Combining GB with spread trend

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pmward
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Combining GB with spread trend

Post by pmward » Sun Mar 22, 2020 1:13 pm

Ok, so this last couple weeks has been interesting. In some ways I've grown a greater respect for the PP/GB. In other ways, my skills in technical analysis could have allowed me to do better if I had some flexibility built into my rules. The damage is now done, but coming out of a bear market there will be some new trends emerge that I can take advantage of... and I do not want to miss the boat this time. I've spent most of the weekend researching charts and trying to figure out how I can make a total PP/VP portfolio that is the best of both worlds. I do not have the stomach for large drawdowns, and at the same time I'm young, have a high savings rate, and have technical analysis skills so why not chase a little alpha? So here I am going to kind of document my adventures. First, what are my needs/wants in this portfolio?
  1. GB like safety on the whole. I can handle a 20-30% drawdown max, with 2-3 year recovery.
  2. Flexibility built in to allow me to follow long term trends within the framework.
    1. Trend following must be long term, I do not want to churn short term term trend swings.
    2. I'm not a fan of the momentum trend styles like GEM, that use blind percentages based on an arbitrary date.
    3. I'm skilled with reading charts, and I generally have a good feel for trends in the market, so I would like to use these skills.
  3. Rules built in to cater to my personal strengths/weaknesses as a trader
How to address these things:
  1. PP variation for core holdings with minimum asset thresholds.
    1. Stocks, Gold, Bonds - 15-20% minimum each (target is 20%, 15% means rebalance needed)
    2. Cash - 3-6 months expenses minimum
    3. All the above ratios always have to be held at all times. This essentially leaves 60-65% in a PP and 35-40% in a VP.
  2. Flexibility:
    1. Long term trend using charts - Use *weekly* spread charts. Only make a trade on the breakdown of a current long term trend.
      1. Track trend changes using 20, 50, and 200 week moving averages, long term trend lines, and weekly RSI.
      2. Changing from one asset to another should be done in multiple trades over time, not an all at once deal.
    2. All assets in both the PP and the VP can be swapped out with trend.
    3. Stocks - hold 1-3 of: large cap (S&P or QQQ), small cap, emerging markets, international, growth, value, momentum, and all combos.
    4. Bonds - 1-2 of Long, Intermediate, Short treasuries, or Corporate (short or intermediate)
    5. Commodities - 1-2 of gold, silver, REIT
    6. Cash - 90 day treasuries, 1 year treasuries, treasury money market, I-Bonds
  3. Rules to address personal strengths and weaknesses
    1. I'm very strong on picking buy points in long term trends. Allow some discretion here to follow my gut.
    2. I'm not as good at picking sell points. So changing to one asset to another must be done over time in DCA manner, not all at once.
    3. I'm much better at picking changes in the big long term trends than picking changes in short term trends. Stick to weekly charts only.

Currently where am I? I am currently in a run of the mill GB with 5% cash traded for 5% REIT. I also have a big expense next year, so I need to keep cash more overweight than I normally would.

What do I see in the charts that is catching my eye?

SPY/TLT: RSI is the most oversold on this spread since Oct 2008. Pretty much every spread I look at looks very similar to Oct 2008. So in general, I'm using this time period as my template. I'm expecting a bounce in stocks in the coming weeks/months. I'm expecting another down leg at some point though. Ideally somewhere around the 1900-1950 range on S&P will be the ultimate bottom. Because of this, I am looking to dabble in trading some bonds for stocks in the coming weeks.

Small-cap/Large-cap: Record over sold level here on RSI. I am expecting small to mean revert and out perform large on a relative basis in the short term. So I am going to keep my small caps since I already have them, this would be a poor time to swap. But I am keeping a close eye when we get back near the trend line. The large cap up-trend is strong, and when we retest the trend line next if it holds I'll start moving some small to large.

Value/Growth: Same as small/large. Record oversold level is being registered this week. I am expecting a mean reversion. Growth's uptrend vs value goes all the way back to 2002 without violating the trend line a single time. This is an extremely strong trend and should be taken very seriously. I'm looking to swap from value/blend funds to growth funds on the next trend line test (looking at QQQ or SLYG depending on how small/large resolves) assuming that the trend will stay in place as it has for the last 18 years and counting.

GLD/SLV: We also have a record overbought level here, highest read since Oct 2008. Could silver start to come to life? The gold uptrend is strong, so it won't resolve quickly, but dabbling in some silver might be something to consider when metals start their next up leg. The gold $1350 breakout last year was the start of a new bull market. I do not expect to see prices ever get below $1350 ever again at this point. I would be very surprised if this happened. $1350-1400 range looks like a really good buying opportunity in metals, if we should get so lucky.

US/International - I have no international and the uptrend is intact. We are currently in the middle of the range. Staying fully U.S. until trend tells me otherwise.

Emerging/Developed - Emerging is surprisingly looking lively vs developed. I would have thought the virus would hit emerging harder, especially with the USD skyrocketing. There was a trend line break out for emerging 4 weeks ago that so far has held. Is this a prairie dog or is it for real? However, Emerging/SPY is still in a downtrend, though right at the very top of the range. Right now I'm simply observing, but I do expect sometime in the coming years for emerging to come back to life and I want to be a part of that trend when it does happen.

long bonds/intermediate bonds - Long bonds broke above the trend line that has been in place since 2011 a few weeks ago. It fell back below it this week for a bit, but closed back above. RSI is showing overbought, but it's signaled overbought a few times since 2011 and long has continued to out perform. Tracking this, but nothing actionable currently.

