Wednesday we'll look a little closer at the real time momentum ranking tool that runs in TC2000 and which produces the net rank scores.
For now we're in a hold pattern as Apple drives the Qs and TLT drives the bonds....both positive for the Situations and TAQK portfolios. We're seeing some pullback in GLD so it may slide in the near term rankings.

Below is a 2 year chart of all the T3 components and you can see how the mix has been affected by the recent shuffle of IWM , GLD and TIP.... we've added a lot more volatility. The obvious question is... XLP, XLU and XLV are down there in their own little low volatility domain...why are they even in mix?  That's a good question and there's a good answer, which we touch on Wednesday also.

Friday, August 24, 2012

Friday T 3 Ranking ... 8.24.12

Here's the rankings as of 30 minutes pre close.  Gold is making a move today, but so is XLE. 

For now I recommended staying with yesterday's ranking (posted earlier today) for the close. 
We'll update the actual closing numbers this weekend.

T 3 Update .. 8.24.12

This is a little different version of T 3.  GLD, TIP and IWM have been added.  XLY, XLK and DVY have been deleted.  We now have a clearer spectrum of the larger equity/bond momentum spread and have added the volatility of GLD (gold) and IWM (Russell 2000) to the mix.

Note the color Note-- colorized signals only for top 3 slots + TLT.. This is due to the critical role of TLT in the mix and we always want to be aware of short term changes in its momentum.

The case in point can be seen in the short term MRSI signal generated fot TLT on 8/17 and closed on 8/22.  This was a nice little gainer even though TLT was in last place in daily momentum.

The daily ranking for today's rotation will be posted here at 12:30 PST.

Thursday, August 23, 2012

TAQK Update .. 8.23.12

Just a quick update on the TAQK model.  The last couple days have produced a nice turnaround in the equity curve and we're beating SPY on everything except the 30 day.  The model is actually in a good accumulation position currently although a formal signal is still pending as the rebalancing number continue to converge (the Share Allocation Adjustment calcs).
No rebalancing action is necessary until 9.1.12 and by that time the model could actually be in parity if bonds continue to surge.

Wednesday, August 22, 2012


The reversal in bonds has been dramatic and has pulled the Mosaic equity curve out of its slump.
We're close to an accumulate signal which may trigger at the close.

The techs, QQQ and XLK, are still in the top ranked momentum slots but over on the SITUATIONS page you should note that per yesterday's post those positions went red and were closed.

On the 5 day return line Mosaic has an edge on SPY, but we're still lagging on the 30 day.
On the 8 week Mosaic is ahead and for the year Mosaic has eked out a tiny edge.  So far so good.
 Always keep in mind that these are risk management models designed to minimize drawdown, not maximize returns.

Tuesday, August 21, 2012

Situations Template

1.  Performance chart of the Situations model (T2 shown here) versus SPY over 2 years.
2.  6 month performance chart of Situations model versus SPY.
3.  6 month charts for each portfolio component, including RSQ and P6 stop indicator overlays.
4.  Performance metrics: longer term and shorter term for Situations model versus SPY.
5.  Daily ranking of ETF components based on Mosaic momentum and relative strength algorithms.
6.  How the model is created and how it trades: equal $ amounts rebalanced weekly at Monday's open
7.  Component charts over 2 years.

TAQK Update...8.21.12

We're continuing to see some pullback as bonds weaken.  These situations have previously produced great buying opportunities so I'm keeping a close watch on the short term equity/bond dynamics. and the SpreadX/TrendX chart.

The S&P 500 high a 4 year high today although it appears to be a fragile situation based on the intraday action of the VIX, which can jump several % in a few minutes. The game could go either way right now so the safety of our market neutral model is still a solid bet and risk management remains Job #1..

I mentioned last week that TLT could see 119.5 (currently 121) and our hesitation in buying the TLT setup on the 16th when it first hit 121 turns out to have been a wise move.

Monday, August 20, 2012

Situations T 3 and Stocks...8.20.12

Here's a version of T 3 using stocks....not my preferred way to invest...but short term traders may find it interesting.  I've tried to pick a strong stock in each sector along with the SPY...just for comparison.

