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Saturday, June 28, 2014

System 14 - Equiponderator

I realized the need for new System 14 back in early May of 2014, while sitting in 50 Day Box (post link).

System 14 (S14) invests in long weekly-monthly trends, rotating thru major asset classes of stocks and bonds. It is rule based, with simple set of risk controls and filters, and diversified.
The account is held at Vanguard. I can invest in mutual funds only, long only, no margin. Previously referred to as System 1 account, effectively stopped in 2013.

The account is a basic retirement structure, common in 401K / IRA, meaning money grow tax-free and not being withdrawn now, nor in foreseeable future. These are all advantages and accumulate over time to the benefit of shareholder. There is no free lunch on Wall Street , so in accordance with Dow Paradox (post link) there is a price to pay. These type of accounts are limited in what they can hold in general, and this one even more so. Why I give myself even more headache? Diversification! That's why. Don't put all your eggs in one basket, as the old saying goes. I reflected on subject of diversification in winter of 2013 in this post (link).
My #1 Big Thought about investments is : Split your money between different institutions!

Every once in a while Shit Hits the Fan (SHTF) in the Markets, bunch of institutions blow up... and take their clients money with them. The last time it happened in a massive way was in financial crisis of 2008-2009, when several prominent firms went under and lost all or some Assets Under Management (AUM) in a process. Panic was so deep, that even Money Market Funds (virtually risk-free very low interest deposit) where threatened. Some of biggest houses made announcements of guaranty and excess collateral for custodial funds. The first two to step up where Vanguard and Fidelity, proving that I picked right place to do business, as I am client of both. I'll call it luck... many people where much less fortunate.

The case of MFGlobal in October 2011 involved outright fraud and theft of clients funds to the tune of BILLIONS dollars! Granted that most of people eventually got most of their money back, resolution took years and completed just recently. Meanwhile  money where not available for investments, and where effectively shut out of chance to participate in tremendous gains of past couple of years. Not to forget that is was whatever money where left after disastrous bankruptcy and liquidation, that had individual and institutional accounts frozen during full-fledged market meltdown. People where unable to close position during unabated market drop, just looking at accumulated losses, only allowed to sell at the very bottom. It looks small and relatively benign now, on a lower left corner of 3 year chart, but 2011 was a real-deal bear market. I remember that nightmare, as if it was yesterday. I traded thru that shit. In fact, and as evident by Commitment of Traders (COT) report, that experience was so dramatic that it caused many traders to walk away and never to come back. October - November 2011 was a true panic bottom from which this current bull market originated.

So I have this sizable account at one of the best houses on a Street, where its safe (no jinx), enjoys favorable tax treatment, luxury of time and some of lowest costs in industry. I can buy any Vanguard mutual fund with all dividends automatically reinvested, based on rules of what to buy, when to do it, how to add and why to sell. The complete balance of all nessesary information - The Equiponderator.
 The Way of the merchant is always to live by taking profit.
- Miyamoto Musashi, 1645
I really don't know the future. I only see what is now, here, in front of me. I am using my life experience, accumulated knowledge and (stunningly uncommon) common sense to guess where it goes from here, in order to invest into instrument offering greatest potential. I have to do it without relying on forecast, because there is no practical or dependable way to know the future. But I know this: Nothing ever changes in a way of human events, because human nature never changes. Life and markets go thru periods that can not be foretold, but emotions never change. Fear, greed, envy, jealousy, etc, etc.  In order to design The Way to win the battle for market profits I want to learn from the original thinkers of the past, but my actions are here and now.

I was the third brother of five
Doing whatever I had to do to survive
I'm not saying what I did was alright
Trying to break out of the ghetto was a day to day fight

Been down so long, getting up didn't cross my mind
I knew there was a better way of life and I was just trying to find
You don't know what you'll do until you're put under pressure
Across 110th Street is a hell of a tester

Wednesday, June 18, 2014

System 12 6-2014

.this update covers activity from 6/18/14 to 7/14/14.

 Thanks to clever Eddy Elfenbein for reminding me about this great quote:
 “In this game, the market has to keep pitching, but you don’t have to swing. You can stand there with the bat on your shoulder for six months until you get a fat pitch.” – Warren Buffett

 System 12 BCM:

I didn't do update on System12 in May, because there where no changes to MD, and with S12BCM fully loaded I decided that there is no reason to mess with perfection. I have 5 positions up more than 10%, and 3 more approaching, led by RDS up 15%+. Dividends piling up. Green across the screen. BRK may be going by-pass, but no worries until 125 is lost.

SLD/BOT: no changes.
DIVI received:  RDS/B


This is MD:
WMT dis-qualified by a smidge.
RDS  not sure when earnings.
I don't see any earnings reports (ER) in June.
WFC July 11; GOOGL, JNJ  July 14; GE July 18

This is SD:
BHP out, BUD in, ORCL moving up to #20.
I have PTR.

