Stock scream room

Discussion of the Stock portion of the Permanent Portfolio

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Re: Stock scream room

Post by pmward » Mon Mar 18, 2019 8:46 am

ochotona wrote:
Sun Mar 17, 2019 9:21 pm
2nd half of March after options expiration can be weak. I wonder if we take a dip, or stay up at these levels...
We definitely have broken above resistance this morning at the open. Let's see if it can hold it. The market could just pause here for a couple weeks to work off the over-bought conditions before rallying to new highs. I still think that technically the odds look higher for another leg down since this last rally came on weakening momentum (momentum has been trending down since about Jan 23). I still am anticipating a volatile week either way. But who knows? Markets have a mind of their own sometimes. We don't really have a real catalyst up or down at the moment.

Either way, I hope the bump holds to the close today as I have a sell order pending on some stock mutual funds today to cover my rebalancing, I need to purchase some more gold and cash to incorporate my 401k into my GB and pay Uncle Sam.
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Re: Stock scream room

Post by dualstow » Mon Mar 18, 2019 9:02 am

pmward wrote:
Sat Mar 16, 2019 2:40 pm
And if you read his book "Why the best laid investment plans..." you will see that he actually was a big fan of using support and resistance levels in VP investments.
Is that right? I’ve read that book and I only remember him comparing technical analysis to horoscopes and superstition.
RIP Marcello Gandini
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Re: Stock scream room

Post by pmward » Mon Mar 18, 2019 9:12 am

dualstow wrote:
Mon Mar 18, 2019 9:02 am
pmward wrote:
Sat Mar 16, 2019 2:40 pm
And if you read his book "Why the best laid investment plans..." you will see that he actually was a big fan of using support and resistance levels in VP investments.
Is that right? I’ve read that book and I only remember him comparing technical analysis to horoscopes and superstition.
He said most forms of predictive technical analysis, like Elliot wave theory and the like, are BS. Which I agree with as well. But he was a big supporter of support and resistance levels because they have a reason to be significant, in that people are trading those levels, remember those past battles, and still have emotions tied to them. Even more true in these days where algo's are programmed to trade based on past support and resistance levels. He recommended that any speculative trading be around support and resistance levels to protect their speculations (buying only just above support, and having a stop loss just below a support level at all times), and he used this extensively in his speculative trading days. Support and resistance levels don't try to predict the future, it's more of just a confirmation that something is either going as planned, or not going as planned. If in a speculative trade something starts to not go as planned, one should get out ASAP. So in the case of right now in the S&P 500, if someone were speculating on it, we just cleared a resistance level of 2820, so one would increase their stop loss to something like 2800 or 2810 to be just below the resistance level we just cleared, to protect the downside and lock in gains. There's no prediction here, it's totally neutral as to where the market goes from here, it's just an effective form of risk management when doing speculative discretionary trading.

Now, he obviously said for the PP to not worry about these things and just buy, hold, and rebalance regardless. It would only be useful in a VP.
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Re: Stock scream room

Post by ochotona » Mon Mar 18, 2019 9:37 am

I think the CTA robots think a lot like us humans - they were designed to be us, but faster. If we hold certain levels, they buy. If we break certain levels, they sell. Very very very quickly. But humans can beat machines because if we are open-minded, we have context; they don't, until someone codes in that context. Also, an individual's investment time horizon is different from the fund manager's career survivability time horizon, so an individual can act differently and not worry about getting whacked.

I think I'll be getting back into equities after Q1 rally is tested a bit more, regrettably buying in higher than where I sold, but it happens. But I will go in with a light touch, something like the HBPP equity allocation of 25%. At which point I don't care about buy or sell signals. At some point the market will stop going sideways. It has been going sideways really for a long time. Jawboning and FOMO can't keep it up forever. Reality has to set in someday. When it does I shall jump in with the robots...
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Re: Stock scream room

Post by pmward » Mon Mar 18, 2019 10:26 am

Haha, yeah you're seeing why I swapped from trading to PP. Because it's stressful trying to be right on the way out and way back in. It's also a lot of work. I did alright trading, but it just wasn't worth the time investment. Someday, if I feel strong convictions in something, I might take my 20% VP built into my GB and so some speculation with it. But for now, I'm enjoying not having to worry about every turn the market makes. I also will never touch the 80% of my portfolio that is in PP, as I think it makes sense to always have some of each asset that way one doesn't fully miss out on market participation if they are wrong in their speculations.