As with any momentum approach to trading what we're looking for is shown on the shaky yellow line following HD's movement in the rankings and accompanied by a Delta Band long signal.  You can trace out the rise of BAC in a similar fashion.  Most of these surges to the top 3 slots...and that's what they are...tend to exhaust after 5 to 7 days so you don't want to dally too long.

Watching  a stock like T suddenly tumble several on 8/8/12 is a clear signal to close a long position.  I'm not going to consider the odds of going Short in these studies...most traders don't do it and IRA accounts don't allow it unless you use an inverse ETF like SH or QID to short SPY or QQQ.

Although this T 3 digression looks at stocks the same pattern recognition of how momentum rankings are changing on a daily basis will hep keep your equity curve in an upslope mode.

Saturday, August 18, 2012

Situations Update ...8.18.12

The Situations matrix shows what a nice little run tech and XLE have had.  The Delta Bands signaled an XLE close on the 16th EOD and from now on the color signals will be active.  I've shown that TLT did go long on the MRSI on Friday although I'm thinking that needs a bit of confirmation form AGG to get better odds.  I may replace XLY with another bond ETF to better define the bond/equity divergence.

The VIX is now well below 14, a situation I mentioned over on ETFP yesterday.

Below is the T3 model which rotates into the top 3, not the top 5 and the results are very similar.  Going forward T# will be our default model unless the skew between T5 and T# becomes noticeable and then I'll post those metrics.  The 11 ETF rankings reamin unchanged.

Friday, August 17, 2012

Fidelity 11...FREE!!! ....8.17.12

You Fidelity account holders are a tough lot, trying to capitalize on those 30 commission free ETFs and I'm trying to make it work for you, but their sector spectrum is thin with the biggest void being a tech representative. (IVE is the S&P 500 value fund; IVV is the S&P 500 proxy))

Nevertheless here's a true Lazy Man just hold these 11 ETFs in equal dollar amounts...forever.  Holding the top 3,4,5,6,7,8,9,10 just doesn't work...sorry..  The good news is that this setup should really minimize trading costs. The All In 11 model cuts the drawdown by about 40% but you pay the price in totals return.

OK...seriously...I don't really expect anybody to start buying this setup...although it does pay better than any CDs by a factor of about 10.

However, this matrix is useful for providing a day by day snapshot of equity versus bond momentum and for crafting short term trading situations that follow the momentum odds. What's the risk?  The obvious answer is that the markets can be fickle, especially in these periods where news drives momentum.  It's unrealistic to think you can win all trades but you can increase the odds for short term success if you use a a robust toolbox of momentum signals.

Thursday, August 16, 2012

New Situations and T 5 Page 8.16.12

This is the new Situations page although I won't be posting the lower multichart unless we are discussing a different blend of ETFs.  I've merged the MRSI and Delta Band signals into a rotation model that has worked out well in the past.  Depending on your particular focus...long term, short term,. equities, and or options...this little matrix should provide a unified approach.

Situations are designed to be used independent of the larger Mosaic models, to provide quantified opportunities for short term traders and to help track how the markets are behaving on a day to day basis.
The top 2 charts reflect the long term (2 year) and short term (6 month) performance of a Top 5 model (T 5)  that rotates every Friday's close into the 5 top ranked ETFs from our little 11 ETF basket.  The continued top ranking of XLE, XLK and QQQ means there were actually only a couple trades to stay with the top 5 and it is unusual for the portfolio rankings to deviation radically from week to week. There's 18 trading days of rankings provided to aid in the transparency of market behavior. 

The data fields are pretty self explanatory.  Send me a note with any questions.
The Momentum/Relative Strength rankings are based on my own blend of 2 RSI and 2 exponential moving average algorithms.  There are no programmable stops for the T 5 system.
As with the larger Mosaic models the goal of the Top 5 is to beat the S&P with considerable less drawdown risk.  This is more of an active system than TAQK, for instance...although as mentioned above....sometimes there really are no trades necessary at the end of the week.