 This is Arnott Overlay (AO):
JPM removed due to drop from MD, although it did recover post-earnings gap, I had to close it per exit rules. I would lose less, had I exited promptly without by-pass.
These positions are held at normal size in BCM account, since all (except CVX) where opened prior to my discovery of AO.
I decided to treat Arnott Overlay as a stand-alone System9 Theme in LB account, with several changes. First of all, I want to be able to add 1 or 2 stocks from S12BCM at my discretion. Presently these are GOOGL and BRK. Position size is standard (for LB) to slightly overweight, with System9 exit rules. As such, this new Arnott Overlay and System12 Select Theme (AOS12s) became one of my main Themes, with maximum allowed allocation of (slightly under) 25% of portfolio.
Yep, I believe in System12 THAT MUCH!

------------------------------MID-YEAR CHECK----------------------------
System12 is functioning just fine, thank you very much. All good, or better.
Red Line is where my meat is.
System12BCM AUM real data including commissions, fees and dividends.
Year to date performance is similar to S&P500 (index and SPY)

Tuesday, June 10, 2014

Select Themes Review and Update

There are some Themes that kinda active, but phasing in and out mostly due to unending bear market or lack of correlation. I think Themes need to be reviewed in general at-least once a year to make sure that fundamentals didn't change much, see if big stocks lead or small, see if weightings of stocks in corresponding ETF's where rebalanced, but mainly to update watch lists. If my assumptions about industry or situation are correct, then price action will confirm. Otherwise I would have to deal will long grind and pain of System8... I would rather not... a have much better methods in System9 and System12.

Do nothing which is of no use.       -Miyamoto Musashi, 1645-

Uranium for Sale

And getting cheaper everyday. Every rally was sold to new lows since Fukushima accident in 2011, even thou there are many more nuclear power stations being build all around the World. They can't run base load of a solar panel. Really.

Top ETF is URA from Global X, with 0.7% fee, only 200mil in assets, and down 70% from inception in 2010.
Top 3 holdings: CCJ, DNN, URPTF (proxy for price of U92) - together almost 50% of fund. It also include several companies not traded in US - Australian Syrah, French Areva, etc.
USU filed for bankruptcy in March. Its happening...!

CCJ is the only real company, DNN comes a distant second. UEC (with huge short in it) and UUUU are Mickey's 'sponsors'. The other little ones attracted some inst. buying...lol... What a fucking mess... But correlated, active and with enough volume.
More here: http://investorintel.com/nuclear-energy-stock/
Different view of industry: https://www.motifinvesting.com/motifs/nuclear-renaissance#/overview

NLR is a tiny (only 75mil) ETF from MarketVectors invested by 70% into utilities known to use nuclear power. Like DUK, NEE, SO, D, PPL etc. I already have them in utility mut fund in System9.


Shippers on Deck

I made a Discovery at Sea (post-link) a little over a year ago. Shipping companies made me alot of money, even when I traded them short term. I wish I decided to focus more on dividends and hold them longer, as market happened to accommodate. Industry dynamics didn't change much over this year, top 20 are almost the same and look much better than smaller stocks.

SEA is a small (120mil) illiquid ETF with 0.7% exp ratio. Largest holding, at maximum allowed allocation of 20%, is Maersk. There is no other way to invest in it from US I'm aware of.
Considering how well correlated top of list is, I will exit SEA from BCM account (on either a close stop or next rip) , wait an obligatory month (damn wash), and begin taking shippers. System9 will keep SEA until multiple sell signals accumulate.
These are not my smoothest moves... he-he


Pot(ty) Training

Marijuana Theme quickly turned into pump-n-dump. So many new penny stocks where listed here and in Canada, and promptly proceeded down by 50-90%.
I am well trained to work thru this shit.  Gold stocks now, Rare Earths before, Home Builders awhile ago - I've seen this movie more than once. Selling most of pot stocks on last rip was a wise decision, and not a hard one to make at 500-1000% profit. Really, hundreds into thousands... nicccce
Now picture is muddy, but I still think we will know more after elections. Its not over.
Looking to reload with tiny size positions...lol

More here:


Raring for Rare Earths

I tried to buy Rare Earth stocks (my old fetish) about a year ago, but it didn't take. Situation is largely the same: these companies are either a fraud, or a delusion. Nobody talks about them, dedicated forum is all but empty. The only two companies doing something is still MCP and LYSDY, both down about 70% from year ago.

In a life of mining company, this period between exploration and production is called "Valley if Death"... indeed it is. Many blown up or sold, most of remaining will not survive in their present form. I am controlling my eagerness to buy some, but several good looking set-ups are present for at-least a meaningful bounce. Also watching related items in titanium, palladium, lithium and antimony.
Start here:


Mother Russia 

Come on Vladimir Vladimirovich, the World is watching...


--------------------Watch List----------------------
I trade only my own watch list... exceptions are futile


These where hit very hard during March-April sell off. 3D and pawn-shops are of interest to me.

More here: http://ibergamot.blogspot.com/2014/04/digging.html

Monday, June 9, 2014


After all perturbations of March and April, and getting a brief reset in May due to sickness, I am enjoying a view from the top of rising Bull Wave.