Actually, coming from trading was what made PP seem so appealing to me. Contrary to popular belief, trading is not about offense, it's about defense. Capitol preservation is the #1 priority. Capitol appreciation is a distant second. When implementing a trading system one is always defensive minded. It's generally recommended that building a system where you have to be right any more than 1/3 of the time is a recipe for disaster. So you implement a risk management system where you can be wrong 2/3 or even 3/4 of the time but still turn a profit. Generally, most trades are kind of meh and account balancing doesn't do much, but catching one big trade can basically make your entire year. So coming from a defensive oriented mindset, I just couldn't go to a buy and pray stock and bond only approach. The defensive aspects of the PP philosophy are what really attracted me. Also, like the PP, generally trading underperforms during strong bull markets and massively out performs in bear markets. So it's a very surprisingly similar mindset and an easy transition.
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Re: Stock scream room

Post by ochotona » Mon Mar 18, 2019 10:43 am

pmward wrote:
Mon Mar 18, 2019 10:26 am
The defensive aspects of the PP philosophy are what really attracted me. Also, like the PP, generally trading underperforms during strong bull markets and massively out performs in bear markets. So it's a very surprisingly similar mindset and an easy transition.
The GEM Dual Momentum has the same characteristics, which is why I think its pairs great with the PP, and whatever mixture level the investor wants.

The one and only thing that I don't like about GEM is the whipsaws... like right now. But I think going to a very conservative stock allocation (I am using target vol with MaxDD target of -10%) until it sorts itself out is fine. I'm at peace with that. In 1994 we whipped around for 11 months, and if it doesn't eventually trend down or up and and just porpoises up and down for let's say years, then a very conservative PP-like allocation is justified.
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Re: Stock scream room

Post by pmward » Mon Mar 18, 2019 11:11 am

ochotona wrote:
Mon Mar 18, 2019 10:43 am
pmward wrote:
Mon Mar 18, 2019 10:26 am
The defensive aspects of the PP philosophy are what really attracted me. Also, like the PP, generally trading underperforms during strong bull markets and massively out performs in bear markets. So it's a very surprisingly similar mindset and an easy transition.
The GEM Dual Momentum has the same characteristics, which is why I think its pairs great with the PP, and whatever mixture level the investor wants.

The one and only thing that I don't like about GEM is the whipsaws... like right now. But I think going to a very conservative stock allocation (I am using target vol with MaxDD target of -10%) until it sorts itself out is fine. I'm at peace with that. In 1994 we whipped around for 11 months, and if it doesn't eventually trend down or up and and just porpoises up and down for let's say years, then a very conservative PP-like allocation is justified.
I'll have to look into the GEM Dual Momentum strategy to see what it's about. I'll toss that on my reading / research list. Any recommendations for books, articles, or the like?

Yeah, generally speaking, any trend following / momentum based strategy is going to have whipsaws. It's a feature not a bug. There's just simply no way to avoid it. 2018 was a crap year for any trend following / momentum strategy as there simply was no trend and momentum was kind of all over the place. Every system is going to have strengths and weaknesses. There's always tradeoffs. Even buy and hold has tradeoffs. You just gotta accept the good with the bad and follow the rules regardless of what your emotions are telling you to do (that's the hard part).

But yeah, what I appreciate about the PP is the defense first approach. In a bogleheads approach they start with the offense first, and then add in bonds to dilute as an after thought. The PP (and even moreso the GB) take the opposite stance, where they start with getting the defense in place, focus on minimizing drawdowns and worst case scenarios, then add in offense after the desired defense is in place. I think that, at least for me, is a strategy that fits my personality better. I really don't like losing money and a 50%+ drawdown would be just a miserable experience that I would rather avoid. The main reason I was trading wasn't to maximize profits, but to feel safe and minimize losses. Now that I've found a way that the same can be done with less work, I'm very happy.
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Re: Stock scream room