So based on the above, really the only near term actionable trend that I'm looking to make a change on is moving some TLT to S&P. Waiting for the right moment. I'm also watching small/large and value/growth very closely. I'm going to continue to ride my large/SCV barbell for the moment as I expect some mean reversion for both small and value in the short term. I wouldn't be surprised to see a trend change here, as bear markets tend to signal rotation of leadership. Could this finally be the time for SCV to come back to life? Everyone has forgotten it exists, so it certainly would a be a good time to catch everyone off guard. So I'm hoping I can hold my SCV for awhile longer, hopefully into a new multi-year trend. I'm using long term weekly charts here so it will likely be weeks before there is any resolution either way on any of these. I'm also eyeing with curiosity emerging markets to see if their relative strength is a fake out or a break out, as well as long/intermediate bonds. These two are more for curiosity at this point, but something actionable may come in the next few weeks to months. This is not going to be a fast paced system, sticking to weekly charts means most trends I trade will be in the timeframe of months to years. I'm basically hoping to take advantage of those long term, decade or higher trends that always seem to emerge. Things like, tilting to growth from 2002 -2020, or tilting from gold to silver from 2009-2011, and back to gold from 2011-2020. The indicators and spreads I am tracking going back as far as I can would have worked and added a ton of alpha to the portfolio, as well as further reduced drawdowns. It also keeps ~60% of my funds in a PP (modified to allow for tilts to similar trending assets) where they are safe. I'll try to update this with any new updates, moves, etc I make for anyone that is curious.
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shekels
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Re: Combining GB with spread trend

Post by shekels » Sun Mar 22, 2020 1:55 pm

pmward wrote:
Sun Mar 22, 2020 1:13 pm
Ok, so this last couple weeks has been interesting. In some ways I've grown a greater respect for the PP/GB. In other ways, my skills in technical analysis could have allowed me to do better if I had some flexibility built into my rules. The damage is now done, but coming out of a bear market there will be some new trends emerge that I can take advantage of... and I do not want to miss the boat this time. I've spent most of the weekend researching charts and trying to figure out how I can make a total PP/VP portfolio that is the best of both worlds. I do not have the stomach for large drawdowns, and at the same time I'm young, have a high savings rate, and have technical analysis skills so why not chase a little alpha? So here I am going to kind of document my adventures. First, what are my needs/wants in this portfolio?
  1. GB like safety on the whole. I can handle a 20-30% drawdown max, with 2-3 year recovery.
  2. Flexibility built in to allow me to follow long term trends within the framework.
    1. Trend following must be long term, I do not want to churn short term term trend swings.
    2. I'm not a fan of the momentum trend styles like GEM, that use blind percentages based on an arbitrary date.
    3. I'm skilled with reading charts, and I generally have a good feel for trends in the market, so I would like to use these skills.
  3. Rules built in to cater to my personal strengths/weaknesses as a trader
How to address these things:
  1. PP variation for core holdings with minimum asset thresholds.
    1. Stocks, Gold, Bonds - 15-20% minimum each (target is 20%, 15% means rebalance needed)
    2. Cash - 3-6 months expenses minimum
    3. All the above ratios always have to be held at all times. This essentially leaves 60-65% in a PP and 35-40% in a VP.
  2. Flexibility:
    1. Long term trend using charts - Use *weekly* spread charts. Only make a trade on the breakdown of a current long term trend.
      1. Track trend changes using 20, 50, and 200 week moving averages, long term trend lines, and weekly RSI.
      2. Changing from one asset to another should be done in multiple trades over time, not an all at once deal.
    2. All assets in both the PP and the VP can be swapped out with trend.
    3. Stocks - hold 1-3 of: large cap (S&P or QQQ), small cap, emerging markets, international, growth, value, momentum, and all combos.
    4. Bonds - 1-2 of Long, Intermediate, Short treasuries, or Corporate (short or intermediate)
    5. Commodities - 1-2 of gold, silver, REIT
    6. Cash - 90 day treasuries, 1 year treasuries, treasury money market, I-Bonds
  3. Rules to address personal strengths and weaknesses
    1. I'm very strong on picking buy points in long term trends. Allow some discretion here to follow my gut.
    2. I'm not as good at picking sell points. So changing to one asset to another must be done over time in DCA manner, not all at once.
    3. I'm much better at picking changes in the big long term trends than picking changes in short term trends. Stick to weekly charts only.

Currently where am I? I am currently in a run of the mill GB with 5% cash traded for 5% REIT. I also have a big expense next year, so I need to keep cash more overweight than I normally would.

What do I see in the charts that is catching my eye?

SPY/TLT: RSI is the most oversold on this spread since Oct 2008. Pretty much every spread I look at looks very similar to Oct 2008. So in general, I'm using this time period as my template. I'm expecting a bounce in stocks in the coming weeks/months. I'm expecting another down leg at some point though. Ideally somewhere around the 1900-1950 range on S&P will be the ultimate bottom. Because of this, I am looking to dabble in trading some bonds for stocks in the coming weeks.

Small-cap/Large-cap: Record over sold level here on RSI. I am expecting small to mean revert and out perform large on a relative basis in the short term. So I am going to keep my small caps since I already have them, this would be a poor time to swap. But I am keeping a close eye when we get back near the trend line. The large cap up-trend is strong, and when we retest the trend line next if it holds I'll start moving some small to large.

Value/Growth: Same as small/large. Record oversold level is being registered this week. I am expecting a mean reversion. Growth's uptrend vs value goes all the way back to 2002 without violating the trend line a single time. This is an extremely strong trend and should be taken very seriously. I'm looking to swap from value/blend funds to growth funds on the next trend line test (looking at QQQ or SLYG depending on how small/large resolves) assuming that the trend will stay in place as it has for the last 18 years and counting.

GLD/SLV: We also have a record overbought level here, highest read since Oct 2008. Could silver start to come to life? The gold uptrend is strong, so it won't resolve quickly, but dabbling in some silver might be something to consider when metals start their next up leg. The gold $1350 breakout last year was the start of a new bull market. I do not expect to see prices ever get below $1350 ever again at this point. I would be very surprised if this happened. $1350-1400 range looks like a really good buying opportunity in metals, if we should get so lucky.

