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Thursday, April 17, 2014

System 12 - Q1

Note: this update covers all activity from 4/17/2014 to 6/17/2014. May update was skipped, because there where no changes to MD, and nothing piqued my interest at that time.

System 12 BCM:

Unfortunately LP didn't last long. Hoping that earnings will be well received, so S12 can increase allocation. LP is the key ingredient for growth.
1st Quarter 2014 earnings score
(only initial reaction considered, regardless if stock recovers or not):
All reported:  6 up; 6 down
Note on JPM - exit criteria was met, but stock stabilized and did not take out PP low. In by-pass with trailing stop-loss.
AAPL split 7:1 on 6/9.

SLD: JPM on 5/5; MSFT and IBM on 5/6; WMT on 5/20; PG on 6/4
BOT: CVX and PTR on 5/7; MSFT and AAPL on 5/12 (re-entry); GOOGL on 6/3


This is MD:

MD Control: JPM, PTR out;  CVX, NVS in.
All qualified.
I don't have AAPL, GOOGL, CVX
RDS  not sure when earnings. Year end in Dec., results published in March?
BRK earn. in early May?

This is SD:
BAC out, VZ in
I have PG, IBM, JPM

This is Arnott Overlay (AO):
 XOM, GE, WFC, MSFT, CVX for 20% each. JPM pending resolution of earnings gap-down.

Clever Eddy Elfenbein made an interesting observation here:
...market cap of the S&P 100 makes up about 62% of the market cap of the S&P 500...The S&P 500 makes up about 77% of the entire value of the Wilshire 5000. Despite its name, that index has 3,663 stocks... S&P 100 is about half of the Wilshire 5000. The remaining 3,563 make up the other half.
That goes to a core of System 12. Combined market cap of MD Control (index) is something over 3.5 Trillion Dollars. Imagine, if Mega Dozen was a country - it would be 4th or 5th biggest economy in a World!
Extremistan, USA (Taleb, yes)

Monday, April 14, 2014


If you find yourself in a hole the first thing to do is stop digging...

My hole isn't really that big. I've been in much deeper holes, came out ahead and advanced. I'll just keep on digging a little while longer, feeling around for different directions, adjustments, improvements. It takes me almost 2 months to find my bearings here. In isolation. With colossal constructions next door for a first 3 weeks. With massive roof leak (now completely fixed), and most miserable winter I've seen in 20 years. With constantly breaking old car, finally giving up in a middle of highway, in a dark, with kids in a back (I love my new Elantra 30mpg). With me unleashing a short-term ES trading system, and seeing it clown-rape my account. Surprise tax bill. And no cash. I am ready for summer.

This business is trying and taxing, and wears out its participants to ashes. The ones who remain standing and sensibly functioning will make it out. Everybody else are blowing up in massive swings. I reviewed many familiar blogs and forums. Places are incredibly busy, everybody are bearish as shit. Almost like good old days of financial crisis. Except indexes are few percent from all time highs, and most of my stocks are ok, with little damage. We can chop like this for a while.

This poor soul lost 195K in 10 days, from January 31 to February 17 this year. I believe its completely true, I believe its a very common experience by now across investment landscape. This is exactly how clean up happens, and by the looks of it, its not over. I know, I've been there... '2010 Disaster'...
 "Good judgment comes from experience, and a lot of that comes from bad judgment", said the same Old Cowboy.

Earnings season is here.
If I had any short term swing positions, I would drop them before earnings. I have none.
This is BCM, I want to keep every single one of them thru earnings, unless sudden collapse, crush or snow. How else do I realize long-term gains? Expectations adjustment (both ways) happens most often on earnings release.
LO is first on 4/24.

