Thursday, September 13, 2012

LM Update...9.13.12

We are seeing a little pullback on the equity curve as forecast last week.  Note that the Mosaic flux is close to the zero line...the goal we were planning for when the rebalance date was changed from the 1st to the 15th of the month.  UNFORTUNATELY, the best laid plans of mice and men sometimes go astray (as the old saying goes) and here we are on Sept 13th about to hear the FED's plans for announcement that will likely push volatility to the bands for the SPY and it will be interesting to see how the Mosaic flux performs.

TLT has picked a bit this morning having reached and bounced off the previous August lows.  TLT is technically poised to regain 127, a five point margin.  I'll be checking the MRSI/DB Ouija board for possible entry signals.

One of my thoughtful subscribers asked why the % returns are different for the Mosaic and the Mosaic RM model when a quick look at the short term comparison chart shows that RM has not gone to the safety of CASH since June (flat line area of price chart).

The difference derives from the fact that the equity in the Mosaic and RM models is not the same.  RM has been in a safety (CASH) mode several times during the 4 year lookback period, which has resulted in both a lower drawdown and a lower total equity return. While the NAV of the model Mosaic is $ 181.41, the NAV of the RM model is about $20 less at $160.25.  A $3 daily change (for example) in the Mosaic portfolio value = 1.66% while that same $3 change in the RM model = 1.88%, and as a result the performance results will track somewhat differently.

One of the features of market neutral investing is that charts are not used to forecast price behavior.  While we do use charts to report previous model results they are not used to construct the model or forecast model equity curves.
Based on reader requests and in a departure from that theme Monday's research will focus on one of my favorite chart patterns - the hairy bottom - a term I coined almost 10 years ago to describe a recurring and highly reliable indication of impending momentum change. The pattern can be seen on 2 minute bars and daily and weekly bars as well and can be effectively applied by both traders and investors.