US/International - I have no international and the uptrend is intact. We are currently in the middle of the range. Staying fully U.S. until trend tells me otherwise.

Emerging/Developed - Emerging is surprisingly looking lively vs developed. I would have thought the virus would hit emerging harder, especially with the USD skyrocketing. There was a trend line break out for emerging 4 weeks ago that so far has held. Is this a prairie dog or is it for real? However, Emerging/SPY is still in a downtrend, though right at the very top of the range. Right now I'm simply observing, but I do expect sometime in the coming years for emerging to come back to life and I want to be a part of that trend when it does happen.

long bonds/intermediate bonds - Long bonds broke above the trend line that has been in place since 2011 a few weeks ago. It fell back below it this week for a bit, but closed back above. RSI is showing overbought, but it's signaled overbought a few times since 2011 and long has continued to out perform. Tracking this, but nothing actionable currently.

So based on the above, really the only near term actionable trend that I'm looking to make a change on is moving some TLT to S&P. Waiting for the right moment. I'm also watching small/large and value/growth very closely. I'm going to continue to ride my large/SCV barbell for the moment as I expect some mean reversion for both small and value in the short term. I wouldn't be surprised to see a trend change here, as bear markets tend to signal rotation of leadership. Could this finally be the time for SCV to come back to life? Everyone has forgotten it exists, so it certainly would a be a good time to catch everyone off guard. So I'm hoping I can hold my SCV for awhile longer, hopefully into a new multi-year trend. I'm using long term weekly charts here so it will likely be weeks before there is any resolution either way on any of these. I'm also eyeing with curiosity emerging markets to see if their relative strength is a fake out or a break out, as well as long/intermediate bonds. These two are more for curiosity at this point, but something actionable may come in the next few weeks to months. This is not going to be a fast paced system, sticking to weekly charts means most trends I trade will be in the timeframe of months to years. I'm basically hoping to take advantage of those long term, decade or higher trends that always seem to emerge. Things like, tilting to growth from 2002 -2020, or tilting from gold to silver from 2009-2011, and back to gold from 2011-2020. The indicators and spreads I am tracking going back as far as I can would have worked and added a ton of alpha to the portfolio, as well as further reduced drawdowns. It also keeps ~60% of my funds in a PP (modified to allow for tilts to similar trending assets) where they are safe. I'll try to update this with any new updates, moves, etc I make for anyone that is curious.
I just try to follow the KISS method.
It is enough for me, just to not overthink things.
Good Luck , Keep us posted.
¯\_(ツ)_/¯
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Re: Combining GB with spread trend

Post by shekels » Sun Mar 22, 2020 2:23 pm

This might be of interest to you for your stock allocation .
On the Tactical Asset Allocation + HBPP thread is an idea ochotona was following from Paul Novell's newsletter.
Taking the 200 SMA for the SPY.
I looked at the website and it seems interesting.
Just not to many indicators to form fit what you think will happen.
¯\_(ツ)_/¯
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Re: Combining GB with spread trend

Post by pmward » Sun Mar 22, 2020 4:40 pm

shekels wrote:
Sun Mar 22, 2020 2:23 pm
This might be of interest to you for your stock allocation .
On the Tactical Asset Allocation + HBPP thread is an idea ochotona was following from Paul Novell's newsletter.
Taking the 200 SMA for the SPY.
I looked at the website and it seems interesting.
Just not to many indicators to form fit what you think will happen.
I use 200 SMA as one indicator. I never trust any single indicator though. There is no magic single signal out there. All signals work and fail at different times. I look at multiple indicators and angles. So I wouldn't just look at SPY, I would look at the spread of SPY vs IWM, SPY vs VXUS, SPY vs TLT, SPY vs GLD, SPY vs QQQ, etc. I would look at multiple moving averages, trend and channel lines, relative strength indicator, etc for each of those charts. By doing this I see more of the story and sometimes find some trends that are hiding in plain sight. I also trust my intuition, so I always use discretion in any trade. I never just blindly trade because an indicator tells me to. I'm very good at forming big picture macro-thesis as you probably notice if you pay attention to my posts around here, so if something is not fitting into my macro thesis I'm going to sit and watch it for awhile and make it earn my trust (just like the emerging markets breakout that I mentioned in my original post, this is very interesting and very peculiar given the circumstances... so I'm hesitant to act on it, but if the chart proves to me it's really starting a new trend of outperformance in EM, I'll gladly ride along).

Also, it's really not much work. I mean, I look at these charts regularly anyways. I'm also only trading off the weekly chart, so it eliminates all the noise of daily charts, and it would take weeks to months for a trend to form and be confirmed before I would act on it. So I really wouldn't even have to check these things but once a month or so, though in reality I'll probably check every weekend. I sidestepped the 2018 Q4 meltdown almost entirely by selling out in early Nov and getting back in on Dec 26 (day after bottom). In this system I wouldn't fully have went to cash in Feb (that's just too stressful, trying to find the way back in from full cash, not something I want to do again) but I did see the blowoff top forming, and if I would have allowed discretion at the time I would have sold some stocks before the plummet. I really didn't act on it this time mainly because I was trying to practice the GB buy and hold philosophy... but I think I'm just one of those people that needs a bit more flexibility. I love the GB (or PP/VP) as a framework, and think I can tap into my creative talents to improve upon it. Basically, my benchmark is the GB, and I'm looking to beat it in performance while maintaining equal safety. I believe I can add 1-2% per year alpha to the GB, and that really adds up over time, especially for someone in hyper-accumulations mode like me. When I get close to retirement and the game is won I'll start shifting more defensive. For now, I really have no reason not to try to chase a little alpha.
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Re: Combining GB with spread trend

Post by pmward » Wed Mar 25, 2020 1:06 pm

I sold a bit of stock in my taxable account today to raise some cash (and harvest more losses). With Trump talking about opening up the country on Easter, I really think the numbers are going to get ugly and I'll get a better spot to load up on stocks. We also are testing the trend line that started back in 2009, and I think it likely will reject (very common in a bear market to retest the last bull markets trend line before a plummet, this happened in both 01 and 08). This locks in a nice little quick 15% gain on the rebalance I did last week, though I did actually take a bit more off the table than I put in on the rebalance, so I'm now underweight stocks (though still well over my 20% minimum). I'm going to just let what I have for stocks ride at this point. I'll also continue to let my 401k do it's DCA every 2 weeks because there's no reason not to, but none of my taxable contributions will be going into stocks until I start deploying my cash. Looking for an opportune time to start deploying my cash pile into stocks. Also, still keeping a close on on small/large and growth/value spreads when I do re-deploy that cash. Now the for the hard part... patience.

