How 'bout that stock market?

[wctsao]

For those interested in developing a simple strategy, here is one that I used in the past. It would have gotten you out of the May 2010 crash and got you back in at the bottom at the end of August 2010.

I came up with the idea when I figure traders want to get in on a strong reversal signal and like to hold onto their trades until the final end. The MACD is a lagging indicator so its perfect for those that can't let go of their stock.

I use Ameritrade so I've add the entry and exit code.

Entry: Buy when the today's MACD histogram value is greater than yesterday's; yesterday's histogram value is less than the day before and today's histogram value is greater than the the histogram value 2 days ago.

MACD[Diff,Close,12,26,9,D,2] > MACD[Diff,Close,12,26,9,D,1] AND
MACD[Diff,Close,12,26,9,D,1] < MACD[Diff,Close,12,26,9,D] AND
MACD[Diff,Close,12,26,9,D] > MACD[Diff,Close,12,26,9,D,2]

Exit: Sell when the MACD line crosses below the MACD signal line.

(MACD[MACD,Close,12,26,9,D] < MACD[Signal,Close,12,26,9,D] AND MACD[MACD,Close,12,26,9,D,1] >= MACD[Signal,Close,12,26,9,D,1])

I use DDM to test against the DOW assuming each trade is at 100 shares, with a $10 commission to buy and $10 to sell. The larger the trade, the better the results as commission doesn't eat away at it.

For 1/1/2009-12/31/2009
Profit/Loss: up 61% for the year
Winners/Losers: 5/3
Percent Winners: 62.5%
Average Trade: $195
Average Winner: $386
Average Loser: $123
Drawdown: $396

For 2010 to present you would still be on the plus side:
Profit/Loss: 3% to present
Winners/Losers: 1/3
Percent Winners: 25%
Drawdown: $370

If you add a stochastic filter, you would be up about 15% for 2010

New Entry:

MACD[Diff,Close,12,26,9,D,2] > MACD[Diff,Close,12,26,9,D,1] AND
MACD[Diff,Close,12,26,9,D,1] < MACD[Diff,Close,12,26,9,D] AND
MACD[Diff,Close,12,26,9,D] > MACD[Diff,Close,12,26,9,D,2] AND
Stochastic[StocK,14,3,1,D] < 50

% Winners: 100
Winners/Losers: 2/0 (2 trades for the year!)

There is done with no stop limits in place.

 

[steveny]

I LOADED the boat with SKF at 18.82 a couple of days ago and after finally making it home today I can say I'm pretty damn happy right now!

 

[docjohn]

damn all the china naysayers I rebought bidu after the 10/1 split and boy it still has legs...tata motors has also loved me long time...

 

[da3dalus]

oh snap... someone actually used strategydesk to backtest a strategy!

lol... its only funny because I was the dude who was testing and developing that coding language for the platform back in the day.

Never thought any end users would start using it.... lol. Good for you!

I wish I would've kept the code for a whole bunch of strategydesk strategies I built back in the day.

 

[jond]

That's really cool stuff wctsao.
Thanks!

 

[sahtt]

I read an interesting article recently that identified high yielding MLP's as the best performing asset class since "the bottom". I have a feeling this may be the case another 3-5 years from now as well. Still long LINE (from 12), PWE (from 10), and KMP (from 44). I took about half of my position off from line when I got a double but I am highly confident the best gains risk vs reward wise from the markets will come from primarily dividends.

Market wide capital gains will most likely not materialize. If the economy recovers, funds will absolutely certainly flow into fixed income and other portions of the debt market as interest rates rise. Of the people with net worth over 500k anywhere near retirement, who the **** would be in the stock market if you could get a gauranteed 7%+ in a high yield savings account? Anyone? Doubt it.

 

[wctsao]

I read an interesting article recently that identified high yielding MLP's as the best performing asset class since "the bottom". I have a feeling this may be the case another 3-5 years from now as well. Still long LINE (from 12), PWE (from 10), and KMP (from 44). I took about half of my position off from line when I got a double but I am highly confident the best gains risk vs reward wise from the markets will come from primarily dividends.

Market wide capital gains will most likely not materialize. If the economy recovers, funds will absolutely certainly flow into fixed income and other portions of the debt market as interest rates rise. Of the people with net worth over 500k anywhere near retirement, who the **** would be in the stock market if you could get a gauranteed 7%+ in a high yield savings account? Anyone? Doubt it.

