BRIGHTER FED FORECAST HELPS MARKET PARE LOSSES – A LONG/SHORT SYSTEM

A brighter economic forecast from the Federal Reserve helped the stock market pare losses that followed uninspiring reports on consumer sentiment and housing.

Stocks slipped from 13-month highs in light trading Tuesday as gains in health care companies helped offset drops in financial and industrial stocks. The Dow Jones industrial average fell 17 points a day after jumping by 133. (comments courtesy AP)

Curiously all it takes is some jawboning from the FED to move the markets. I am surprised that anyone pays attention to what the FED says, but I don’t want this blog to go political. Anyway, this is a holiday shortened week and we should not expect anything dramatic for the rest of the week.

A Long/Short System: I have been experimenting (playing around) with a system that utilized a limited universe of long and short ETFs that include leveraged, but not 3x, funds. I have selected ETFs to include the plain vanilla (long) index, the short index, the double long, and finally the double long index. So the attempt is to have three long funds balanced with three short funds based on the same index. I then run a trading system and see how it works. The results are interesting but not ready to go public. A preview; its recent picks are 2x short gold ETFs.

Ill make this brief today, Northing dramatic from the RSI system as it made no selections.

WEAK DOLLAR, HOME SALES DATA CARRY STOCKS HIGHER – RSI HAS A NICE SHOWING

The stock market ended a three-day losing streak Monday, closing broadly higher as a weaker dollar and upbeat home sales numbers encouraged investors to take on more risk.

Major stock indexes soared more than 1 percent, including the Dow Jones industrials, which rose 133 points to a 13-month high. Volume was light as Thanksgiving approached, and that likely padded some of the market's advance. (headline & commentary courtesy of AP)

Today’s market action sent many of RSI’s picks higher. The two exceptions are RJN and USG with small fractional losses. The rest did quite well with RZY turning in a 2.45% gain followed by RSX with 1.95%. On balance a nice showing.

I have mentioned my job jar. I have added items to the list:

1. Adding to the position – One of the features of the Turtle trading system is winning trades were increased in size under established criteria. The Turtle system is a trend following system and if the trend is profitable you pile on more shares. I need to see if this strategy adds value for RSI.
2. Trailing Stops – I really need to give this another shot since I believe this will enhance returns by not taking profits too early. On an earlier blog I discussed this and ended up with a stop loss level and profit target. I need to reassess this criteria since I have some strong funds that are approaching their targets. I don’t want to leave any serious money on the table.

I need to republish my job jar list and keep you apprised as to my progress. Another job jar item??

RSI had no new picks today. Kind of like watching paint dry.

U.S. STOCKS STUCK IN SLUMP AS TECH TUMBLES – A STRATEGY FOR HOLDING

Stocks slip as investors push into safe-haven investments; Dell weighs on technology stocks. Investors can't shake their fears that the economy isn't keeping up with the stock market. Investors can't shake their fears that the economy isn't keeping up with the stock market. Stocks fell for a third straight day Friday as a disappointing outlook from computer maker Dell Inc. suggested that an economic recovery could be uneven. The major indexes all had moderate losses, leaving the Dow Jones industrials with a slim 0.5 percent weekly gain while broader indexes slid. (courtesy of AP)

Remember my job jar? I haven’t forgotten. One my jobs was to develop a portfolio holding position while waiting for RSI to render a decision (see my November 17th blog for the discussion). I ran several simulations and attempted to develop an objective criteria for selecting funds to serve this function. What I came up with is to allocate excess funds, less a small cash position of about 10-12% allocated for trading. The rest is dumped into one or two income funds which yield something better than money market funds. I chose the two following ETFs:

• iShares Barclays MBS Bond (MBB)    yield 3.40% exp. ratio 0.34%
• Utilities Select Sector SPDR (XLU)  yield 4.44% exp. ratio 0.25%

The first fund MBB pays a monthly dividend and is invested in Mortgage Backed Securities (MBS) while XLU pays a quarterly dividend and invests in utility companies. As the chart shows, the utilities fund XLU is much more dynamic and volatile than MBB on a YTD basis.  The strategy is to drain monies from these holding positions as RSI makes future picks and add to them with proceeds from closed positions. I anticipate there will be opportunities to minimize transaction costs by keeping down the frequency of moving funds around. That is why the cash buffer is necessary. You might want to place your holding money in other ETFs that give a reasonable yield. It is your choice.

Since RSI has made several ETF picks in the commodity sector. I found a great resource on this topic from Morningstar  Solutions. Click on the link and take a look at their site. There are some nice features on their page.

Again, no RSI pick for today. Yes, it's a waiting game at this point; hang in there.

Have a nice weekend. Catch my blog after the market closes Monday.