EDIT: and at the close it did reject the trend line and closed below it. So for today at least, my bet is working out. Now we wait to see if we get a confirmation move down.
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Re: Combining GB with spread trend

Post by pmward » Thu Mar 26, 2020 10:16 am

I took on a 5% position in silver this morning. Seeing the SVR:GLD spread's relative strength be the most oversold it's been since 2008 has really tempted me. We also had a break back above a major support line a couple days back, as well as a break above the prior downtrend line that it had fallen through in the pullback. It's held above both levels for 3 days now, so that gives me enough confirmation to feel comfortable. I'm keeping this one on a tight leash, if we fall back down I'll cut my losses. Fundamentally though, I'm about as bullish as can be for metals.

After selling stock yesterday and buying silver today my current approximate allocation give or take a couple % is 20% S&P, 15% SCV, 20% gold, 35% bonds (either barbell or intermediates in 401k), 5% silver, 5% REIT. I'm surprised fundamentally to see the stock market so strong today after a record unemployment claims number. I still think this is a bull trap though, I don't think this is the launching pad for the next bull market. I would love to buy more stocks, but not right now. Also, both small caps and value are catching a bid relative to large and growth this week, as I figured would happen.
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Re: Combining GB with spread trend

Post by pmward » Sat Mar 28, 2020 12:10 pm

We had some changes in the trends I was viewing last weekend. I'm using this thread to help me document, sort through, and notate my thoughts as I navigate this crazy time of change.

As mentioned yesterday, silver is bouncing from historic oversold conditions relative to gold. As I mentioned I initiated a 5% position in SVR.

Small caps did start to get a slight boost that I was was looking for relative to large, and on the weekly chart we also have 2 bottoming candles in back to back weeks. I expect to see this mean reversion to take place over the coming weeks for small caps relative to large. I'm doubtful of a change in trend though, but I'm open to it, depending on how the trends resolve.

Value vs growth I'm getting conflicting measures. In the large cap space value got a bid relative to growth this week, and we printed a topping candle this week. Also QQQ underperformed SPY by a good measure. However, in small caps growth is still breaking out vs value, and hit the very top of the trend channel line going all the way back to 2002. I'm biased similar to large/small with leaning more towards value getting a mean reversion vs growth in the short to medium term, but looking for the strong growth trends going back to 2002 to continue.

Emerging markets I stated last week were breaking out vs developed markets and I was doubtful of the breakout. Well it did the prairie dog as expected this week and sold down back into the downtrend. So EM's are still staying in timeout, though I do think the time for EM is approaching at some point in the next couple years.

So what does this mean for my portfolio assets:

Stocks: As mentioned earlier this week I sold stocks into the bounce this week. That is looking like a good call, as I locked in a nice 15% gain from the rebalance I did the week prior, and so far we closed the week pretty much right at the levels I sold at, and rejected the Q1 2018 resistance level. I'm looking for a continued downtrend in stocks... but I do think the bottom is near in the next 30-60 days. This is playing out like Oct 2008, but at a faster rate, so I expect a faster bottom following the VIX spike than the 6 months we saw after the Oct 2008 VIX spike. I'm watching stocks very closely, looking to not only redeploy my cash that I raised this week... but also to go overweight stocks. Currently, since we have record momentum in large growth, yet a strong oversold condition on small value, I think the best way to play this is a 50/50 hedge on both. My mind could change if the charts change, but for the moment I'm looking at 50% QQQ and 50% SCV for any fresh cash deployed, and when trends resolve more clearly I'll look to tweak accordingly.

Commodities: I'm potentially looking to add more to SVR if this trade goes my way. I'm also keeping a decently tight stop on this trade in case my thesis doesn't play out as expected. My current 5% REIT position I don't have much opinion on technically speaking at the moment, but I do think fundamentally that these will take off once we get out of the fear stage of the crisis. 0% interest rates are not only a boon for REIT companies, that use leverage to acquire assets, but also makes that current 30 day SEC yield of over 5% all the more tantalizing, likely driving inflows into the sector.

Bonds: Long bonds I'm ok with at the moment. They've got a lot of momentum. I'm way overweight on cash though, and really looking to deploy this into either stocks and/or silver depending on how they trade going forward.
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Re: Combining GB with spread trend

Post by pmward » Wed Apr 01, 2020 11:19 am

Well it's official, I have capitulated on small cap value. The trend is weak and getting weaker. I don't mind doing some moonshot countertrend mean reversion bets, but not with that large of a chunk of my portfolio. I eliminated small cap value, traded some of my overweight cash for long bonds, and added a position in large cap growth (through QQQ in IRA and taxable and Fidelity Contrafund in my 401k). I hate capitulating like this, but I kept having the thought go through my head that if I had 100% cash today I would not choose to buy small cap value. Therefore, if I wouldn't buy it today, why am I holding it? I was holding it simply because I had rode the loss down, and was hoping beyond hope for some mean reversion to get out. Holding and praying for mean reversion to exit a position makes no sense. So I now have the portfolio I want. I'll keep an eye on trends in case SCV does start to shift into favor, but in the meantime, good riddance. I never should have bought SCV to begin with, I really only bought it against my better judgment because for a period of time I wanted to try to stick to buy and hold on a GB so that I could have a portfolio that I didn't have to actively monitor and put time and effort into. Lesson learned, that is not for me. Now that I've unwound my past buy and hold mistakes I can now move forward fully with my GB+Trend approach.