Post by dualstow » Mon Mar 18, 2019 11:50 am

pmward wrote:
Mon Mar 18, 2019 9:12 am
dualstow wrote:
Mon Mar 18, 2019 9:02 am
pmward wrote:
Sat Mar 16, 2019 2:40 pm
And if you read his book "Why the best laid investment plans..." you will see that he actually was a big fan of using support and resistance levels in VP investments.
Is that right? I’ve read that book and I only remember him comparing technical analysis to horoscopes and superstition.
He said most forms of predictive technical analysis, like Elliot wave theory and the like, are BS. Which I agree with as well. But he was a big supporter of support and resistance levels because they have a reason to be significant, in that people are trading those levels, remember those past battles, and still have emotions tied to them.
Interesting. I would never be able to figure out what those resistance levels are.
RIP Marcello Gandini
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Re: Stock scream room

Post by pmward » Mon Mar 18, 2019 12:06 pm

I'm not sure if this will show properly for you, but worth a shot (I don't normally use Yahoo Finance, the tool I normally use is paid so I can't link): https://finance.yahoo.com/chart/%5EGSPC ... UiOm51bGx9

If that shares the chart exactly as I marked it, you should be able to see some lines I added which are major support/resistance levels in the S&P 500 going back to the start of 2018. You might have to zoom out a bit to see all of 2018 to now. They are pretty clear and easy to see when you know what you're looking for. The market tends to turn around often in the same areas. Now, it's important to note that even though I gave 2820 as a hard resistance level, that these things are generally more of a range than an exact number. That 2820 one has seemed to reject pretty tightly in the past, but sometimes a resistance level can be something like a 50pt range.

You should see that on the chart, that the market found support and resistance in certain general areas repeatedly. Also, it's worth mentioning that once one clears a resistance level, in the future it tends to act as support. So these areas are simply major inflection points in the market. The big decisions on where the market is going to go next tend to happen in and around these levels. The bulls and bears go to war around these levels, and the side with weaker conviction loses. The winning side takes temporary control of the market, while the other side licks their wounds for a bit. This is not a coincidence. It happens all the time in both individual stocks and general markets.

Now you'll also see that support and resistance also don't always put up a fight, sometimes, like in December, the momentum is so strong that it just rips right through it. So like I mentioned earlier it is not predictive. One can assume that a prior support/resistance level will provide the same support/resistance in the future, but it's not always the case. It generally takes a lot of momentum to break support or resistance, which is why I am skeptical of todays breakout, because momentum (measured by MAC-D which is not on that chart) has been trending downward for 2 months now. The bulls don't seem to have a ton of conviction right now, like they had in early January. Also, small-caps, which generally tend to lead the market, have been weak. Bond markets, which have a better track record at predicting major economic turning points than the stock market, have been looking bearish. All things considered I think this is going to be a false breakout. But that's just my opinion, I could be wrong. These things provide clues, but there are always conflicting clues, and nothing that can definitively predict what is going to happen. Also, momentum measurements like MAC-D are always looking to the past, and new catalysts could enter the market to increase momentum (like a trade war or Brexit deal). We will have to wait and see.

If I were actively trading, I would be entering a trade today good until cancelled to go short when/if we break below 2810, and if that executed I would put in a stop buy at probably 2840 or so to keep my potential losses low. I would be hoping to get down around 2630, the next support level, to cover (or at least move my stop buy down and see if I can ride it even lower). That, if successful and stopped out a bit above 2630, would be a little bit over a 6% gain, more if I used leverage or if the market broke support and went lower. Limiting the downside risk if wrong first and foremost, but allowing the option for gains to run a bit if right. Defense first, offense second.
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Re: Stock scream room

Post by ochotona » Mon Mar 18, 2019 7:34 pm

pmward wrote:
Mon Mar 18, 2019 11:11 am
I'll have to look into the GEM Dual Momentum strategy to see what it's about. I'll toss that on my reading / research list. Any recommendations for books, articles, or the like?
I can tell you the entire strategy right now.

It's a relative strength contest between S&P 500 and ACWI ex-US. The lookback period is one year. But if the one-year return of S&P 500 is below the one-year return of T-Bills, you go to bonds. That's it!
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Re: Stock scream room

Post by ochotona » Mon Mar 18, 2019 8:42 pm

Are we forming a gigantic head-and-shoulders pattern, with the left shoulder formed in January 2018 up at SPX 2873?