In my opinion nothing in this world is guaranteed. If the market tanks, companies cut back and eventually yields get hit. What about the folks that owned these companies before 2008. If you owned LINE at $40, you would have lost almost everything in 2008.

There is no question that these companies have performed well since hitting "the bottom". During recessions you would expect value based companies to be the best performing and the ones you mentioned are all somewhat value based; though LINE and KMP's potential earnings growth for 2011 are impressive at 17 and 21% with LINE outperforming the other two with stronger profit margins.

Even near retirement, I think every portfolio should have some growth companies even if its just a small percentage.

With that said, growth companies have done even better since the 2008 rebound. Since "the bottom", the tech sector has performed with Apple (AAPL) having a 376%+ return with iPOD mania (I don't own one and don't plan to; its just another toy). The "cloud computing" companies such as Rackspace (RAX) with a 625% return since 2008. In my opinion that lifted the networking sector such as F5 (FFIV) and the data warehousing (NZ). Online video has been popular with Liberty Media (LCAPA). Netflix (NFLX) has had a good run. Gold companies such as AEM have performed well (200+%) since 2008; though I try to avoid anything related to the commodities market.

I'm not one for chasing returns but if the company has good growth potential and the balance sheet looks good, why not? Find a good base entry point, and have an exit strategy. If you do that the risk is low.

 

[SilverStone05]

I read an interesting article recently that identified high yielding MLP's as the best performing asset class since "the bottom". I have a feeling this may be the case another 3-5 years from now as well. Still long LINE (from 12), PWE (from 10), and KMP (from 44). I took about half of my position off from line when I got a double but I am highly confident the best gains risk vs reward wise from the markets will come from primarily dividends.

Market wide capital gains will most likely not materialize. If the economy recovers, funds will absolutely certainly flow into fixed income and other portions of the debt market as interest rates rise. Of the people with net worth over 500k anywhere near retirement, who the **** would be in the stock market if you could get a gauranteed 7%+ in a high yield savings account? Anyone? Doubt it.

Still long PWE/BTE.

I had Fording which was bought by some other company...don't remember which. Still pumping out 5% yields at current values. :biggrin:

 

[SilverStone05]

In my opinion nothing in this world is guaranteed. If the market tanks, companies cut back and eventually yields get hit.

Agreed but MLPs and other types of trusts must pay out a certain portion of their profits as dividends to keep their favorable tax circumstances.

So while it is a possibility, it isn't as likely as say a bank or corporation cutting a divvy.

 

[steveny]

I LOADED the boat with SKF at 18.82 a couple of days ago and after finally making it home today I can say I'm pretty damn happy right now!

SKF and my QID are looking GOOD!

 

[steveny]

Lol!

 

[steveny]

Individual stock volume is weak IMO

 

[docjohn]

If you like to play based on charts.. esi had some negative news so I tracked it...it had been 112$/ share good fundamentals some mild negative news and boom to 55$ now look 67$ in a short period..I like these charts ..solid price pretty stable for some time.. gets wacked ,but the company is still doing well buy some on the big dip..

 

[sahtt]

SKF and my QID are looking GOOD!

Just don't hold those things very long. During the crisis there used to be a lot of free money on the table for the options on those since they all decay to zero eventually (faster or slower depending on the market's activity. Just have to hold that SKF 300 wiggle

 

[steveny]

Just don't hold those things very long. During the crisis there used to be a lot of free money on the table for the options on those since they all decay to zero eventually (faster or slower depending on the market's activity. Just have to hold that SKF 300 wiggle

Danger danger, not long the stock, short the puts. :biggrin:

 

[SilverStone05]

Danger danger, not long the stock, short the puts. :biggrin:

Short the puts. LOL.

It's an awesome strategy, but when you say it out loud it just sounds funny.

Only you Steve...only you. :biggrin:

 

[steveny]

Short the puts. LOL.

It's an awesome strategy, but when you say it out loud it just sounds funny.

Only you Steve...only you. :biggrin:

make it or break it. Come on red 16 LOL

 

[SilverStone05]

Who saw the new Wall Street: Money Never Sleeps?

I thought it was a very, very good sequel. Definitely worth the 7 bucks.