Current target allocation:

S&P 500: 15%
Large cap growth: 15%
LTT: 20%
Cash: 20%
Gold: 20%
Silver: 5%
REIT: 5%

Still looking to get aggressively back into stocks, but waiting for the right opportunity to start scaling back into stocks.
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Re: Combining GB with spread trend

Post by vnatale » Wed Apr 01, 2020 11:31 am

pmward wrote:
Wed Apr 01, 2020 11:19 am
Well it's official, I have capitulated on small cap value. The trend is weak and getting weaker. I don't mind doing some moonshot countertrend mean reversion bets, but not with that large of a chunk of my portfolio. I eliminated small cap value, traded some of my overweight cash for long bonds, and added a position in large cap growth (through QQQ in IRA and taxable and Fidelity Contrafund in my 401k). I hate capitulating like this, but I kept having the thought go through my head that if I had 100% cash today I would not choose to buy small cap value. Therefore, if I wouldn't buy it today, why am I holding it? I was holding it simply because I had rode the loss down, and was hoping beyond hope for some mean reversion to get out. Holding and praying for mean reversion to exit a position makes no sense. So I now have the portfolio I want. I'll keep an eye on trends in case SCV does start to shift into favor, but in the meantime, good riddance. I never should have bought SCV to begin with, I really only bought it against my better judgment because for a period of time I wanted to try to stick to buy and hold on a GB so that I could have a portfolio that I didn't have to actively monitor and put time and effort into. Lesson learned, that is not for me. Now that I've unwound my past buy and hold mistakes I can now move forward fully with my GB+Trend approach.

Current target allocation:

S&P 500: 15%
Large cap growth: 15%
LTT: 20%
Cash: 20%
Gold: 20%
Silver: 5%
REIT: 5%

Still looking to get aggressively back into stocks, but waiting for the right opportunity to start scaling back into stocks.
Mathjak would approve in that he and I both share the belief that even when you don't sell or buy anything, every day, implicitly, you are deciding to sell all and buy exactly what you sold.

Vinny
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats."
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Re: Combining GB with spread trend

Post by pmward » Wed Apr 01, 2020 11:41 am

vnatale wrote:
Wed Apr 01, 2020 11:31 am
pmward wrote:
Wed Apr 01, 2020 11:19 am
Well it's official, I have capitulated on small cap value. The trend is weak and getting weaker. I don't mind doing some moonshot countertrend mean reversion bets, but not with that large of a chunk of my portfolio. I eliminated small cap value, traded some of my overweight cash for long bonds, and added a position in large cap growth (through QQQ in IRA and taxable and Fidelity Contrafund in my 401k). I hate capitulating like this, but I kept having the thought go through my head that if I had 100% cash today I would not choose to buy small cap value. Therefore, if I wouldn't buy it today, why am I holding it? I was holding it simply because I had rode the loss down, and was hoping beyond hope for some mean reversion to get out. Holding and praying for mean reversion to exit a position makes no sense. So I now have the portfolio I want. I'll keep an eye on trends in case SCV does start to shift into favor, but in the meantime, good riddance. I never should have bought SCV to begin with, I really only bought it against my better judgment because for a period of time I wanted to try to stick to buy and hold on a GB so that I could have a portfolio that I didn't have to actively monitor and put time and effort into. Lesson learned, that is not for me. Now that I've unwound my past buy and hold mistakes I can now move forward fully with my GB+Trend approach.

Current target allocation:

S&P 500: 15%
Large cap growth: 15%
LTT: 20%
Cash: 20%
Gold: 20%
Silver: 5%
REIT: 5%

Still looking to get aggressively back into stocks, but waiting for the right opportunity to start scaling back into stocks.
Mathjak would approve in that he and I both share the belief that even when you don't sell or buy anything, every day, implicitly, you are deciding to sell all and buy exactly what you sold.

Vinny
Yeah. I really wanted to try to have a no effort required portfolio. But it's just not a good fit for me. I'm a trend follower at heart, so it just goes against my nature to want to hold something that is in a 20 year downtrend. I wish I would have went with my current strategy before the crash, I would have done much better (and had reduced stock exposure much earlier on; I'm still holding a bit more stock that I would like to simply because I've already suffered the loss and want to hedge in case my technical thesis is wrong and we bottom sooner than I'm targeting). But oh well, no use crying over spilled milk. I learned my lesson, and I'm moving to fix it now. I think my strategy of having minimums I have to hold in all asset classes, and tilting those assets to what is out performing on a relative basis, and allowing myself 40% of my portfolio effectively to be a VP, just seems like a much better way to go. I mean, I'm sitting here watching the markets do exactly what I thought they would do, getting my thesis proven right, yet holding a large chunk of my portfolio in some assets that go against my thesis. I just could no longer justify holding the moonshot that I did not fully believe in that was also going against me more and more by the day. And at the end of the day yesterday, according to Personal Capitol's performance tab, I'm only down 10% from the top. So even though I took a big beating in the SCV side of things, I've still managed to do pretty well on the whole. Now I'm at least more comfortable with where I am at in the short term and can start looking to start my strategy to play the recovery when the time is right.
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Re: Combining GB with spread trend

Post by ppnewbie » Thu Apr 02, 2020 11:01 am

How do you feel about REITs midterm? Personally, REITs feel like they are in a precarious position.
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Re: Combining GB with spread trend

Post by pmward » Thu Apr 02, 2020 11:55 am

ppnewbie wrote:
Thu Apr 02, 2020 11:01 am
How do you feel about REITs midterm? Personally, REITs feel like they are in a precarious position.
Technically, yes they are in a precarious position. I do think fundamentally they are in a position to really benefit on the rebound and out perform the regular stock market. Having a 5-6% yield in a time when bonds are 0% is bound to attract a lot of buying interest once people feel safe again after the crisis. Not to mention that REIT companies use leverage to buy properties... and the cost of that leverage is plummeting.

