11.18.07 Sample Trading Port

$10,000 Model Trading Portfolio
...I'm going to open up a model trading portfolio with a fictional $10,000 balance. In order to make the results as independently verifiable as possible, I'll also try to say at least a day in advance what the moves will be, entry and exit strategies, and record the results. That will be clunkier and tie my hands in ways that are not present in real life trading, but I want to make this as open as possible to third party viewing. We'll figure $7 commission on each trade, since that's what you can get with at least one of the major discount brokerages, and many others in that range. Of course, this is just fictional, for fun and is not intended to be any kind of trading or investment advice.
...For the first trade, the setup is as follows:
...Entry strategy: If oil and gas open down tomorrow, I'll buy DUG at the open. For the purpose of this exercise I'm willing to risk a $500 loss. I'll set the stop at $40.66, which is $.40 below the last week's lowest price. To figure how many shares I'll buy for this trade, I will subtract the stop price of $40.66 from the ask price at the open, then divide that result by the $500 I am willing to lose on this trade. Then I'll buy that many shares at the opening price.
...Exit strategy:
1. I'll exit if the stop price is taken out.
2. If the trade moves in my favor, I'll use a trailing stop for this trade. That stop will be calculated as follows: Subtract the stop price from whatever price I bought the position at. That will give me a per share dollar amount for the trailing stop. Every day the trade moves in my favor, I'll raise the trailing stop. Every day the trade moves against me, the stop will remain as it is. The trailing stop is never adjusted downward.
3. If I stay in this trade for longer than I expect, DUG might make a new short term low point even as it moves up overall. I define a short term low as a daily low that is both preceded and succeeded by by a higher low. For example, if DUG were to close at $42.80, $42.70, and $42.90, then the $42.70 would constitute a short term low. If that new short term low point is violated, I will also exit this trade at that point.
...For the purposes of this trading portfolio, I'll stay in the trade until either stopped out, or until I see another trade that I like better and exit this position to enter that one. Fair enough? That way, even though it robs me of real life trading flexibility, it will be as transparent as I can make it to an outside observer.
...This is intended to be a short term trade. Trying to trade trends is lower percentage win/loss ratios than some other types of trades, but if you can stay with the trend, it is also where the biggest profits are - at least that has been my experience. I usually trade medium to longer term trend trades. I have intentionally selected this as a short term trade, since I think it goes against the longer term trend, so is a counter trend trade when viewed from the longer range.
...DUG is actually going short against oil/gas. If the powers that be are able to hold things together, and our economy and the world economy are actually able to grow from here, then oil and gas have to go up long term in my opinion. It is simple supply and demand. There is only so much oil, and China and India are both trying to become major players on the world stage.
...At the same time, there are short term corrections in oil/gas, sometimes violent, and it looks like we are in one of those now. From a technical standpoint, using the Yahoo Finance weekly historical prices, DUG made an intermediate term low of $37.17 the week of October 15, and confirmed that with a higher low the week of October 29, which formed the setup for this trade. If I had made this trade in real life trading, which I did not, I actually would have entered last Monday, since the previous week had also carved out a higher low on the daily charts and the high of that week was exceeded at last Monday's open. DUG has also been moving up on record volumes the past couple of weeks.
...In real life trading I use trades like this sometimes to offset expected losses in my long term portfolio. I keep more or less permanent positions in two oil and gas stocks. When the trend is with them, I ride the trend, and sometimes even put on additional trading positions in them. When the trend goes against me, I still keep my core positions in them since I believe in them long term, but I will use vehicles like DUG as short term trades to hedge against expected losses in the long term positions, and to try and make some cash off the short term counter trends.
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MARKETS:
...The Dow closed the week still below its 200 day exponential moving average (EMA), and the 20 day EMA crossed below the 50 day EMA. The short term lows set in October and the intermediate term lows set in September have been violated. Short term, the bulls need the 12910 short term low set 10/12 to hold.
...S&P 500: Much the same. Below its 200 day EMA and the 20 day EMA crossed below the 50 day EMA. A midweek attempt at going above the 200 day EMA was rebuffed and is now short term resistance. The October short term lows were taken out the week before last, and September's intermediate term lows are hanging by a thread.