 

[steveny]

Who saw the new Wall Street: Money Never Sleeps?

I thought it was a very, very good sequel. Definitely worth the 7 bucks.

Haven't seen it yet I will probably wait until it's on HBO. Last movie I saw in the theather was Schindler's List. Not a go to the movie person because I can't seem to set aside a block of time that large.

 

[wctsao]

If you like to play based on charts.. esi had some negative news so I tracked it...it had been 112$/ share good fundamentals some mild negative news and boom to 55$ now look 67$ in a short period..I like these charts ..solid price pretty stable for some time.. gets wacked ,but the company is still doing well buy some on the big dip..

It looks like a cup and handle pattern waiting for a volume breakout.

 

[sahtt]

Danger danger, not long the stock, short the puts. :biggrin:

Same side of the trade but better execution. I've barely been trading lately. Once my friends still doing it full time start going quiet about how slow it's been I'll know when to get back in. When they start buying M cars again that's when I slow down

 

[docjohn]

Well I finally got around to buying some aapl..lol...my "people" put a price target of 400$ on the stock. mey, who knows

 

[wctsao]

Well I finally got around to buying some aapl..lol...my "people" put a price target of 400$ on the stock. mey, who knows

I also own AAPL so here is my take on the stock. It seems to follow a pattern where it pulls back after a 20% gain which makes sense. (Looking at the weekly).

First base at $140,
Second base after 20% gain at $168,
Third base after 20% at $201,
Fourth base after 20% gain at 241,
Fifth base after 20% gain at 289,

Next Sixth base after a 20% gain would be at $346.

So $346 would be my next entry point to add to my position. Anything higher than $346 I would start taking profits and waiting for it to fall back to $346.

Yahoo sets the target at $342. 2011 EPS is at 17.97 w/ 23% growth (17.97*23)=$413 which is what your people are saying.

$413 would roughly be the 7th base after $346.

 

[docjohn]

thanks for explaining that...

 

[wctsao]

I was doing some research last night analyzing the different strategies on AAII and seeing how they compare against the total market index.

From 1998-2010:
Buying everything in the market would return a total of 230% over that period. (Basically buying the VTI ETF).

(largest drawdown -46.3% in 2008, max monthly gain 23.9%,
max monthly loss: -22.1%)

Only the S&P MidCap 400 outperformed it with a 268%
(largest drawdown: -36.9% in 2008, max monthly gain 19%,
max monthly loss: -22.2%)

The S&P 500 and NASDAQ 100 didn't even come close to these returns.

I wanted to find out which strategy would outperform both while taking into account monthly volatility and yearly drawdown. First I ruled out any strategy that returned losses 2 years in a row and then filtered out only the ones that actually outperformed both. (There is no point following a strategy if it can't even beat a buy and hold strategy). This reduced the number of candidates strategies from 53 to 20.

Not every strategy is going to do well each year so I tried combining 2 strategies together to improve the overall result. I also used the Fairholme fund (FAIRX) as a benchmark since I think one of the best funds out there in terms of risk and reward.

I was expecting the result to be O'Neils CANSLIM strategy with another value based strategy but was somewhat surprised. The best combination turned out to be

Value on the Move (PEG w/Est Growth) + Est Rev Up +5% strategy.

The combination returned double digit returns 12 out of 13 years from 1998-2010 YTD with a 2008 drawdown of (-27.8%) outperforming the indices and the Fairholme fund. The monthly max gain was 22.3% and max loss (-22.4%). Total return: 1746%

A more conservative strategy combined the Est Rev Up+5 with the P/E Relative strategy with a better drawdown. 11 out of 13 years with double digit returns and a 2008 drawdown of (-17.1%). Monthly max gain 22.8, max monthly loss (-20%). Total return: 1616%

The Graham Defensive Investor (Non-Utility) + Est Rev Up +5% was somewhere in between in terms of performance but with superior drawdowns. 10 out of 13 years with double digit returns and a 2008 drawdown of (-25.2%). Monthly max gain 28.3%, max monthly loss (-19.5). Total return: 1626%. (This one had a lower monthly and yearly drawdown than even Buffet's strategy which returned 421% over the same period (-25.8% drawdown 2008); actually buying on relative P/E would have beat Buffet's strategy with a -15% drop in 2008 and a 636% return).

I'm not recommending anything. Just something interesting to check out.