Also, while we are in a deflation now, I do think that coming out of this we will finally see a pick up in inflation. I obviously have both gold and silver as well, this is also kind of another form of diversified bet on inflation returning.
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Re: Combining GB with spread trend

Post by Kbg » Thu Apr 02, 2020 10:24 pm

Machine Ghost and I both backtested a lot of tactical approaches to the PP a while back and nothing really looked very promising over the standard PP. He posted more than I did, but I agreed with everything he wrote as my studies indicated the same thing.

My personal take is that with the mix of assets in the GB/PP, the low/no/negative correlation is hard to beat as the "timing" component happens naturally and almost instantaneously as money flees from say stocks to bonds/gold "risk off" and then the same thing will reverse when "risk on."

I find more bang for the buck in studying what various allocation weightings do under various market types and then dialing risk to where I like the risk to reward mix.

Finally, band rebalancing is a form of market timing that will probably do as good or better than you will over the long haul and is way more simple.

Having noted the above, if you pick an allocation and don't mess around with it you are also likely not to hurt yourself too much if you aren't good at it and conversely you will probably find you don't actually add much either if you are good at it.
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Re: Combining GB with spread trend

Post by pmward » Fri Apr 03, 2020 9:13 am

Kbg wrote:
Thu Apr 02, 2020 10:24 pm
Machine Ghost and I both backtested a lot of tactical approaches to the PP a while back and nothing really looked very promising over the standard PP. He posted more than I did, but I agreed with everything he wrote as my studies indicated the same thing.

My personal take is that with the mix of assets in the GB/PP, the low/no/negative correlation is hard to beat as the "timing" component happens naturally and almost instantaneously as money flees from say stocks to bonds/gold "risk off" and then the same thing will reverse when "risk on."

I find more bang for the buck in studying what various allocation weightings do under various market types and then dialing risk to where I like the risk to reward mix.

Finally, band rebalancing is a form of market timing that will probably do as good or better than you will over the long haul and is way more simple.

Having noted the above, if you pick an allocation and don't mess around with it you are also likely not to hurt yourself too much if you aren't good at it and conversely you will probably find you don't actually add much either if you are good at it.
I think most of the tactical approaches you guys tested were different than what I'm doing. I read that thread a long time ago and from what I recall you were sticking mostly to a GEM type momentum based on an arbitrary loopback and just choosing what asset was best, correct? That is not at all what I am doing. That's more of a quantitative approach and I'm using more of a technical approach, with a macro theme overlay as the guiding principal.

I basically have a 50% PP (allowing for tilts) and 50% VP (and my VP still sticks pretty close to the bounds of a GB like portfolio). I'm taking skills I used in the past as a swing trader to help me tilt my portfolio from that baseline to chase alpha. The big difference between what I'm doing now and what I did swing trading is that my timeframe is much longer, and since my timeframe is much longer I have more need of hedging. When I was swing trading I was looking to chase short term trends from a couple days to a couple weeks. Now I'm looking to follow the more longer term multi-month to multi-year trends. But I'm using the same charts I used to use in swing trading to make those decisions... price charts and spread charts. I use multiple indicators to help me form my thesis, from momentum, to breadth, to relative strength, to old school trend lines and support and resistance levels, and even a splattering of Fib. You really couldn't backtest what I am doing since there is a discretionary aspect to it (my instincts in the markets have proven to be right more than wrong), the fact that I have a macro thesis that I'm playing to, and since I track multiple indicators there are always going to be some bullish readings and some bearish readings. Rarely does any chart look 100% bearish or 100% bullish (and since this is so rare if it did I would be more tempted to fade it than buy it). I'm not looking for can't miss signals, I'm looking for high probability signals and scaling into those trends over time if/as they emerge and develop. If you look close enough multi-year trends are always hiding in plain sight that could add substantial alpha. My main goal is to ride those long term trends, while maintaining the diversity and tail risk hedging of a GB like portfolio by having minimums that I have to hold at all times for stocks, bonds, cash, and gold. I have also limited the markets I follow to about a dozen, and am exclusively using ETF's not individual stocks, simply to keep things simple and manageable. I find the more charts I track, the harder it is to get in tune with them. I was successful in my past life as a swing trader, I just simply grew tired of the stress of short term trading. But the skills I learned there are still applicable in longer term investing, it's just that instead of hourly and daily charts being my bread and butter, weekly and monthly charts are now my bread and butter. I still analyze daily charts but I do not trade off of them as the signals are shorter term than I'm looking for, and I rarely look at intraday charts these days.
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Re: Combining GB with spread trend

Post by pmward » Sat Apr 04, 2020 10:33 am

Doing my weekend review of the weekly charts this morning, and once again using this thread as my log so I can reference back in the future. This week we basically just had indecisive swings back and forth all week with no real resolution or follow through in any direction:

Gold, silver, and bonds are all flat on the week. TLT is battling the same overhead channel line it's been battling for the last couple of months. Can it finally break and hold above it or is it going to reject again? We still had increasing momentum this week even for a flat week so that's a positive, but the doji candle does show some short term indecision.

S&P and QQQ pulled back a bit. SPY is basically stuck at the moment in between the 2650 and 2350 resistance and support levels. Oh, and I also did sell another 5% of stock into the bounce on Thurs, so I currently only have only 25% stock (15% large cap growth, 10% SPY). Large cap growth (particularly technology) keeps showing relative strength. I think that if large cap tech can lead in both the bull and bear markets that it is worth tilting towards over the coming years. I mean QQQ still has not broken below either it's 200 week moving average nor it's trend line going back to the 2009 lows. An argument could be made that the Q's are still technically in a bull market. I personally do not consider any asset that is above it's secular bull market uptrend line to be in a bear market. The Q's would have to fall another ~25% to fall below that trend line and another ~12% to fall below the 200 week moving average. This is showing serious strength, and if you listen to nothing else I say here, listen to this at least. Respect the strength in large cap growth. Who ever would have thought that tech stocks would be one of the best defensive sectors? They are getting the job done on both sides of the field, and what's not to love about that?