We're conducting backtesting over the weekend to determine whether position rotation on Monday's open provides better or worst results than the Friday close rotation and those results will be posted next week.  

Wednesday, August 15, 2012

DN optiions & more....8.15.12

First, some further clarifications on the use of options with the delta models:
Backtesting option performance metrics is a notoriously difficult task.  Data providers do not routinely offer historical option data and that data itself is subject to wide variation depending on the time of day when the quotes were taken, the size of the spread and whether the option was bought or sold.  It's gets worst from there.
The summary option results presented in the delta models were based on current volatility and spread values, which obviously have not been consistent over the past 5 years so the results should not be used to gauge actual returns that may have been accrued during that time frame.  The intent was to show an approach rather than project actual returns that could be expected.  I ran this same model back in December when VIX was around 31 and the results were considerably better ... about twice as volatility has a huge role in the results...and the risk...involved.
That being said, a delta positive model which sells slightly OTM calls should theoretically provide an attractive risk/reward scenario...and while it may be instructive to post regular updates for a model portfolio employing this strategy it is currently beyond the scope of this newsletter. 
Concerning the delta neutral model, the trick to making such a model pay out is in only trading one side of the model at a time.  How do you know which side to play?  This is where the momentum ranking matrix comes in helpful, especially if used in conjunction with the delta bands setup which looks for situations of extreme short term % change in momentum and then bets on a reverse move.

This leads to the next development in the newsletter based on survey results:

The underlying focus of Mosaic remains long term, low drawdown and low maintenance investment models that the average trader/investor can implement and track.  Nevertheless, many investors also want a more dynamic model in hopes of gaming the markets a bit and supplementing the turtle like revenue stream provided by Mosaic.

To these ends I will be merging the Situations with a more robust rotational model...Mosaic 10... that will trade once a week.  The model is composed of 10 ETFs and the model holds the top 5 components of that model. Rebalancing occurs at Monday's open + 60 minutes with a couple caveats.  I'll post the preliminary model over the weekend.  Within the framework of this model there are opportunities for most situations:
1. Long term investment..requires rebalancing once a week although positions may prevail for some time.      
2. Short term ETF single ETFs or a basket of ETFs with the highest momentum metrics
3. Short term option trading...using options on the highest ranked ETFs for 3-7 day trades.  The option side of the strategy is obviously the most complex and the most volatile and is not designed for unsophisticated option traders.  It must be expected that a morning gain can turn into an afternoon loss and option characteristics like spread, open interest and daily volume have to be factored into any investment decision.  While certain ETFs, like XLK, have demonstrated their utility in a long term model like TAQK, few thinking traders would go near the options because they demonstrate horrible volume and open interest.  As such, only those ETFs with robust option characteristics should be considered for use within the Mosaic 10 ranking, a point that will be emphasized in subsequent posts.
That's it for now. 
Thanks for the survey feedback. It is appreciated and helps me focus my efforts to meet your goals.

Tuesday, August 14, 2012

Tuesday Updates . . 8.14.12

A quick look at the base model momentum ranking shows XLK is still running strong in the face of a massive increase in Sept,  31 calls.  Yesterday XLK traded 67,000 calls by early morning. today that number is 252, with a total open interest of 142,700.

The HOLD mode continues for the TAQK as the equity curve rides between the M14 and M30 baselines.  TrendX has hit the zero line as predicted last week and the model is slightly underperforming SPY in the short term. That situation could change in a heartbeat and we're in this for the long haul so for now we hang tight.

We are getting a distinct skew developing in the share allocation adjustment but that may also change by the time we are set to rebalance around the 1st of September.  No action is currently required.

Tomorrow I'll answer some questions that have popped up, mostly about options, and also propose a common ground for pleasing as many subscribers as possible in response to the little survey that was sent out Monday.

