As planned, today I closed the following Alternate Trader Model trades:
UPRO – Sold at 101.64, had bought on January 7, 2013, for 94.14, booked gain is +7.97%
FAS – Sold at 142.32, had bought on January 7, 2013, for 132.54, booked gain is +7.38%
TNA – Sold at 75.45, had bought on January 7, 2013, for 69.88, booked gain is +7.97%
ERX – Sold at 58.59, had bought on January 7, 2013, for 52.43, booked gain is +11.75%
What is better than spending time on my open trades Monday morning before market opens? Spending time on my open trades on Saturday afternoon! So, here goes:
SPY – interesting moves in the last 3 days: closed at a recent high of 153.25 on Feb 19 (Tuesday); then closed at 151.34 on Feb 20 (Wednesday) down -1.25%; then closed at 150.42 on Feb 21 (Thursday) down another -0.61% for a total fall of -1.85% over 2 days; then shot up and closed at 151.89 on Feb 22 (Friday) up +0.98% for a net fall from recent high of -0.89%
I do not think this can be called a correction of the markets yet, and certainly not a crash. There is an inevitable feeling in the market that prices have to fall because they have just been on a one-way street for 2013 so far. While it is true that the market cannot keep going up in a straight line forever, it is also true that predicting correctly when it will stop going up and start correcting is also very hard.
So, I do not predict. I just wait for the market to actually go down and then sell. My RPB (Reference Point Below) for SPY is 149.42. If the SPY closes below that level I will exit my trade in UPRO. Note that I also have volatility rules in place that stops me from taking action (both on entries and exits) if the market moves too much in one or more consecutive days. If SPY had closed below 149.42 on Feb 21 (Thursday) for example, I would still not have exited my UPRO trade as SPY would have broken my volatility rules.
At the end of the day, I know that I will probably end up leaving money on the table when I actually exit. My model guarantees that I will never enter at the low and exit at the high. But it gives me great odds at catching the bulk of the move and still beating the market. I like those odds and hence stick to my system even though my instincts tell me to do something else. A system does not have instincts.
Let me check on my other open trades:
IWM – did breach my reference level of 90.24 on Feb 21 (Thursday) but broke my volatility rules, I am still holding on to my TNA trade and will exit the trade if IWM closes below 90.24 again
XLF – I will exit my trade in FAS if XLF closes below 17.48
XLE – did breach my reference level of 77.38 on Feb 21 (Thursday) but broke my volatility rules, I will exit my ERX trade if XLE closes below 77.38 again
I will evaluate my open Alternate Trader Model trades first:
SPY – I am long UPRO based on trend seen in SPY; the trade is up +11.40% since initiated on January 7, 2013; my RPB (Reference Point Below) is 149.42 which means I will exit my UPRO trade if SPY closes below that level; SPY was down -1.25% today and closed at 151.34 but did break my volatility filters for a single day move; interesting to see what happens in the next 2 days
XLF - I am long FAS based on trend seen in XLF; the trade is up +12.75% since initiated on January 7, 2013; my RPB (Reference Point Below) is 17.48 which means I will exit my FAS trade if XLF closes below that level; XLF was down -1.51% today and closed at 17.66 but did break my volatility filters for a single day move
XLE - I am long ERX based on trend seen in XLE; the trade is up +18.08% since initiated on January 7, 2013; my RPB (Reference Point Below) is 77.38 which means I will exit my ERX trade if XLE closes below that level; XLE was down -2.09% today and closed at 77.70 but did break my volatility filters for a single day move
IWM - I am long TNA based on trend seen in IWM; the trade is up +13.52% since initiated on January 7, 2013; my RPB (Reference Point Below) is 90.24 which means I will exit my TNA trade if IWM closes below that level; IWM was down -1.86% today and closed at 90.83 but did break my volatility filters for a single day move
So markets had a big move downwards today and I want to evaluate some more markets to see what the other market trends look like.
QQQ – has been very choppy and under-performed the SPY by about -75% in a 1-month period (even though the QQQ is up +1.58% in that period); not yet bearish trend though
EEM – in bearish territory
FXI – definitely in bearish territory
XLB – fell -2.81% today and in bearish territory for over a month
XLI – hugely bullish
XLU – in bullish territory which does bode too well for the other markets as Utilities is supposedly a defensive sector
AAPL – has been bouncing between 440-480 in the last month or so; does not look like it is out of the bearish territory though
My trades based on the Alternate Trader Model returned +10.46% for the month of January 2013. In comparison the SPY returned +2.49%. The table below describes the returns. Note that all close prices are based on closing prices as of January 31, 2013.
| Trade# | Ticker | Start Price | Close Price | Gain | Gain% |
|---|---|---|---|---|---|
| Average | +10.46% | ||||
| 14 | UPRO | 94.14 | 101.83 | +7.69 | +8.17% |
| 15 | FAS | 132.54 | 142.32 | +9.78 | +7.38% |
| 16 | TNA | 69.88 | 76.31 | +6.43 | +9.20% |
| 17 | ERX | 52.43 | 61.39 | +8.96 | +17.09% |
The market turned choppy the last 2 days of trading going down about 1% on Monday and recovering almost all of that yesterday. At the end, nothing has changed. The trends in all the markets that I am in currently remain bullish. So, my levels discussed Monday morning remain the same.