As for new positions, I am extremely risk averse, would rather not buy anything before earnings, or at least see how related  stocks react to announcements.
The strongest sectors seems to be Energy, Staples and Utilities.
The most damaged are Health Care (thru biotech, no doubt) and Cyclicals(?);
Financials looks ominous.
Solar activity is moderate, but with unusually many geomag storms. Lunar eclipse, followed by solar eclipse on 4/28, with Cardinal Cross in between (some kind of unusual planet alignment thingamabob). Passover and Easter are together this year. I got my tin hat on...
Time to plant the garden and sow the seeds...he-he

This is Arnott Overlay (AO).
Based on strategy cross-selection, these are the best stocks ever. I want to own them in System9, but technical's are discouraging for all. Looking for entry.

There is a clever  Eddy Elfenbein of CrossingWallStreet, proclaimed a 'best buy-and-hold blogger', with his Buy List. A collection of 20 stocks, set in a beginning of the year. He mentioned that not all should be held continuously. This fits with my efforts to trade opportunistically the very best, sound businesses. This gig is hard enough, I need all the tilt I can get. Still I give only limited weight to fundamental factors - this is a game of speculation, not accounting.
Eddy Elfenbein Buy List (EEBL) with equal continuous allocation (like index...he-he) beat S&P500 every year since 2006. I like his picks, good mix. Some familiar faces - IBM, MSFT, WFC from S12BCM, notable is ORCL here again (fresh one in SD from last month).
Well done, Eddy! Thanks

After removing what I already have, these seems the best now, but I am just watching how they all react to earnings:

While on a subject of 'buy-n-hold' and fundamental analysis,  how can I forget Old Man Buffet. Here is his top 2 dozen as of end 2013, from WFC 20% to MTB at 0.5% of portfolio:
Notable that BAC is not here, but actually its his 5th largest position (thru warrants and shit...).

Emerging Markets are going apeshit to upside, against a backdrop of extremely negative news. Action is really all over the world - Asia-Pacific (GMF), Africa and ME (GAF), Latin America (GML) in a big way. All this is not really visible in EEM, maybe due to China, and especially Russia. I've been shuffling some etf's around, here is more:
GAF, GML, GMF are really non-tradable, but here is more...dip would be nice:

Mother Russia is up to no good. Sentiment is extremely negative. Even russian analysts bear-shitting all over their markets for next 2 weeks. Ivan's got it all figured out, they know every move over coming days.
Will Влади́мир Влади́мирович deliver?

 These where found in a different way. Instead of working from theme to chart, or relying on somebody's fundamental research,  I made several scans in Finviz based on certain fundamental and technical criteria.
2 weeks ago, as I ordered myself to Charlie Mike (link), I came up with this:
The only entry I took is WDC, but almost all are still ok. Notable here is PSX - one of RAFI top stocks.
I am still tuning this thing, its coming up with some familiar names, oils, HUM, ALL and BWA - auto part factory in Michigan with 20K! employees.

Methinks, I dug up enough for now...

Sunday, April 13, 2014

System 12 - Arnott Overlay

There is very smart Robert Arnott of Research Affiliates, who made up a bunch of indexes based on fundamental weight. Key criteria (sales, cash flow, dividends and book value) are sliced and diced in order to get weightings for a variety of indexes in US and abroad.
 RAFI Fundamental Index equity strategies select and weight securities by their fundamental measures of size
Some indexes and weights are here:
When I looked inside  RAFI US 1000 index, I found most of System12 stocks in top two dozens.

(Note: most resent weighting for corresponding etf  PRF from PowerShares are here

Size matter... in everything... I know... and also from personal experience... I got size... I know...
But really, what matters as size, as far as companies go? Sales matter (otherwise there is no E in P/E), dividends matter (otherwise nobody gets paid to wait), book (otherwise its just an air)..., if we are talking about true market leaders, corporations that really control this shit and make themselves laws to suit. These names are the biggest and the best, around us everywhere all the time in everything, laying off the vig 24/7 worldwide!

Here in order of index weight, as of 12/31/2013
from largest XOM at  2.87% to BRK at 0.61%, in total a bit over 30%

The idea is this:
What if I take 1 standard System12 position size, and divide it between Mega Dozen (MD) components in a way of 'Fundamental Bonus'. Only top 12 of RAFI stocks are considered.  5 of them were in MD in January, 2014 - XOM, GE, CVX, WFC, MSFT, then CVX was removed in February, then JPM was added in March. Increase in position size of these in MD Control equally by 20% each shows almost same result, with no material improvement. Testing 3 months period is meaningless for S12, but I am not going to back test. I want to observe this in real time, and especially now, when nothing else works.