Monday, August 13, 2012

DN Options... Part 3 8.13.12

Let me just expand on some statements from last week's delta neutral options study and the use of the momentum matrix.  First... we looked at 2 approximating a delta neutral position, the other reflecting a delta positive position.  Our goal was to generate low risk capital appreciation using an options strategy either by itself or in conjunction with holding underlying equity positions. 
In the case of the delta neutral model we simply sold at the money calls against out equity positions and collected premium.  The utility of the momentum matrix in this scenario is minimal and is limited to assessing the risk for undertaking new option positions independent of the Mosaic delta neutral portfolio.  This matter was not addresses in the previous posts and reader enthusiasm for learning more details will drive any further explorations down this wormhole. 
In the case of the delta positive model we can expect that at the money option positions will be regularly exercised (called away) and must be re-established immediately in order to preserve the Mosaic balance.  An alternative approach involves selling the slightly out of the money calls (shown above) and letting price come to the strike.  This strategy knocks down our premium income and relies more on the underlying positions' appreciation to drive our income stream.  In this case the momentum matrix does provide greater utility in targeting how far out the option chain we want to set the OTM strike and is still useful in setting up option positions independent of the Mosaic portfolio.
What are the inherent dangers of the delta neutral model?  Since the income stream is premised on maintenance of a steady state of long/short balance.... if the equity side of the equation (QQQ for example) runs up way past the target strike we are suddenly running a deficit position in which we must cover the called option at a net loss.  At this point it becomes a question of whether we want to play the mean reversion game, re-establish the position and hope for a retracement.  Hope is never a good strategy and this becomes a very dangerous game of wait and see....and is completely contrary to the low risk goals of Mosaic so I don't recommend it to any thinking trader or investor.
On a side note ... XLK traded 67,000 calls at the September 31 strike today, with a total open interest of 140,000 contracts.  This is a huge position and looks like a hedging trade rather than a breakout bet.

Sunday, August 12, 2012

TAQK..the base model 8.11.12

This is the modified TAQ model... TAQK...we've add XLK per our examination of QQQ vs XLK and this will be our workhorse model going forward. SH will remains in the mix following our brief delta neutral study earlier this week it will be used on an as needed basis to buffer any impending risk without going to the full RM model safety position of cash.

XLK has held top slot as the momentum mover among the components over the past week, followed by QQQ so our 52% tech weighting was probably not skewed enough short term.

Nevertheless, our metric panel remains in a HOLD mode as the SpreadX and TrendX continue down to the zero line and the opportunity for new capital infusion into the model may be approaching although these are long term models so patience is really the watchword.

Friday, August 10, 2012

DN Options- Part 2 8.10.12

In part 2 we see what happens when we engineer the delta neutral profile to delta positive.  We still employ the at the money (ATM) call strategy but we re-establish our positions if they are called away (exercised).  In a later iteration next week we see what happens when we sell calls 1 or 2 strikes out of the money (OTM).  We allowed 20% slippage to factor in the intraday volatility of option prices (which can be extreme) and we assume commissions at $ 1/contract (100 shares).

The returns on the matrix assume you are holding an underlying equity position and not just trading options. As a result, we make as much on the equity appreciation side as we do selling the options.

We use the Momentum ranking matrix to keep on the right side of the market...these are daily results but we could easily reformat the data to provide 2 day, 3 day or weekly rankings.  It is clear from the ranking matrix that things in motion tend to stay in motion so maybe this should be called the Inertia ranking instead. Regardless of what we call it, the ranking does provide a snapshot of what's hot and what's not.  By using a spectrum of volatility and beta ETFs we have a another set of eyes to help offset the risk of skewing our option positions in the wrong direction.

Next week I'll send out a little survey to subscribers to see how their interests lie. That will help me focus on  information relevant to your interests and avoid my digressions into other areas of trading/investing.

Over the weekend I'll post the new DN model adding XLK to the mix and shuffling the allocations a bit.
For now all the models remain in a HOLD mode although we are close to a new ACCUMULATE signal.