There seems to be a lot of FUD (Fear, Uncertainty and Doubt) in the market and the old adage of “fear and greed” is playing its part. Experts are mostly calling for caution and predicting the markets will reverse their upward trend soon. Maybe it will. Maybe it will not. I have no way of knowing of course and doubt that anyone has even though many believe they do.
I am going to stick with my system and play the price. Make note of price changes every day at close and match that with my reference levels. If the price takes out my reference level I will act. Otherwise I will sit tight. No worries.
As of now, my 4 trades all initiated on Jan 7, have an average gain of +12.39% in just about a month compared to a gain of +3.48% for the SPY. ERX has been the out-performer with a gain of +19.74% due to the XLE gaining +6.53% in this period.
Still holding my 4 Alternate Trades:
SPY – I am long UPRO based on trend seen in the SPY, still on a nice upward trend, I will exit my UPRO trade if SPY closes below 147.46
IWM – I am long TNA based on trend seen in IWM, I will exit my TNA trade if IWM closes below 88.11
XLF – I am long FAS based on trend seen in XLF, I will exit the FAS trade if XLF closes below 17.17
XLE – I am long ERX based on trend seen in XLE, I will exit the ERX trade if XLE closes below 76.12
All four of the markets I am trading right now touched their near time highs last week. Let us check how some other markets are doing:
XLK – very choppy but managed to remain on the bullish side, AAPL has been a drag on this market
QQQ – same behavior as the XLK, I have not traded QQQ and XLK because of the uncertainly around AAPL
EEM – on neutral territory for now, may be a good barometer to check for other markets, seems like EEM will turn negative first
XLB – bullish but not to be entered now
GLD – neutral
USO – bullish
The big news of course is AAPL earnings call last night and the after-hours action. It does not affect my trades directly but potentially does indirectly. I have been talking about the AAPL drag in the markets for some time now. Because of the potential AAPL drag I have stayed away from trading based on QQQ and XLK trends as I thought they would behave worse in a AAPL drag. While that is true AAPL will have a drag on overall markets. So, I will not be surprised if the bullish trends seen in SPY and other markets get reversed soon. But as of now they are doing fine. Here is a run through of my current open alternate trades:
SPY – I am long UPRO since Jan 7, I will hold the trade unless SPY closes below 145.64
IWM – I am long TNA and will hold the trade unless IWM closes below 86.98
XLF – I am long FAS and will hold the trade unless XLF closes below 16.88
XLE – I am long ERX and will hold the trade unless XLE closes below 74.30
ERX with +8.87% gain is my best open trade as of now!
SPY – I am long UPRO based on trend seen in SPY, the trade has a +5.40% gain as of now, I will stay long unless SPY closes below 144.62
IWM – I am long TNA and the trade has a +5.65% gain as of now, I will stay long unless IWM closes below 86.36
XLF – I am long FAS, the trade has a +3.59% gain as of now, I will stay long unless XLF closes below 16.72
XLE – I am long ERX, the trade has a +8.87% gain as of now, I will stay long unless XLE closes below 73.60
First a quick note on my open Alternate Trades:
SPY – remained almost flat yesterday, started lower and then closed almost unchanged, so shows strength and remains bullish, I am long UPRO and will hold the trade unless SPY closes below 143.40
IWM – was a gainer yesterday and remains bullish, I am long TNA and RPB for IWM now is 85.58
XLE – slightly higher close yesterday, remains bullish in my model, I am long ERX and my RPB for XLE now is 72.10
XLF – also closed slightly higher yesterday, remains bullish in my model, I am long FAS and will hold the trade unless XLF closes below 16.72
The story of the market has of course been AAPL the last few days. AAPL closed at almost a 1-year low and has now fallen over -30% from its peak. All fundamental analysis have been of no use to this stock. Investors who heeded the warnings of the technical charts and took the appropriate action would have been able to get out in time.Here is a note from November discussing AAPL technicals.
Unfortunately, our typical behavior is to latch on to a stock unless it gets back to the price we bought it. In the case of AAPL that will have been a very painful wait. Of course, there is nothing to stop AAPL going back to its peak level other than the rest of the market participants. And that may happen but can anyone predict when? And meanwhile, the investment remains a dead investment and there are potentially other opportunities lost.
This typical human behavior is one big reason that my model does not invest or trade in stocks directly. It is too tempting to stick with a stock that we love. Instead if one trades tickers that do not entice emotional attachment, it is easy to let go. That is why my model trades are in ETFs – more specifically leveraged ETFs.
The QQQ and XLK are the big casualties of AAPL drag as I call it. The other markets are sustaining the impact well so far.
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26
Feb 13
Market Preview for February 26, 2013
All markets I am in – SPY, IWM, XLF and XLE – fell and closed below my reference levels. They all violated my volatility rules. But it was the second time that IWM and XLE breached my levels, so that is the trigger for me to exit my trades.
Today at market open I will exit my trades in UPRO, TNA, FAS and ERX.
Interestingly, SPY, XLF and XLE have also triggered bearish signal for my model yesterday. However, they have done so by breaking my volatility rules – so I will wait for confirmation of the bearish signal.