Combining GB with spread trend

[Kbg]

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.

[pmward]

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.

[pmward]

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).

[pmward]

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.

[pmward]

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.

[pmward]

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.

[buddtholomew]

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.

[pmward]

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.

[buddtholomew]

All the best!

[buddtholomew]

PM, limit order at 32.56 for the day...
I doubt it gets there but we’ll see.

[pmward]

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.

[buddtholomew]

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”

[Vil]

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) ?

[pmward]

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”

Haha, well breakouts are a form of confirmation for the rally. Not all breakout succeed, which is why I have a stop loss in place and why I am keeping my size in check. But it certainly is less risky now than it was at 16/17. When it was down there the ETF was having liquidity issues and was trading away from NAV.

[pmward]

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) ?

Yep, that's still my current view for the most part. Stocks are basically in a holding pattern at the moment, stuck between 2720 and 2850. I think the longer we sit still, the higher the odds of continuation to the upside. Fundamentally speaking, I think there are a lot of news items in the coming months to bull people up... states starting to reopen the economy, additional stimulus, unemployment claims trending down, then people going back to work, etc. It's really not going to be until June/July until we will start to really see the economic damage truly coming through in the data. I really wouldn't be surprised to see stocks rally, and then in the summer or fall finally have reality hit when people realize that there was some lasting damage. Also, the Trump PUT is good until November, after that though he has much less motivation to prop up the economy. Matter of fact, it's likely the virus has thrown more fuel on his desire to escalate the economic war with China.

So at the moment I'm looking for ways to participate in the rally if it continues, but I'm being very strategic in only investing in areas that are showing strength (tech, gold miners, health care, biotech, and momentum are the areas specifically that I see opportunity) and keeping all of these trades on a tighter leash than I normally like to. Hence why I chose GDX. Gold miners are showing so much strength right now. And if the stock market does drop in the short term, gold miners may not follow. In 08 gold miners went down with stocks until November, then from there they started going up while the S&P continued to go down for 4 more months. So there is a bit of strategy here in that I think GDX will out perform if stocks have bottomed, and that it may still go up even if stocks have another leg down. FWIW, if stocks do have another leg down I do not expect it to be the cliff jump that we had in March. I think it's most likely we have a slower lower volatility grind down for a few months.

I also always sit down every weekend and do a really deep dive into the charts. I'll update here if anything jumps off the page at me. But for the moment, we really are just treading water and waiting for the market to choose a direction.

[pmward]

Just to kind of expound on that a bit more visually, here is a chart I created of the SPY for the last 2 weeks. See how the price is just stuck there between 272 and 285? It poked it's head above that 285 briefly, even closing above it last Friday, but was rejected again. As of the moment it may feel like the market is going up, but it really isn't. We are in a trendless holding pattern at the moment.

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Now let's zoom out a bit more to a two month chart and you can see how from the low on March 23, we were in a very cleanly defined trend up. Yet, this week something changed. We broke below that trend. We also went back up to try to get back into that trend, and we were rejected. You can also see momentum and relative strength decreasing the whole way up. Are these divergences trying to tell us something?

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Now if we zoom out one more time to the 1 year chart, you can see more of these puzzle pieces coming together. Notice once again how we have that trend channel that we broken down below, retested, and got rejected. Notice the orange line I placed on there at the volume markers, see how volume is trending down? How as this rally has went on there has been less and less buying behind it. That's also an interesting divergence. Also, it's worth noting that this whole week the S&P was really struggling with it's 50 day moving average. Lots of sector ETF's were also struggling with their 50 day moving average this week. We did close above that today though, so that's one point for the bulls. If they can hold us above that 50 day moving average for a few days it would increase the odds of the bull case greatly.

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Lastly, I'll leave you with a chart of GDX. See how different of a picture this is? At the top two panes you can see the ratio of GDX to SPY and to GLD. Look at how strong it's been performing relative to both. Look at how we have a clearly defined up trend that it is above. Look how it is above upward sloping 20, 50, and 200 day moving averages. Look how RSI and PPO are screaming up and to the right. The only divergence I see here is the same volume divergence you see in SPY. Volume has picked up in the last couple days since the breakout, but I would still like to see a bit more.

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Now with this picture painted, if someone wanted to have some right tail hedging in case this rally is for real and stock continue up, can you see why I would choose GDX as opposed to SPY?

[Vil]

can you see why I would choose GDX as opposed to SPY?

Yes, I can. And thanks for the thourough walk-through. Actually, I had more or less the same thoughts in mind. Since I bought the analogue_of_SLV on the very bottom (with it I am around some good 22-27% of profit), I can only watch this zig-zaggy market that's well above my trading skills. I've almost done nothing, was waiting for the next round of drops, but that did not happen.

