Trading Update 5/11/15

Trading Update 5/11/15

We’re going on 3 months since our last trading update.  It’s not been because of poor performance (although there is that) but more our busy schedule and chosen day of the week to update.  Typically we update our models and spreadsheets after Friday’s close and then update the blog afterwards however with summer approaching and the thermometer creeping up we find ourselves ancy to get out of the office and home to the family or off to the golf course.  That is if we have no weekend trips planned.

So we’re gonna change things up and make blog posts on Monday mornings which will also give us time to update any opening or closing trades.  Hopefully this will keep things more consistent and give us better content instead of hastily writing up a summary as we have one foot out the office door.

We’ve been doing our best to post relevant and interesting links through our twitter feed and if you’re not already following us there check it out @randomkurtosis

Normally we try to make a longer post about links and news we read but we haven’t had the time recently so we are going to challenge ourselves to make one interesting post per week outside of normal trading updates.

With regards to the training we’ve had a rotten go of it lately.  There are numerous “reasons” mostly fundamental and it would seem pointless to go into them all considering we’re not fundamental traders.  We have been following our signals as best we can and there has been quite a bit of noise for the last few months.  That noise means volatility and volatility means getting stopped out of positions.

It’s no secret that our market filter is the SPX futures, specifically a close above the 10 week moving average gives us a green light to enter long positions.  For the reverse we tighten our stops and exit any stocks that have closed above our exit point.

What we’ve seen in the last nine week is the following:

SPX closing in relation to the 10 week moving average

Below, Above, Below, Below, Above, Below, Above, Above, Above

So while we’re still near all time highs there has been some whipsaw action up here.  In addition we’ve seen what we believe is some sector rotation from biotech (which we were long) into oil stocks (which we were not long).  Currently our oldest position is 161 days old and the next longest trade is only 21 days old.  That should give you an idea of the amount of turnover we have experienced of late.

Finally we got taken out of some longer, profitable trades with staircase up, elevator down price action because of a negative earnings announcement.  Most recently it was Skullcandy (SKUL) which we were long of from December 1st of last year and had rallied nicely 15% from our entry.  After the announcement the stock plummeted 24% on the week and we closed the once winning trade for a -0.36R loser.  A proper stinker.

Needless to say it has been a rough stretch the past few weeks.  Only a month ago we were showing our first week in the black for the system having crawled out of the hole we dug ourselves early on trading the system incorrectly and we now sit at -4.89R loss for the duration of the system.

Longs

FB 0.00R

NNA -0.12R

AVEO -0.75R

BAS 0.37R

CBK -0.26R

CLNE 0.20R

CPE -0.24R

ELY -0.13R

ENZN -0.61R

TNK -0.22R

ZIXI -0.07R

GST -0.10R

KEG 0.23R

LLNW -0.08R

PES 0.01R

MDR -0.08R

ALSK

CYNI

SALT

SPWH

The bottom four are new trades this morning.  We exited SQNM, SKUL and REV as well today.

With regards to following the system rules one of the biggest issues is that our Amibroker through which we get our signals shows all those stocks with potential entries.  However, per the rules of our system we limit the position to a maximum 20 stocks if fully invested.  So if we’re given 5 new entries but are currently long 18 stocks we must choose which 2 stocks to buy.  This brings in a discretionary aspect we’re not entirely comfortable with.  We could rank them in terms of RSI or some other measure however lately we’ve filtered in a couple of ways.  If a stock has earnings within the next 2 weeks we pass.  Too often we’ve gotten carried out by buying a stock only days before earnings.  It’s a total coin flip and in our case we feel the coin is too heavily weighted to one side (the bad one).

Further we go with the good old eyeball test, looking at the chart to see what the price action looks like.  Is it clearly going from the lower left to the upper right?  If so it will be more attractive to us.  A couple of times we’ve been put into stocks that have had massive moves on prior bar as the result of some sort of buyout announcement.  So we buy this stock usually near the buyout price and then it does nothing except drift around based on the market’s assessment of whether or not the deal will go through.  Some hedge funds specialize in these types of trades, most notably John Paulson and others using merger arbitrage) but that is neither our interest nor our specialty so we will do our best to stay out of these trades or close any quickly.

While we are trying to keep things nice and tidy in this account we are experimenting with some futures trades in a different account.  We’re not doing a formalized process with that one but it is very much in the similar trend following manner.  So far the results are mixed to slightly positive but we must continue to work on that side of the business however we fear we may have missed great opportunity by not actively trading futures in this manner last year when trend followers got back much of the money they lost the last 5 years.  Let’s hope their good fortune continues.

That is all for this trading update.  Please share and stay tuned for additional content.

Originally posted here: 

Trading Update 5/11/15

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