It may be possible to skew selection process towards higher ranking in RAFI, by allocating 50% of total bonus to top 2 stocks. The rest will have to share remaining half, also in unequal parts, with lowest being 10% of total bonus. But this may be premature, as I don't have enough data. Also I want to wait for Arnott's own re-balancing, and see how recent earnings affect index weightings. They publish updates with lag of at-least 2 months, so I will not know for a while.

In real world I don't trade MD Control (its just an index...he-he), so here is a true back-test.
Using actual account records, starting 1/28/2014, apply Arnott Overlay (AO):
Apply 20% bonus to S12 position, that is in MD and also one of top 12 in RAFI allocation. (This percentage will change in time, depending on amount of matching stocks of  his first dozen and mine.)
No re-balancing of existing positions. System goes into LP much sooner.
Slightly positive results achieved.
NOTE: this is an extremely short time period for definite conclusion
I tried several different ways to split this bonus, and also tried to include SD stocks. All tests have a slightly better tilt, than actual account records. This leads me to believe, that Mr. Arnott's method has merit, statically robust and will add a bit of 'Smart Beta' to System 12 portfolio.
Who said fundamentals don't matter?
Thanks, Rob

There is an additional use of  AO, as a qualifier.
I had this problem in back-testing, when there are several candidates from SD for non-fully-loaded System12. All looked equally good on a chart, and I basically went on a coin flip. Now I can use RAFI as a ranking tool, giving preference to entry into higher weighted one. Anything that eliminates my own discretion is good for S12BCM.

Every single AO component already is an existing position of S12BCM
I am not going to adjust my positions here, because costs will effectively eliminate any gains.
Going forward, AO will be updated at every roll-over, and also as soon as current RAFI allocation is published.
MD Control will not be changed, and will continue to be calculated based on original methodology. Its my index, the least I can do is to preserve its integrity. No scam here. Really

As of 4/13/2014, Arnott Overlay (AO) are:
XOM, GE, WFC, MSFT, JPM for 20% each

 Research Affiliates Chairman and CEO Robert Arnott explains why fundamentals can make a big difference on Wealthtrack with Consuelo Mack
more there

Tuesday, April 8, 2014

Not-So-High High Yield

I always try to keep some high yield dividend paying component in System9 account.Stocks are usually no good, as there are many scams. The rest is a bunch of mortgage reit's, oil trusts,  etc that pay for months, but then suddenly drop 30-50% in a day. Then there are telecoms..., but I already have them in mut fund. So an idea is to stay with liquid names, etf's with low(er) expense ratio, but with a hand on ejection button.

I have utilities fund, AMLP, IYR

PSP is Listed Private Equity from PowerShares. Exp over 2%. Yield 13% paid quarterly.
REM is residential and commercial mortgages from iShares. Exp under 0.5%. 36 holdings. 10-15% quart.
IYR is real estate stocks and reit's. Same expense, but only 4% yield quarterly.
HYLD is actively managed corporate junk bonds from AdvisorShares. Exp 1.25%. Yield 8% monthly.
SDIV is dividend stocks from GlobalX. Exp 0.58%; yield 6%

Thinking about switching from IYR to REM, and add PSP
but softly. My schemes have been blowing up lately

Sunday, April 6, 2014

What's Up

------------------Internals Update-----------------------
Surprisingly, internals don't offer much insight into presently potentially dangerous situation.
Over 70% of S&P500 stocks are still bullish and above 50dma. It doesn't tell the future, only present conditions.
MADI is still above 0, while Nasdaq A/D indicator is much weaker and already  spent some time below 0 in March. Confidence Indicators are just in a sideways noise. Golden Indicator is surprising - it was advancing strongly in second half of March, I am really curious at what it will do next. SPX under-performing the world and especially Emerging, but it doesn't last long in recent months.