...The Nasdaq Composite found support at its 200 day EMA last week and the 20 day EMA is still above the 50 day EMA, though not by much. October's short term lows were taken out the week before last, but the intermediate term lows are still holding.
...Overall, not much good news for the bulls. But I have a hunch they should take heart. We're heading into a holiday week and then the end of the month, both typically favorable times for the bulls. The lower volume trading days on holiday weeks make particularly good time for the powers that be and other market manipulators to jam the tapes, and the last couple of trading days of the month and the first few of the next month are overall the best days of the month for bulls
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YEAR TO DATE RESULTS:
No Touch Portfolio: +12.1%
OOPs Portfolio: +10.2%
as opposed to:
Dow: +5.7%
S&P 500: +2.9%
Nasdaq Composite: +9.2%
Wilshire 5000: +3.3%
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GOLD
...Being of a bearish bent myself, I frequent a lot of bears lairs. On those sites, one runs into a lot of gold bugs. They make all sorts of arguments as to why gold is underpriced and overmanipulated and why it is ultimately destined to go to the moon pricewise.
...I agree with them that gold is manipulated. The precious metals are scorned by the traditional investment houses. Some refer to it as the 'barbarous relic'. Central banks around the world have tried to manipulate and depress its price. They have no interest in gold ever becoming a standard for world financial transactions again and do everything in their power to make sure that does not happen - and when one finds oneself on the opposite side of a trade from some of the biggest and most powerful people on the planet, that has not been a good place to be.
...The mellow yellow went through the $800 level recently, so the bugs have been chortling. But when you look at a weekly chart, it was only in September that gold exceed its 2006 highs, so I am not sure you can really call this a bull market in gold. Commodities in general have been on quite a tear the last couple of years. In my real life trading, I am heavily overweighted in energy and natural resource stocks.
...Where I part company with the gold bulls is that they mostly conclude that some day the South will rise again and gold will go back to being the standard for money. I do not expect that to happen. When the U.S. cut its ties to the gold standard in the 1970's, that was the point of no return. Once we empowered our central bank to print fiat money backed by only promises, not actual standards, we officially took yet another step into the brave new world of the end times. The powers that be will use all their considerable powers to ensure that we never go back on the gold standard. It would be bad for business, their business, that is.
...In the end times scenario, the fiat money system fits much better into the coming beast system and its accompanying 'mark'. We are well along that road in my opinion. It is no longer a question of if, but when. More on the mark and end time scenarios on one of my other blogs, if you are interested.
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10.10.07 No Touch Portfolio Update

NO TOUCH PORTFOLIO
...As of the close of this week's disastrous week in the markets, the No Touch port is doing what it was designed to do. Year-to-date the port stands at 13.5% return. That compares well to the market averages of:
Dow 30 Industrials: 4.7%
S&P 500: 2.5%
Nasdaq Composite: 8.8%
Wilshire 5000: 3.2%
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...The No Touch is designed to be 'set it and forget it'. It tends to underperform the averages in good markets, and outperform them in bad markets. It has never had a losing year since its inception, or even before, when backtesting results are included. See previous posts for its composition.
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O O P PORTFOLIO
...The newer OOP Port, consisting of equal parts OAKBX, OAKGX, and PSAFX, stands at 10.6% YTD. Backtesting shows this mix has never had a losing year yet, either. OAKBX has only had one negative year since its beginning. As I recall, that was also a bad year for OAKGX and the markets in general, but PSAFX came through that year with a 29% gain.
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...I expect both ports to be tested severely in the months ahead. This market is in trouble. There seems to be a growing fear among the big boys, a sense that it may finally be unraveling. The $100 billion bailout fund set up for the banks was more than a hint to anyone paying attention. Not to mention that it was followed in short order by the sudden resignations of the CEOs of Merrill Lynch and Citigroup.
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...I'm not much on technical indicators anymore. I used to following TA closely. I still look at charts every day, and probably always will, but I am not a believer in TA anymore. The charts are too easily manipulated by people with deep pockets, fast computers, and ulterior motivations. I look mainly now to see when short, medium and long term tops and bottoms have been established, and the accompanying volumes. I still use a few of the TA indicators with the charts, but only as secondary or timing indicators.
...At the same time, it is worth noting that both the Dow and the S&P 500 have fallen below their 200 day moving averages, and on above normal volume.