Thursday, August 9, 2012

DN Options 8.9.12

OK... this looks a bit different...and that's because we're looking to optimize a different set of variables.  This is intended primarily for option traders but there are lessons to be learned here for equity investors as well.
What we've done is attempt to create a delta neutral model...for those unfamiliar with the term it typically refers to a position that is simultaneously long and short an equity (or it's proxy) in equal amounts.
How do you make money with such a position?  One way is by selling puts against against both sides to pick up premium decay.  There's an inherent danger in this strategy and the level of that danger resides in the strike points traded....suffice to say it's quite complex and way beyond the scope of our inquiry here.
Now a logical trader would say...if you want to create a delta neutral position..just buy the equity and its inverse...SPY/SH, QLD/QID, SSO/SDS, TLT/TBT, etc. 

Surprise!...none of those pairs actually produce anything near a delta neutral equity curve.
Surprise #2...what does get close to solving the problem is an odd couple balance of QQQ and SH, which over 5 years has shown a half percent net change.
One of these days some outfit like RYDEX or PROFUNDS is going to see the incredible opportunity of offering an ETF that looks just like this with an accompanying option chain.  If that ever happens you could just sell calls or puts or butterflies every month, collect your money and never lose another night's sleep.
Until then it's going to take a little more work to make this thing pay out.
The scenario here suggests selling at the money calls on both sides (QQQ and SH) with 2 months time decay and then rolling the positions every 2 months for another 2 months.  The relative strength ranking table alerts us if the short term DN balance may be in jeopardy.
I've broken out the dividend portion of the equation to better see the value of holding the underlying along with the options.  Traders with level 3 approval could just trade the options and ignore the capital requirement for the equity positions.
There are (there always are) a couple caveats in this strategy and we'll examine those tomorrow.

Wednesday, August 8, 2012

HOLD mode Continues

Our models continue in a HOLD mode as the differential between bonds and equities continues to narrow.  Volume over the last 3 days in the equities markets has been about 50% the 20 day average as the various talking heads opine about the prospects for a continued bull run but our models continue on their slow steady climb as market conditions have worked in our favor. 

Thursday we'll get back to the delta neutral model with some food for thought for my option trading subscribers...and I haven't neglected the Situations should be active by next week.
Note the SPY TrendX at the right panel....keep in mind this is a momentum version of the SPY price chart so it doesn't actually mirror the peaks and dips in SPY price behavior. It's purpose is in helping to forecast likely changes in SPY trend, which is currently at a recent 3 month high. 
Also note the convergence pattern of the TLT VIXEN chart.  This is a strong bullish indicator although negative news surprises could reverse this situation in a flash.

Tuesday, August 7, 2012

XLK vs. QQQ 8.7.12

This is a further refinement of the TAQ workhorse portfolio with the new addition of XLK (the SPYDER sector Technology ETF) and SH (the SPY inverse).  Note that SH is shown with zero allocation and we'll get to that next week.  Also note that the model name is DN--signifying delta neutral...a concept distinct from market neutral which, once again, will be explored in greater detail next week. (The allocations shown do not reflect a delta neutral portfolio).

A quick check of this weekend's TAQ snapshot will reveal that this blend picks up a couple percentage points on the return side while the shoter term (last 3 years) drawdown is effectively the same.  Why is that?
Referring to yesterday's big picture post it's clear that XLK price behavior is less volatile that the Qs so the returns are more linear.  Both ETFs have the AAPL bias going for them (or against them) but XLK deoes demonstrate a higher RSQ than the Qs.  The price to pay is in total returns, where the Qs excel. 

It should therefore come as no surprise that if we reverse the Qs and XLK allocations the results don't improve, in fact retrace below a strictly Qs position.

The addition of XLK to the TAQ portfolio looks like a good match going forward.  Of course, all this is premised on the superiority of the Qs as an equity generating machine and the performance dominance of AAPL within that ETF. 

What could go wrong with that scenario? 

Monday, August 6, 2012

The Big Picture 8.6.12

Friday's rally is in a continuation mode although volume is WAY down...about 50% normal..
It's another one of THOSE days...both bonds and equities are moving in tandem suggesting there may be some short covering action driving the market. 

Above is a little chart of 6 ETFs comprising elements of a more delta neutral focused model that will be explored in the coming weeks.  Note the price behavior of QQQ versus XLK.....not all tech ETFs are created equal and tomorrow we'll see how that differential can help us enhance our portfolio returns.