It strongly feels to me that market is falling apart, everything will get hit, leading to much-much lower levels on popular indexes. Small caps (via IWM) and Nasdaq stocks in general are weaker than large caps, represented by Dow and S&P, but I want to focus on S&P500 for several reasons.

I studied major averages going back over 100 years. There is no dependable set of rules that would enable a person to ride every zig and zag. On a top of that they keep changing the rules of how indexes composed and calculated. That cockamamie S&P500 index is calculated based on publicly available float, which is misleading number, and then there is a divisor (o, statistics). Historically index moves up and down 10 to 30 percent at a clip without rhyme or reason, and can go for over 20 years in a wide range without any noticeable progress or just rip endlessly higher for years. We seemed to be in a former up until last year. As I pointed out back in early 2013 (link): "Sure, we can learn from history, but not as much as you think."

There is an unusual divergence in performance of growth VUG vs value VTG stocks, over a recent couple of months. Value out-performance is uncommon, as growth stocks are market leaders most of the time. So much so that 90's crazy bull market was all growth, while value was killed and many good companies in their own mini-bear market, even with averages ripping higher.

Lets assume for a second that miscreants from McGraw Hill are actually doing a good job (for index that is) and that ,based on Dow Paradox (link), "The purposeful manipulation of index components is designed to produce positive outcome, thus creating an upward equity slope". Then it would be possible to find good, profitable, growing companies, that are also in up-trend, among S&P 500 index components. These type of stocks should be something similar to System12 components, as this is how a company becomes one of Mega Dozen (MD) - grow to become The Biggest. The bottom of the barrel should be exactly the opposite - a prime candidate for short before these lagging dullards are dropped from index (and especially after).

OTOH, I am looking for new emerging Theme, not based on my own opinion (which is usually correct, but badly timed), but on price action and fundamentals of present market leaders. The trick is to find a Theme that is emerging from years/months of basing, so I can 'buy low - sell high'; and at the same time the one that is already moving on daily/weekly, so I can 'buy high - sell higher'. This is an epitome of System9.

---------------------------In The News----------------------------
The biggest unreported news is a string of at-least 12 suicides of high level financial services executives around the globe. Tragic and not comical at-all, the story is custom made to fit any popular conspiracy theory. I wonder why nobody seems to step forward?
JP Morgan, Deutsche Bank, Swiss Re, ABN Amro etc. Clean-up or damage control...he-he

Friday, April 4, 2014

Bloodbath 1% off ATFH

I have to write this in order to stop myself from selling every stock I have.

I mere 1% off All Time Fucking High (ATFH), which was printed today - its a bloodbath!
I can't understand how there is so much damage across the tape over past month and espessially today. All thru March we had a crush (or at-least a mini-bear market) in all momentum names, prior market leaders or just any damn stock that was up. System9 had few of them (now all out) and was buying some others, but its almost impossible to hold anything for more than a couple of days, even with wider stops. Turnover in System9 account is tremendous, going from 30%cash to 5%cash to back over 30% in a span of less than 1 month. Now THAT never happened to me before!

Only respite was a big, liquid mega-cap stocks - under premise that this is the only place to park money. As chance would have it - exactly the kind of stocks that picked by System12. Good for me, no question about it. Obviously I took much more losses elsewhere, and I wasn't even heavily into these momentum hand-grenades. Sure, I tried FEYE at what seemed like support, but was stopped out. Then SCTY, SWI twice - couple of percent loss each time. Then ag stocks went, followed by WDC, sector etf's etc. Now that is too much - good quality institutional names are falling like its a bear market. Not even a bounce during a day.

 What a hell is going on?
I doubt I will find an answers on time. Only price pays, and it hasn't paid in weeks. I got my low risk entry point, that is defined by a stop. The stop hits and I am out. Small pain, so I can preserve my money for large gain. Except there is only so much of many, many small pains I can take. Of 14 positions I entered during previous and this week, only 4 survived (and one of them only by a smidge). Even some System12 stocks made me think about Emergency Exit (EE), I even put 2 stop-loss orders during the day, but then cancelled them. EE is a drastic measure, although vaguely defined, there should not be any doubt about its necessity and urgency, which is a whole point of EE.