Regarding GDX (we have it here on Xetra as G2X, less liquid but still trade-able), I can clearly see your point. Only worrying point is in the day of breakout (that appears to be 22) and the next day the volume has increased 40-50% (on average) to its pre-corona times, which as you say is still something, but not the ideal setup. Still the increase is evident compared to the days after 14th April. Since more than a week, SMA20 is already on top of the rest, too. Maybe in the next couple of days the breakout level will get checked as the new support, who knows.. And by the way, if you haven't seen it yet - from 'The Unfolding' article, shared by ochotona, on p.85 there is interesting graphic about gold miners :

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Yet on another note - I am used with some of the swing trading terminology and techniques, though I still do not feel confident enough to apply those in practice. Maybe I do not believe enough in them yet. Even basic stuff as trend lines often appears to me as a sort of well chosen way to draw lines around (well, with horizontal supports/resistance I am fine and do firmly believe in). Fibonacci retracements, for example, are also a sort of voodoo magic for me. It might be that still the different mentalities are fighting inside me - think of 'a random walk down wall street' vs 'technical analysis'

[pmward]

Interesting chart. Yes 2008 had a similar effect like I mentioned, where in the initial panic selloff miners got dragged down, but then went up while stocks as a whole continued to fall.

The pitching being thrown by markets right now is indeed really hard to hit. Whenever volatility creeps up like this it has to get difficult, because with the volatility if it were easy and did what everyone expected everyone could easily make a fortune. The market has to do what nobody expects it to do long enough and strong enough to keep both the bulls and bears honest. If your going to trade in this environment, good stock/ETF pickers will be rewarded. Also, those that keep their timeframes short, those that stay agile and listen to the charts instead of their logic/emotions/desires, and those that plan their stops for both if they are right and wrong in advance will be rewarded. The trick with stops though is that with increased volatility and trading range, you have to have a bit wider stop than in a low volatility regime. Something like chandelier exits that sets a trailing stop at 3x the average true range over the last month is a pretty good way to do a trailing stop in this environment, and is something I am tracking for all my VP investments at the moment. You need to know in advance at what price targets you are proven right, and what price points you are proven wrong... and be flexible enough to get out with a profit if you start off right and the tides turn. It's all about risk management. Technicals on a chart are simply clues. They are not fool proof. You're just using them to come up with some decent probability bets, then using risk management to make sure you put the trade on in a way that has a good risk reward. I'm not risking more than 1% of my portfolio on any one trade in my VP right now. So, for GDX I took a 10% position, so the maximum loss I could take on that one position is 10% (10% OF A 10% position is a 1% loss). I would likely hit the ripcord long before I got a 10% loss, but still, my potential upside gain is way above 1%. I also may add to the position later if it starts to go my way as I'm still sitting on way more cash than I like. So my trade is put on in a way that skews into my favor by keeping my potential reward far greater than my potential loss.

As far as Fibonacci is concerned. I do watch the retracement levels. I don't think there is anything magical about a 31%, 50% or 61% retracement per say. But in a trending market your pullback phase by definition have to be less than your trending phase. Also, Fib retracement levels, just like trend lines and support and resistance, are things that big institutions watch and trade around. Big institutions buy in the general area of support and sell in the general area of resistance. Since these big institutions are the bulk of the trading volume, these levels become a self-fulfilling prophecy. 50 day and 200 day moving average are another example. Every chartist on the planet looks at the 50 day and 200 day moving average. It's because of this that they become points of contention.

[pmward]

Also worth keeping an eye on small caps. This is the spread between IWM and SPY. Notice how while the spread was in a free fall, but found support there three times. We are still getting lower highs, but no longer getting lower lows. Then look down at RSI which is trending up and trying to test that midline. This is a divergence worth paying attention to in the coming weeks, as at some point, small caps are going to take the lead, as they always do coming out of a bear market. This chart tells me that small cap relative strength is starting to coil up. If we start setting some higher highs, if RSI can get up above 60 here, and obviously if stocks in general start trending up, it would likely be a good time to start tilting towards small caps.

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[buddtholomew]

In GDX @33.60

[pmward]

In GDX @33.60

It's holding that $33 support level nicely, the bears keep trying but can't close that breakout gap. That's a good sign of constructive consolidation. If/when my trailing stop in GDX gets in the green, I am debating on trading my 10% VP allocation to gold into GDX as well if the chart continues to show strength.

Also, some bullish signals are really getting thrown today for the general markets. I took on a position in IWM on a breakout of the 5 minute chart this morning that I'm already up ~1.5% on. I'm watching how we get into the close, and I may be going risk on and turning tilting my portfolio to be cautiously bullish. I'll update more later when I have the time to fully compose my thoughts and moves.

[pmward]

Ok, so lots of green signals flashing on my timeframe. S&P confirming the breakout above 50 day moving average, S&P confirmed it's break above 2850 resistance, Russell 2000 setting a new higher high, small-caps and transports (the 2 things I look to as a canary in the coal mine) have both been out performing the broader market the last few days, the IWM:SPY spread charts RSI went into positive territory today, The QQQ 12/26 EMA had a golden cross last week that is confirmed by starting the week above it, and a volatility based trend signal I'm following also flipped green today. Basically, until today signals on the short term time frame were green, intermediate (my preferred timeframe) were mixed, and long term were red. Today, intermediate signals are flipping from mixed to green.