REIT's, small caps, and value all got hammered again. I'm very happy I capitulated on the small cap value. Swapping those to large cap growth has paid off already. Although, I do look to small caps as the canary in the coal mine as they usually lead stocks up and down, and since they are breaking down again it keeps me leaning bearish on stocks in general. REIT's are still frustrating as well. I would not normally be holding REIT's right now, this was kind of a remnant of my failed buy and hold approach. Ideally I would be stalking an entry point instead of holding. I would sell them... but I don't really know where else I want to put this money at the moment, and it's only 5% of my portfolio. I also do expect REIT's to lead on the rebound, so I kind of see myself as being early more than anything at the moment. I'm still undecided on REIT's short term though. If we get a bout of short term strength I may sell some and look for a better entry position later. We will see. One day at a time here.

International and EM are both looking good relatively speaking. After EM's breaking down last week relative to developed world, they broke back above the downtrend line this week. I'm watching EM closely for confirmation. This might be an ideal way to play the recovery if they can follow through on this relative strength in the coming weeks. EM's and international have basically went nowhere in the last 15 years. That's a lot of compression. The harder you push the spring down the harder it eventually snaps back. Eventually and inevitably, Ex-US is going to be the place to be. When this day comes, I want to be there.

All in all I'm much happier with where my portfolio is today vs a week ago after selling those small caps and raising more cash. I'm still weighted a bit riskier than I normally would be right now considering how the charts are looking. This is mainly because I'm sitting on a ~10% loss in my portfolio that I've already taken that I need to make up for. If I had less of a loss I would be in a position to be less aggressive and have a bigger cash pile waiting on a high probability signal to get back in. My problem now is that since I took the loss I need a bit more right tail hedging than I otherwise would have in case my analysis is wrong and we bottom sooner than I think. What is my portfolio today vs utopia where I had actively defended against the initial dip and only was down say ~5% total?

Today:
15% large cap growth
10% SPY
20% long bonds
20% gold
25% cash
5% silver
5% REIT

Utopia:
15% large cap growth
25% long bonds
20% gold
35% cash
5% silver

Either way, I still like where I'm positioned now relative to the loss I've taken and the probabilities of breakdown vs breakout that I currently see in the market. I am definitely tilted more towards left tail risk hedging (I almost have a PP), but I still have enough right tail hedging to help me recover if I'm wrong in my analysis. I'm also sitting on a big cash pile that would give me instant liquid optionality if stocks do start to break out from here. My base case that I'm playing towards right now is a slower lower volatility grind down in stocks over the next 2-3 months, likely eventually bottoming in the 1900-2100 S&P range, followed by a strong rally into the election (and potentially beyond the election depending on whether or not the virus becomes problematic again in the winter). I should note that this base case can change at any moment, this is just what I see as most probable at the moment given the data I have in hand. I'm still patiently stalking the right time to really back the truck up and big time overweight stocks (potentially lever up as well if they go low enough).
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Re: Combining GB with spread trend

Post by pmward » Mon Apr 06, 2020 3:30 pm

Well I said that if I saw REIT strength this week I would sell into it. REIT's are now gone after a 7.5% gain today with anemic volume in the big REIT index ETF's. I'm not going to lie, this is a trade that makes me nervous, but generally my best trades have been the most difficult trades to make. The S&P put in a higher high on the daily chart today, with rising volume behind it. It also broke above a wedge formation. I think it very possible that if the S&P follows through to the upside that it goes up to test the 61.8 Fib retracement at 2800. If we get up to 2750-2800 I may look to sell more stocks before the next leg down. The markets sure aren't easy to trade right now, but this is what bull trap rallies look like. They have to be substantial enough rallies to keep the bears honest, while also exciting the bulls. While we have a slew of short term bullish signals firing, the long term signals still are pointing towards lower lows as the path of least resistance. Fundamentally, I also think that the market is priced in for the best possible scenario, and I just don't know how realistic that is. So, my 5% REIT's are gone and in cash. I still have 25% in stock, but may have a good chance to unload 5-10% in another very difficult to make trade if we do rally up to 2750-2800 in the coming days. This would put me right at my "utopia" allocation I printed this weekend.

Also, yay SLV! It also put in a higher high, and with high volume today to confirm the move! SLV/GLD spread broke above a triangle formation as well today, also putting in a higher high.
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Re: Combining GB with spread trend

Post by pmward » Sat Apr 18, 2020 11:05 am

I hate to say it, but I think it's over. I was really hoping to deploy a bunch of cash into stocks lower, but it just doesn't seem likely that we will get anything more than a small pullback/consolidation at most. The bullish signals are piling up and market breadth is strong and increasing. I'm waiting to see how we start the week, but the indicators I track for buy signals are all on the verge of turning green this week for the QQQ. Since large cap growth also led on the way down, the safest way back into the market seems to be buying the QQQ when my signals turn green, and using those same signals to get back out again if I'm wrong.

I do expect that if the bottom truly is in we will likely see a mean reversion in small caps and value relative to large and growth in the coming weeks, but at this point I'm not willing to bet my money on either of those factors as they are both bottom of the barrel from a relative strength perspective. I think the odds are that the bottom is in. I'm still holding out hope that the bears at least show a little gall this week and at least pull the S&P down 100-200 points over the next week or two to give us a nice cup and handle pattern to be able to move higher without going overbought. I do think that international/EM could become compelling in the coming months if the dollar continues to pullback, but just like small and value I see no reason to buy something that is currently dead on the floor. I want to see some strength first before I'm willing to even consider any of the above. U.S. only large cap growth, momentum, and low vol look like the only stock factors worth investing in right now.