STRONGER DOLLAR, WEAK ECONOMIC DATA PUMMELS STOCKS - NO RSI PICKS TODAY

Signs of a subdued economic recovery sent investors out of stocks Thursday and in search of safer assets like the dollar. Major indexes tumbled about 1 percent, including the Dow Jones industrial average, which lost 94 points but ended well off its low. Energy and material stocks logged some of the biggest losses as a jump in the dollar sent commodity prices tumbling. Meanwhile, an analyst's downgrade of the chip industry pulled technology shares sharply lower. (courtesy AP)

Today's economic news put downward pressure on RSI's previous ETF selections. However, no stops were hit and the picks are still holding. Don't have much more than that,  Catch you tomorrow.

STOCKS SLIP ON TECHNOLOGY, HOUSING NUMBERS - NO FORECASTING REQUIRED

Disappointing forecasts from technology companies and an unexpected drop in home construction added to worries about the economy and sent stocks modestly lower.

The drop Wednesday came a day after major stock indicators closed at 13-month highs. The Dow Jones industrial average slipped 11 points after having risen in nine of the past 11 days. A drop in technology stocks weighed on the Nasdaq composite index.

Analysts say the market has been due for a break after the fast ascent. (courtesy of AP)

I don't know what to add to the financial news reported above. There are lots of reasons to be concerned with the economy, but that is always the case, isn't it? The great thing about RSI is that it is self contained and doesn't require daily monitoring of the markets. It relieves me of having to make a prediction as to the direction of the market.  No forecasting required! Yes, I recognize RSI's ETF recommendations are a de facto forecast. It's recent picks of energy and commodity funds reflects a high degree of consistency. I would be concerned if its picks were all over the map of the ETF landscape, so its consistency is comforting.

Before I go any further, RSI has no ETF pick for tomorrow's market opening. There will be months where there will be very few picks. I looked through the back-testing results and this past August there was only one pick! That would have been a really slooooow month indeed. Likewise for Feb. 09, but then March followed and the flood gates opened up with a ton of picks. March represented the bottom of the long market slide and RSI responded to the opportunity.

That's all for today .... catch you tomorrow.

STOCK MARKET END MIXED EVEN AS COMMODITIES GAIN - A HOLDING POSITION?

Stocks finished an erratic session mixed Tuesday as higher commodity prices lifted energy and materials shares. Major stock indexes had their third straight advance, reaching new 13-month highs, but there were more declining shares than advancers on the New York Stock Exchange and the Nasdaq Stock Market. Stocks had zigzagged for much of the day on mixed news about retailers and industrial production. (courtesy of AP )

Again the market is reflecting favorably on RSI's recent picks in the energy/commodities sector. Today I reflected on those RSI picks that I failed to buy. Last month RSI selected iPath DJ AIG Platinum TR Sub-Idx ETN (PGM) and I gave it a hard look, but found that it had moved 15.6% higher since recommended on October 21st. Way too far to chase this one. I reviewed my notes and because I was holding the double long silver fund, I opted not to buy due to diversification concerns.  Somehow I need to quantify and rectify my diversification approach. Lesson learned and better luck next time. Look at the cards; read them and weep!

One characteristic of RSI that needs to be addressed is the fact that it isn't "all in" system. In fact, it has a market exposure of 30 - 50%. This means that the portfolio holds a cash position most of the time. Since nowadays cash pays almost a zero yield this is not a good situation. So what is the strategy? I have to work this out, but my inclination is to fill in with a stable value income ETF; if there is something that fills this bill let me know. The problem is having to trade in and out of this fund. It might be a holding position.

Okay, so this blog entry has just added two new action items for my job jar. 1) define diversification strategy 2) define "holding position" strategy. So many things to do and so little time!

RSI had no picks today.

STOCKS CLIMB AS BERNANKE SPURS BETS ON LOW RATES - UNG ORDER PLACED

U.S. stocks rallied broadly to fresh 13-month highs on Monday after Federal Reserve Chairman Ben Bernanke reinforced expectations that interest rates would stay low to spur growth. The weaker dollar lifted gold to a new record and pumped up prices of other commodities, including oil. That, in turn, helped shares of energy and materials companies.

The bottom line to all this is that the dollar weakened and commodity/energy funds soared today. RSI's pick of United States Natural Gas Fund LP (UNG) did quite well. I did another experiment of placing my buy order for UNG Sunday night and I got a fill close to the open price when the market opened Monday. It turned in a one-day gain of 2.5%. However, UNG trades, on average, at over 33million shares per day, so the bid/ask spread is quite tight. Thus I should get a good fill on my order. It might be vastly different on a thinly traded fund. That is the reason I waited for the market to open and place a limit order for thinly traded funds with a large bid/ask spread.

Despite a roaring market today RSI stepped aside and didn't make an ETF recommendation. Catch you tomorrow.