We opened strongly off some BS news, SPX went up like 7, but collapsed an hour later. SPX -23 on a close doesn't even tell the whole story. Nasdaq is -110, as this is where the most carnage happened. Most of my stocks (like 8 out of 10) are not even Nasdaq listed, still only 4 are green in BCM account (LO, CCJ, JNJ, RDS). System9 account was supported by miners, IYR, utilities and few other things, but it wasn't nearly enough to cushion the blow.

Tuesday, April 1, 2014

Charlie Mike

From UrbanDictionary:
 It Means Continue Mission. Usually said after an interruption or hiccup in whatever you're doing. This phrase is derived using the phonetic alphabet (Military Alphabet).
And more:
           Whether you’re about to jump from an airplane, dive from a boat or assault a target – CHARLIE MIKE is all about making the mission happen – it’s about Never Giving Up until you have completed the mission and hearing the words MIKE CHARLIE: Mission Complete.

These where found in a different way. Instead of working from theme to chart, I made several scans in Finviz based on certain fundamental and technical criteria. Not too many results, but they are pretty

These been hit very hard.

Some Theme changes and notes:
- In Agriculture I removed NIB and BAL, they don't move enough. Added couple stocks, but they all pretty well correlated.
- Shippers are not correlated very much, plus a big advance in $BDI from summer last year is almost gone.
- Precious Metals and miners reduced somewhat.
- Marijuana was reduced drastically on last rip. I added a little recently.
- Uranium is looking better than ever since Fukushima. Unfortunately, that industry was all destroyed, most stocks are in single digits.
- Graphite coming out of multi-year base. I'm buying dips in half positions. Miners are Canadian penny stocks - no go. My list is old - need to review.
- Solar. With all my great expectations for Solar industry, I never got around to making a list.

- Copper was all stopped out, no re-enrty, temp on hold

----------------------------IN THE NEWS---------------------------------
The biggest stir in a market (unbelievable) is actually Michael Lewis's new book "Flash Boys" about HFT and how "markets are rigged". Story will sell, politicians and FBI are involved, floor traders are shouting behind the scene - what a fucking circus.
Volume is not liquidity, you simple-minded scoundrels! High Frequency Traders (HFT) are not market-makers! Scalping doesn't make markets more efficient!
None of this even matter, but makes for exciting TV (they even held commercials for entire segment)


Whats really funny is none of it is new, and shills on a Tee-Vee has been in bed with these same fuckers since forever. Here is Cramer sweating bullets in 2009, admitting  that he is wrong as much as right (o, horror), that CEO's lie to him on his very show, that investors being sold down a river ... and this moron is still on boob-tube pimping same crap to new generation of suckers.

The real kicker thou is a ticker tape at 0:30. Here is SPX  70 points off the bottom @ 736; oil @ 45; ESLR @ 1.18... and they tell me that long-term investing has no merit, o, and somebody scalping a penny off the vig make any difference at all. How? Today SPX 1888; oil doubled, Gasoline tripled... they can have a damn penny. Evergreen Solar (ESLR) filed for bankruptcy in Massachusetts in 2011, moved to China, and now a billion dollars in sales private company.

As for me, I remember 2009 like it was yesterday. No, I wasn't buying SPX for a Thousand points gain in 5 years. I was scared that the sky is falling, watched CNBC 24/7, and was shorting everything via options. Nobody told me that I was 'over-thinking' back then...


There is another book about HFT etc, I am actually more interested to read. In it there is a story about Thomas Peterffy of Interactive Brokers saying back in October 2010:
"Technology, market structure, and new products have evolved more quickly than our capacity to understand or control them. The result has been a series of crises over the past few years that have caused many investors to lose confidence or to think that the whole system is a rigged game."