I actually hit AUM low point in early May. Positions I was carrying  in April didn't respond well to earnings. I was stopped out of almost everything with small gains and losses. System 12 was a saving grace, performing much better than in any tests. Luck favors prepared. As I was Digging around (post-link) and reviewing old lists, new scans and my own sanity, I slowly put BCM account back on full margin after being sick in a Box (post-link). Right on time for a late May rip. I haven't made any new purchases in days, sold a couple of things along the way, and now just trailing stops. All positions are in profit, except PPP (-2%). Some met early targets, all have more higher targets ahead... just need to survive a shake-out...

Last time I looked at SPX prospects was during Fishing Expedition (post-link) in March'14,  correctly analyzed but poorly executed attempt to pick a minor bottom. I wrote:
Fib target ... is 1898. My point-n-figure targets are 1974-1978, followed by 2115 (what?)... Lets first get to 1890, then we will see.
1897.28 happen right on a day of Bloodbath 1% of ATFH (post-link), all part of 50 Day Box (post-link).
I didn't pick the bottom. Fishing Expedition costed me a bit over 10%. Rotation out of prior market leaders, small caps and Bloodbath showed another 10% of losses. Helluva way to start a business, thou kinda typical for me. Every new endeavor of mine always had a rocky beginning.

I made some important changes while Sitting on a Fence (post-link) in late March, ordered myself to Charlie Mike (post-link) in early April, continued Digging (post-link) despite early setbacks, and now I see the fruits of my labor. Correct!

As SPX approaches my initial PF Targets of 1975ish, I astonishingly note that they been adjusted even higher, to well over 2000! In fact the closest target is 2023, followed by 2125ish and 2200 (what? what?!!). There are also Measured Move (MM) targets - one met, another one at 1975 again.

Important observation is low volume on this rally. I heard and read several analysis of how this is a warning sign. True- 70's, 80's and even 90's bull advances where traditionally accompanied by higher volume, illustrating increasing interest and activity. Last 10 years show nothing of a kind. Up markets of late have been characterized by relatively low volume, diminishing every year. High volume days are mostly exhaustion and marks the top. What really happens is summer market started a week before Memorial Day. Volume and activity until 11-12ish, followed by mostly sideways on no volume at-all, and flat overnight. Very low VIX and plenty of shorts to squeeze in most hated bull market in history. How long it lasts? Until it doesn't.

ES expiration is less then 2 weeks away (on 20th). Its very similar to last one (here), in a way of Open Interest (OI) too high at over 3mil cars. Ones again shorts are caught overexposed and running out of time. Fortunately it doesn't matter to me, as I am fully invested and looking to take profits on trailing stops in BCM account. System 9 is a different story, as it holds more positions in diversified portfolio.

There are no important news I am aware of.
Solar activity is very low. Geomagnetic had been quiet for weeks (may be months), until lonely storm couple of days ago.
I have a T running out in June, Bradley top date in July, MADI too high for its own good, Golden Indicator still pointing up and no Confidence (via CI) to speak of. I'd like to see this rally run its course and review internal indicators then. Wondering if there is any Astrological thingamabob sometimes soon... Is there such a thing as Bear Market, or is it just an old wife tales?.. Buckwheats...

Wednesday, June 4, 2014

Homie Hopper

Somehow I got dragged into (very strong) Home Builders Theme (label XHB), may be because of indifference to all matters real-estate I see everywhere. May be because I actually see new developments by many of companies from these lists. May be because I actually use many products myself.
For a past couple of years, most of my interest was inside this old
 Very strong housing and real estate sector list:
I traded XHB and mut fund back in 2012 and beginning of 2013, followed by a nasty sideways-to-down period I was lucky to sidestep. Several short REIT's trades (via SRS) ended in overall profit in 2013. Real Estate decidedly recovered, and I'm long IYR in LB account since April 2014. Would love an opportunity to switch to REM, like I noticed here (link), but why 'fix it, if it's not broken'?

Home Builder stocks don't look too hot, ignored or dismissed by media, display absurd valuations and high short interest. After choppy 2013, its not going to take a lot to send them 10-20% up, while support is well defined and only few percent away. The best thing about it is - whole bunch of them are correlated, so I can hop from one to another in BCM account without worry about wash sales. XHB will go into LB account on any entry signal. If Homies really bottomed, if this overlapping sloppy mess since February top was only a correction, if this economy worth anything at all - then XHB shall leave its 200day MA and depart north...and soon...
Here are Home Builders: (I like XHB thru TOL)

Building Materials are a large group themselves. Here are profitable ones, with billion-dollar companies on a bottom! High P/E's here attracted some short interest. Charts worth watching, can break either way
Then there are assorted odds-n-ends:
Retailers, Wholesaler LPX, bunch of lumber companies in disarray, lonely manufactured housing CVCO, and cement
There is also Property Management, that is also very strong, I'm just not sure what it is...

Steve Eisman of 'Big Short' fame was talking about Homie's boom at recent investment conference
He's got builders, land, financials and may-be more

Lets say I'll see about these for Homie Hopper 2014: