25
Oct

Small Cap Power Period for 2015 $RUT $IWM $TNA

First, let me apologize to my followers for my absence from the blogosphere of late. I have accepted a position with a high tech start-up company in the Silicon Valley and my time to write has been greatly diminished. That said, as I create a routine with my new tasks, I will continue to write relevant posts bi-monthly to share my market thoughts. Without any further ado, The Small Cap Power Period for 2015.

I have been writing about this fourth quarter seasonal trading for many years now and I have attained excellent results applying it to my strategy. Next Thursday, October 29, is the first day to buy in the first of three sub-periods of this year's Small Cap Power Period.  These "sub 'power' periods are especially potent and consistently positive. They are:

Power Period #1: The last two trading days of October and first two trading days of November

Power Period #2: The last six trading days of November and first three trading days of December

Power Period #3: The last seven trading days of December"

I first read about this some years ago as it is described by AlphaIM for their Alpha Bonds Strategy. They use index funds that give them a beta of 1.5. Quotes/italics in this post is the work of Alpha Investment Management. There are plenty of ETF's out there that track the small cap index fund - The Russel 2000 or the RUT. The directly correlated index fund that can be traded is $IWM. I have previously used $TNA successfully which gives a beta of 3x. This strategy can also be played by finding bullish patterns of small cap stocks that are likely to have a stronger edge during this period. In my experience, it is best played with all three sub-periods.

"These three periods exploit other lesser known 'seasonal factors' in addition to small cap dominance at year end. For example, it is well established that the market does better during the month-end and month beginning period than other times. Also, the market tends to produce above-average returns around holiday periods (Thanksgiving and Christmas).

AlphaIM has been tracking these statistics since 1979. Over the past 36 years, "the 1.5 Beta Statistics shows that the two historical losses have been minor while the average trade has generated gains of 3.2%. Overall, the three power periods have produced an average gain of 9.6% per quarter while exposing assets to market risk just 8% of the time each year.

We know of no other market-based factors which come close to delivering this kind of return with such unerring consistency.

Disclosure: Past performance is not a guarantee of future performance. The Russell 2000 is an index and cannot be used in actual investing. Index funds which replicate the index may not produce returns exactly matching the index. The data presented does not take into consideration fees, expenses or trading costs. Hypothetical or model portfolios also cannot reflect management decisions which may deviate from the methodology presented."

Here is the IWM chart.

iwm1025

16
Jul

$WFM chart

Cup and handle with a move through the 50 day sma.

wfm

15
Jul

Afternoon Update $SPY

Markets are pulling back slightly and while the turmoil in Greece over the new bailout is a good excuse, the past few days have left the SPY a bit extended from the 8 ema. But we are still well within the 2015 range and the interim uptrend to the top of that range is still in tact. 

Today's doji creates a relatively small pull back and may be setting up a bullish doji sandwich. I am staying the course for now. I will not be scared out by the recent whipsaw action this year. The only recourse is to stay with my strategy. This is when trader's psychology is most needed. I will not allow my emotions to be triggered. My strategy will start working again eventually and as long as I keep losses to a minimum, I will be profitable overall. Tenacity is key. Tomorrow is another day. Here is the chart:

spy715

 

8
Jul

$SPY Going Nowhere Fast

Tough times for traders of all walks as US markets struggle to find a direction. As I have mentioned many times, I would welcome a true correction to the downside. For one thing, it would give us a direction, at least for the time being and for another, it would allow for a rally after the correction. Markets don't move in a straight line. They zig and zag, wax and wane, but when they zig zag in a tight range, it is not conducive to profitable retail trading. You either get chopped up if you are a swing trader or go nowhere if you are a long term holder. Even uber bears have not made any ground since the beginning of the year as the SPY sits just below the close of 2014, down only half a basis point....nothing to get excited about even for bears. The only traders who may be doing okay are very quick volatility traders but this is risky business and HFT's which most of us don't have on our home trading set-ups.

For those who remember my post that highlighted how many times the SPY has crossed the 50 day SMA in both directions this year, that number is now 14 times since the beginning of 2015. That's 14 times in 7 months. It only crossed the 50 day 7 times in the entire year of 2014.

My advice? Just wait it out. We may not make any money all year but be careful about making rash or risky moves that just put you in trouble. If you can't wait it out because you need to make a living, get a job! 

The following weekly chart in SPY shows pretty clearly the "go nowhere" action we have seen in 2015. 

spyweek78

1
Jul

Do or Die Moment $SPY

The market has continued to suck in its sideways chop fashion that leaves it barely in the green for the year as I write. Certainly the drama in Europe with Greece and a fear of rate hikes are taking their toll but since markets had barely made any gains this year on its own, it has little room to lose ground. A true correction would of course be a welcomed respite as it would allow for a future rally, but I am bracing myself for the possibility of something more ominous than just a healthy 5% correction. In reality, the market has been in a corrective state for the better part of this year, albeit a choppy, sideways one.

SPY is currently sitting just above $207 after having closed 2014 at $205.54 which is near the current 200 day SMA at 205.48. The index managed to bounce off of that 200 day which also culminates with a long term trend line from the 2009 bottom that touches the 2011 bottom and the 2014 bottom on a logarithmic chart. Although an Algorithmic chart allows for more room to the downside before losing support, this culmination of support levels with the 2014 close, the 200 sma and the trend line, tells me that this is a very important level...a do or die moment if you will. Should the index lose those levels, it will likely mean more downside for U.S stocks.

Now I keep in mind that this could be precisely where it recovers. It is common to see the bleakest moments turn on a dime in stock markets. Even more likely would be a loss of imperative levels just for a day or two to convince bears that their time has come to roar with gusto, only to be  immediately followed by a strong recovery. Ms. Market makes it her priority to be fickle, so we will just have to wait and see. Should Greece make a deal, and with healthy numbers in the US economy, markets could get on the up train and ride gains  to the end of 2015. Or we have a full 25% correction to the breakout level of 2007 highs.

Here is the weekly chart.

spyweekly7115

 

18
May

Afternoon Update $SPY

My timer turned green last Thursday when I added STM to my portfolio. I remained cautious at that time, however, because the market was bumping up against resistance that it had been struggling to get through with whipsaw, range-bound action.

Today SPY has broken out of that resistance, confirming the bullish ascending triangle that I have been pointing out for some weeks. While I expect a pullback is in order after reaching a new all time high, I now have confidence that markets can continue to rally in the near future. As such, I have added four new positions to my portfolio. Here is the SPY chart.

spy518

 

8
May

This is Why Technical Swing Traders are Struggling This Year $SPY

I have had several conversations recently with swing traders, who use technical analysis, about the difficulty in trading this year. Most of us are at or near break even, that is assuming we have good risk mitigation. Those who do not, the cowboys, are not fairing as well. The following two charts give some insight into why this is so. The first chart shows the SPY this year to date with the price plotted with a line and the 50 day simple moving average plotted in light purple. The second chart covers summer and fall of 2014.

Note how the price has whipsawed up and down through the 50 sma every few days this year. SPY has struggled to hold even a 50 day trend. During April, price went through the 50 sma seven times! When you look at the chart for last year, you can see that price stayed above or below the 50 day moving average for several weeks at a time. The lack of trend in 2015 is chopping trend traders to pieces and support and resistance traders are chasing an ever consolidating lack of support and resistance. As a result, individual stocks are struggling to follow through on their technical patterns. I remind myself that this is temporary and we will revert to the norm at some point. I would welcome a good sell off so that we can get back to a trending market, but for now, I will stay mostly on the sidelines. Here are the charts. 

spychopline

spytrend14

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