The option trading subscribers are anxious to see how those instruments can be used to reap better returns...which is actually the reason for the forthcoming perspectives on the delta neutral variation of Mosaic so please bear with me.

Also in the works: an e-book about the VIXEN setup that includes the most relevant 30 posts I have previously published.

Sunday, August 5, 2012

AIW Variations 8.5.12

Last week we looked at the AIW model and it may be instructive to look at 2 variations of that model to get a better perspective on the true price of risk.

In the first case above we've reduced our portfolio to just 3 components, zeroing IBM & WMT.  This looks like the TAQ model now except AAPL has replaced QQQ and we're using a 29% allocation of capital to AAPL in lieu of 45% for QQQ.  In the second case below we've pumped the AAPL % up to 45% and we notice a dramatic change in returns (+ and -) in 2008 and 2009. There is also a very modest reduction in max drawdown for the Mosaic model with the 29% AAPL position.
We can craft any level of risk exposure desired based on adjustments to the allocations...what is comes down to is the level of expectation and the comfort level with risk.
These compact versions of AIW....they should probably be termed TAA... (TLT, AGG, AAPL) demonstrate that sometimes the simpler passive portfolios like Mosaic perform just as well as a dynamic rotational multi-sector models.
In coming weeks we'll introduce such a multi-sector rotational model that can be utilized both as a longer term investment and a shorter term trading platform. 

Friday, August 3, 2012

Monthly Model Updates 8.3.12

In the past 2 weeks I've profiled 4 different models and these are snapshots of the current big picture status of three:
TAQ, TAQLT and  QTUVA  (previously the "S" model)

We've also looked at the AAPL, IBM, WMT model, AIW, which will be reviewed over the weekend.

Feel free to send questions.
Next week the reformat of the MRSI and Delta Band signal template should be complete.
There are no current or pending VIXEN signals.

Thursday, August 2, 2012

TAQ 8.2.12

It takes days like today to appreciate the market neutral approach. With Bill Gross predicting the imminent decline in equity market returns yesterday, the market reacted with sustained selling today.  The model is balanced 45% Qs and 55% bonds with TLT carrying the bulk of the bond volatility.  Tomorrow we'll look at how the same portfolio with LQD and TIP turned on has performed over the past 2 weeks when compared with the TAQ model. 
For new users I've added a Template Overview in the User Reference on the right hand panel.
Also, note the reversal behavior of the SPY Daily TrendX in the right hand upper chart...a picture perfect resistance band .

Wednesday, August 1, 2012

Model Update 8.1.12

                                                                   Click on image to enlarge

This is the new layout with some of the metrics rearranged.  The intent is to provide a better snapshot of how the model in performing both long and short term.  The AIW model got a few folks asking for more alternatives to the TAQ and S models and today's post profiles the XX model using XLV and XLU to smooth out the equity curve.


This chart highlights one of the problems with the AAPL, IBM, WMT model...the average daily flux or % change...on many days it's actually greater than SPY.  One of our basic market neutral goals is to reduce this flux in the event that economic or political developments cause the equity markets to tank quickly, or worst.  It's happened in the past and there's no solid proof that market safeguards have been instituted to prevent the occurrence of future such "black swans".  There's a price to pay for this safety net and its obviously net returns.  It's easy to design these SPY busting models and things can go along well for extended periods of time.  The problem is...when things so wrong they tend to go horribly wrong.

Portfolio Foundations

One of the building blocks of a successful investment portfolio is obviously selection of components that are each robust on their own. When pursuing a market neutral strategy like Mosaic that cannot be  accomplished by combined winners and losers, each component must exhibit positive returns although the mix of components have to also exhibit inverse correlation characteristics.  Here's an example ...the ALL IN model...featuring equal weights of 9 stocks & ETFs to build a SPY beating portfolio.  Can these results be improved upon?  No problem.  Is there a risk price to pay?  Yes.  Can the risk be mitigated?  Yes, to some extent.  What could go wrong with this model?  Lots.  We see how in subsequent explorations.