So how am I going to play this?

The last few weeks since I broke away from GB my portfolio has been 40% PP, 60% actively managed VP. 60% is more than I want to keep trading with discretion alone. I've had a lot of private conversations with Ocho over the last few weeks as I knew when the smoke was clear I wanted to put a slice of my portfolio in a more hands-off trend model. So I'm basically going to split that 60% in half, 30% in trend and 30% in discretionary active trading. As I mentioned above there's a volatility trend signal that flipped green today. I'm going to use that to trend follow on my 30% trend allocation. So, if that whipsaws and flips red again in the coming days, I'll sell. This is the signal I will use on this 30% as to whether I'll be in stocks or in bonds. I think it is possible that the Fed bought us out of the stock bear market. If that is the case, I expect the volatility pattern we have seen since Q1 2018 where once every 10-15 months we have these market temper tantrums until the market is finally allowed to correct. So basically, massive swings up and down are expected going forward. I think the volatility trend is a perfect way to participate in most of the swings up and miss most of the swings down.

As far as where I am going to allocate that stock portion... I've already initiated a position in IWM this morning off of a breakout on the 5 min chart that is already up ~2.5%. I am going to split my general stock bets 50/50 between following the strength in large cap growth and a short term mean reversion play in small caps. I'll keep monitoring all sectors, factors, countries, etc for places of intermediate term relative strength or good mean reversion plays. In other words, my allocation in stocks will be actively managed to follow intermarket trends instead of just passively buying SPY.

That leaves my portfolio with 30% for my fun active trading allocation where I can hunt and chase for multi-baggers. Currently this 30% is in 10% each IAU, SLV, GDX.

Of course, these changes all depend on how the market closes. If we get a massive selloff into the close and my indicators shift red I'll sell my IWM and sit on my hands a bit more. If we close green however, I'll put in the orders to do the full swap. For TLDR purposes, my total portfolio with my PP, trend, and active trading buckets combined after the swap will be approx as follows:

Large cap growth: 20%
Russell 2000: 20%
Gold: 20%
LTT: 10%
Cash: 10%
SLV: 10%
GDX: 10%

So since I have a 40% PP, that means I have a 10% minimum in stocks. So if my trend signal whipsaws red again and I have to sell I would basically be selling 30% of the stocks that make up my trend allocation placing those into bonds. Whew, what a crazy market. I'm at least happy to have another 30% of my portfolio in a rules based system. Keeping my active trading down to 30% is a figure I'm more comfortable with. I also finally have my cash put to work. I was sitting on 40% cash the last couple weeks and I was definitely getting antsy. Building portfolio rules are kind of an iterative process, and I feel I've come a long way in a the last few weeks. I think I'm in a much better position going forward than just a buy and rebalance GB.

[Vil]

On another note - do you think USO will revert its trend and recover anytime soon (the billion $ question) ? Or as there are huge enough supplies from the already stored quantities of oil those will still keep the price low for months to come (even though stock markets are showing signs of mild recovery )

[Vil]

Speaking of mild recovery, seems shift to risk-on is ongoing and together with Gold, the miners are suffering a bit too (on hourly basis ) :

G2X.jpg (49.04 KiB) Viewed 6308 times

[pmward]

On another note - do you think USO will revert its trend and recover anytime soon (the billion $ question) ? Or as there are huge enough supplies from the already stored quantities of oil those will still keep the price low for months to come (even though stock markets are showing signs of mild recovery )

No. The problem with USO, and oil in general, is you cannot invest in actual oil. All you can invest in are the futures contracts. Currently, those contracts are in a historical super contango which means that USO has to pay money every month right now to roll one contract to the next. Last month they sold a $10 contract and bought a $20 contract... losing 50% on the roll... and then that $20 contract lost 50% as of this morning. Even if oil goes up, USO will go down until backwardation is restored to the markets. The long contracts are all still up around $30, so there is no cheap oil if you go out just a couple months. There is no real way to play the rebound in oil itself, other than maybe energy stocks.

Speaking of mild recovery, seems shift to risk-on is ongoing and together with Gold, the miners are suffering a bit too (on hourly basis ) :

I see nothing worrying. It's just a consolidation at this point. GDX has yet to even break below $33, which was the gap up of the breakout last week. Gold is consolidating as well. Nothing concerning as of yet. They are just digesting gains and preparing for the next push in the coming weeks. I think it's possible metals are being held down a bit by oil in the near term. I also don't think gold consolidating has anything to do with "risk-on", as I think gold is a risk-on asset at this point. Matter of fact, I think it likely that coming out of this, whenever the new bull market starts (if it has not already) I think gold and stocks are going to rally strongly together. I think it most likely bonds will be the odd man out. Think a similar scenario to 2009-2011. I could be wrong, but that's the scenario I find most likely, and where my bets are placed.