T6 Lab + Schwab 105..2.11.13

All registered users of T2 were sent the T6 software yesterday via email.
If you haven't received it please let me know.
Over the next week or 2 I'll explore in more detail what the Lab model can do, and can't do, as well as provide a few more sample portfolios for your consideration. I've added some short lists of the usual ETF suspects for various categories in the T6 Results tab margin...again just to provide some ideas.

Schwab announced last week that they are now offering 105 commission free ETFs that cover quite a range of sectors and assets.  I've put some screen shots up of those ETFs below and Schwab technical support told me there are no restrictions on holding times, so weekly rotation or more frequently seems to be no problem although there may be some minor fees from the original ETF aggregators (like State Street).

Other brokers are likely to follow Schwab's lead.  Fidelity offers 30 commission free ETFs and that number may climb in the wake of Schwab's move.
The problem (there's always a problem) with the Schwab ETFs is that many of them have very low volume and spreads wider than a few pennies...so the liquidity and slippage factors must be considered.  On the other hand the FX currency ETFs are the industry standards and going forward this week we'll see what type of a model T6 can deliver using these inputs.

(NOTE:  As mentioned before, my display of T6 looks different that yours because I've reformatted the various windows to provide a more readable version on site).
Shown below is the "simple" T6 rotational model I profiled last week.

And now, some of the Schwab commission free ETFs.

You get the idea.  Check out Schwab.com for the full listing.

T2 Bonds & Fixed Income..2.8.13

Today we look at 2 versions of a T2 model of bonds and fixed income issues.  DVY and SDY are the dividend  ETFs of the Dow and the S&P.  They typically run in sync and when they divert its usually not for long.  Many of the large bond fund managers are betting against bonds and other fixed income this year and based on a 2 year lookback the payoff has not been stellar although volatility has been very low (note the RSQ of the top 11 model below.
The two versions cited here are using a top 2 and a top 11 run.  The top 11 also included gains from the SPY and the top 2 run included gains when SPY is in the top 2 slots.
Perhaps surprisingly, just running the top 11 model without SPY produces almost identical 2 year returns with a whole lot less risk

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T6 Simple + T2 FX..2.7.13

Here's a simple 6 component model that's been performing nicely.  You can inspect the short term metrics to compare with the SPY.  Download the portfolio into T2 to replicate the study until T6 is sent out this weekend.

On another note, here's a currency based T2 model that may be useful for the purpose of building a composite T6 model based of the top ranked ETFs in each of several portfolios as discussed earlier in the week. Note that silver, gold and oil have been included in the blend.  Gold and oil (crude) are still, in fact, used as currency proxies in some underdeveloped countries with currency problems so their inclusion is a functional one. The Symbol ID values (below) are real time, the T2 model is end of day per yesterday.

LM & AB Updates...2.6.13

Our tactical allocation models are starting out the year poorly...that's the bottom line.  It also supports my belief that, although the models worked well in the past 4 years, this year might be different.  Hence my push to refine the T6 methodology in several iterations.
I had a comment yesterday that a simple allocation model would be appreciated and LM and TAQK models were designed with that goal in mind. Going forward however I think low risk capital appreciation may require a more strategic approach. Unfortunately, the crystal ball for 2013 is cloudy...here's one opinion from Seeking Alpha, but there are an equal number that argue for a true bull run this year.  Our goal is to prepared for whatever the market gives us and to grow our portfolios with minimal risks.
To accomplish these ends I intend to suggest several ways to use the T2 and T6 software in the coming month.  This will vary from the simple to the more complex, but with the software tools in hand you are free to pursue whatever strategy suits your needs and comfort level.
Although the Mosaic path has explored varied trails of capital appreciation over the past 6 months our focus has not changed...a modified market neutral model to temper risk and follow up trending investment instruments.  The move to T6 follows that focus and will enable considerably more user control than the LM and AB models, which will also be retired in March since they can be replicated in T6 and tracked on a daily basis without relying on Newsletter postings.

  

The T6 Situation- Revised...2.5.13

With this post we begin a giant step forward in building a unified and adaptive 6 component model that focuses both on short term and longer term risk/reward situations.  To help users realize and implement this approach the new T6 Lab Excel platform will be emailed to all registered T2 users this weekend at no charge.
Our methodology is quite simple and utilizes both your existing T2 platform and the new T6 Lab.
That may sound like a lot of work...I assure you it is not and will hopefully let you feel more comfortable and confident in your investments.

We have already profiled 4 sample 11 component portfolios in T2..the default version 4 model, COM, SA and WS.  These are just my spins on the market and you are always free to build any portfolios of stocks, bonds or ETFs that piques your interest.

We then select the top 1 or 2 momentum ranked components from each T2 model and build a new model in the T6 Lab.  Each week (or sooner if you are so inclined) we run the various T2 models and then update the selections in the T6 Lab to reflect the current momentum leaders. 
Here is an example of that strategy using the top 2 slots from the default model and the top 1 from COM, SA and WS + SPY as a benchmark. 

 

We'll continue to explore ways to further assure the reliability of the T6 Lab approach over the next 3 weeks.
By March 1st our ongoing focus will be one of tracking and refining the T6 Lab format using a number of new T2 portfolios to provide T6 input ideas.

Focus on TLT...1.4.13

Here are a couple studies on TLT, or rather its ultra inverse TBT. Both issues trade about 5 M shares per day and, for option traders, TBT has almost as much open interest as TLT.  Now You might suppose that TLT and its inverse would trade at parity pretty much all the time. That is Up 1% in TLT, Down 1% in TBT.  Turns out that's not a valid conclusion as can be seen by looking at a simple pair study of the two:

While the correlation is high....85%... there are clearly periods of imbalance between the 2 issues and these can be detected and quantified using our Z-score algorithm to produce a reliable 9 day signal over the past 6 months.  The equity curve measured against RSQ is a bit jumpy but the detailed trade report shows how the 15 trades over 6 months made a nice return with only 3 losers.

Those of you who have been following me for the past few years know about the PDQ Dashboard and here's a version focused on TBT versus most of the bond ETFs as well as XLF and SPY.

Both of these scans are based on Friday's close so today's early action (TBT at -2%) has made the point.
The PDQ uses a slightly different algorithm than the MO2 pair study but the results are consistent and the PQD gives more of a consensus view than the simple TBT/TLT study.

The future of bonds is a subject prominent in the news recently as the majority of market gurus are predicting a bond collapse coming.  Here's the view from Pimco' Bill Gross...the world's biggest bond investor.

T2 Study Updates..2.1.13

An interesting interview with Kyle Bass this morning on CNBC in which he noted that the technical long/short correlation of stocks and bonds has fallen apart and continues to deteriorate.  The practical implication for investors is that the search for superior portfolio components needs to be rethought to include different asset groups that are more focused on true capital appreciation potential.  This is a huge subject and we'll touch on some possible areas of exploration in future posts.

Here are updates on 3 T2 models that have been profiled previously:
COM:  a commodity based model
(note the COM benchmark is AGG (bonds) just to avoid SPY as a viable component)
SA:  a model comprised of top ranked stocks from Seeking Alpha
WS: a model comprised of top ranked stocks for 2013 from Wall Street analysts

Note that GE is in the current top 2 slots in both the SA and WS models.
Meanwhile, energy continues to dominate the commodities model.  (IGE is a blend of natural resources)