One good thing that has come since I last updated this post is I have determined and set in stone my allocations of PP/VP. I'm going to stay 40% PP, because it makes math easy in 4x10% and it just seems like a good balance for me. So this basically means I have to hold 10% of the 4 assets at all times. The Browne/Dalio strategy of having the "money you can't afford to lose" in an "all-weather" bucket and speculating for alpha in a separate bucket makes a lot of sense to me. Also, the trend and mean reversion strategies I will be employing in my VP are actually strategy diversification, adding in another non-correlated return stream. Both buy and hold and trend strategies have their own unique strengths and weaknesses, and mixing these together helps hedge the weaknesses of each, making a portfolio that on the whole is greater than the sum of it's parts. Buy and hold suffers from massive drawdowns in bear markets, trend suffers from whipsaws in bull markets. Both flaws are muted when combined together. The mean reversion trades I make are more short term tactical bets, and those will never be as large a part of my VP as trend.

For my VP, TLT looks to be in a topping pattern to me, so I'm also going to be reducing my TLT down to the 10% this week if I go risk on with stocks. I can make an argument to speculate on precious metals and stocks together in this economic regime, but I have a hard time having VP bets on both stocks and TLT. So if I go long stocks in my VP this week, I'll be trimming my TLT down to minimums as well. For now I will be keeping my full 20% gold allocation, as well as my 10% silver mean reversion allocation. I expect a pullback/consolidation in metals over the coming weeks based on what I'm seeing in the charts, but I expect this to just be a pause in the metals bull market, nothing worth selling for.

Basically in a nutshell, I'm preparing to go risk on if my signals get triggered this week, as the start of next week truly is now or never for the bear case. It's certainly possible that later this year another event triggers a real bear market. So it's possible we get a 2018 type scenario where we have two separate selloffs for different core reasons. But if we get follow through to the upside this week, especially on a week where 20% of the S&P is reporting earnings, it's safe to say that the probability is incredibly high that the bear for spring 2020 is dead.
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Re: Combining GB with spread trend

Post by pmward » Thu Apr 23, 2020 12:15 pm

I bought the GDX multi-year breakout today. Everything I love to see in a chart, a long consolidation with a clear break out, great relative strength both by RSI and spread vs SPY, great momentum, and clear support levels for stop. Current stop just below $30, which on a 10% portfolio allocation basically is putting 1% of my portfolio at risk for something with lots more potential upside. I like the risk/reward. This is also a good way to put some of my cash to work since I didn't get the stock short opportunity I was hoping for this week.
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Re: Combining GB with spread trend

Post by buddtholomew » Thu Apr 23, 2020 4:36 pm

Came back from a walk and saw it up 4%+ so entered a stop order at 33.50 which executed after the GILD news. Entry at 29.79 for a quick gain. Watched the ETF for years fall to teens and the optimal entry this cycle was around 16/17. I have this small chunk in an IRA that should be in SPY, IAU or TLT. GDX is a young ones game.
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Re: Combining GB with spread trend

Post by pmward » Thu Apr 23, 2020 6:08 pm

buddtholomew wrote:
Thu Apr 23, 2020 4:36 pm
Came back from a walk and saw it up 4%+ so entered a stop order at 33.50 which executed after the GILD news. Entry at 29.79 for a quick gain. Watched the ETF for years fall to teens and the optimal entry this cycle was around 16/17. I have this small chunk in an IRA that should be in SPY, IAU or TLT. GDX is a young ones game.
Yep, I'm doing a breakout trade, so I wasn't trying to grab the bottom. It would have been nice to grab that quick price double though! Hindsight is always 20/20. But the strength this thing is showing, it should continue to run. My holding time here is likely a couple weeks to a couple months. I'll keep moving my stop loss up as the stock goes up and eventually get stopped out. Before this trade I had 40% cash just sitting there, so this gives me something to put 10% of that cash to work while I wait to see if the broader market will earn my trust so I can start taking some longer term trades. In a bear phase, all my trades are kept on a short leash.
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Re: Combining GB with spread trend

Post by buddtholomew » Thu Apr 23, 2020 6:15 pm

All the best!
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Re: Combining GB with spread trend

Post by buddtholomew » Fri Apr 24, 2020 10:31 am

PM, limit order at 32.56 for the day...
I doubt it gets there but we’ll see.
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Re: Combining GB with spread trend

Post by pmward » Fri Apr 24, 2020 11:22 am

buddtholomew wrote:
Fri Apr 24, 2020 10:31 am
PM, limit order at 32.56 for the day...
I doubt it gets there but we’ll see.
Seems to be mostly a consolidation day today. We are stuck in the same exact range it traded in all day yesterday. Not surprising, after a big breakout it's very common to have a pause for a few days, or even pullback to restest the breakout. So you may still get filled early next week, especially if the market decides to fill that gap from yesterday. Today is a big indecision day all around. I'm interested to see what happens at the close.
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Re: Combining GB with spread trend

Post by buddtholomew » Fri Apr 24, 2020 12:51 pm

Missed it.
Godspeed PM.

Haha, just heard on Phil’s Gang that you are better off buying GDX and GLD now that the big institutions are getting in...”better buying it now at 33 than at 16/17”
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Re: Combining GB with spread trend

Post by Vil » Fri Apr 24, 2020 2:47 pm

pmward wrote:
Sat Apr 18, 2020 11:05 am
I hate to say it, but I think it's over. I was really hoping to deploy a bunch of cash into stocks lower, but it just doesn't seem likely that we will get anything more than a small pullback/consolidation at most. The bullish signals are piling up
Hey pm, have you changed your mind on what you said above or the investment in GDX is just a different kind of animal (based solely on technical indicators) ?
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