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Re: Stock scream room

Post by pmward » Tue Mar 19, 2019 9:05 am

ochotona wrote:
Mon Mar 18, 2019 8:42 pm
Are we forming a gigantic head-and-shoulders pattern, with the left shoulder formed in January 2018 up at SPX 2873?
Haha. No the December lows broke well below what would have been the "neck line", but if we do get a turn around before hitting a new all-time highs then we will have a lower low and lower high, which would technically be a confirmed downtrend (which is really the important part anyways, any of the "patterns" right hand side all consist of a lower high and a lower low signaling a new confirmed downtrend). That being said we could "double top" if we test the prior highs and fail. But like I mentioned, the pattern isn't really what's important, it's the lower high and lower low that are.

ochotona wrote:
Mon Mar 18, 2019 7:34 pm
pmward wrote:
Mon Mar 18, 2019 11:11 am
I'll have to look into the GEM Dual Momentum strategy to see what it's about. I'll toss that on my reading / research list. Any recommendations for books, articles, or the like?
I can tell you the entire strategy right now.

It's a relative strength contest between S&P 500 and ACWI ex-US. The lookback period is one year. But if the one-year return of S&P 500 is below the one-year return of T-Bills, you go to bonds. That's it!
Intersting. I'll have to play around with it a bit. I'll admit I've never looked into any momentum / trend following system that used data as long as a year back. Most of the systems I've looked at have all been much, much shorter term.
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Re: Stock scream room

Post by ochotona » Wed Mar 20, 2019 3:12 pm

What a total fake of a stock market this is
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Re: Stock scream room

Post by pmward » Wed Mar 20, 2019 4:04 pm

It was an interesting rollercoaster day for sure. I was honestly surprised to see stocks start to rally after the Fed's announcement. I was sitting there thinking... really, you're going to rally after the Fed confirms that it's seeing slower growth in it's data? At least sane minds took over towards the end of the session and sold it back down. Once again, we keep dancing around that 2820 level. I still don't buy this breakout, I think the market is going lower in the near future.

Gold and LTT's liked the report though. It's interesting to see that the fed is going to roll the debt on it's balance sheet from long term to short term and that they're going to completely eliminate their mortgage backed holdings.
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Re: Stock scream room

Post by boglerdude » Wed Mar 20, 2019 9:43 pm

Inside traders need you to think you can win or there'd be no one to trade with
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Re: Stock scream room

Post by pmward » Thu Mar 21, 2019 8:49 am

If you want a break from all the bearish talk and look at things from a different angle, check this video out which shows an eerily similar setup between 2018/early 2019 and 1990/early 1991. He shows the possibility that what has happened in 2018 could just have been the shakeout prior to the start of a 90s like long term speculative equity bubble. It's an interesting opinion: https://www.youtube.com/watch?v=yv_LzyF__Js
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Re: Stock scream room

Post by dualstow » Thu Mar 21, 2019 9:01 am

pmward wrote:
Thu Mar 21, 2019 8:49 am
check this video out which shows an eerily similar setup between 2018/early 2019 and 1990/early 1991.
Why are similarities in technical analysis invariably "eerie?" O0
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Re: Stock scream room

Post by pmward » Thu Mar 21, 2019 9:21 am

dualstow wrote:
Thu Mar 21, 2019 9:01 am
pmward wrote:
Thu Mar 21, 2019 8:49 am
check this video out which shows an eerily similar setup between 2018/early 2019 and 1990/early 1991.
Why are similarities in technical analysis invariably "eerie?" O0
The rarity of the combination of signals, and just how similar the two time periods look from a price action standpoint. Not to mention 1991 was also ~10 years into a cyclical bull market that most people thought was long in the tooth. I find it interesting at least. It's always good to look at both perspectives. There is a possibility that instead of sitting on the ledge of the next bear market, we could actually be on the launching pad of the next bull market. I can't say that I would complain with a decade long blowoff in the market since my goal is FI within 10 years, haha. We will have to see. It's rare to see bull thesis like that these days, so it's a nice reprieve from all the doom and gloom that has been in the financial media lately.
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Re: Stock scream room

Post by ochotona » Thu Mar 21, 2019 10:35 am

25% stock allocation just about perfect for these confusing times without any clear signals. Gasp where have I seen that 25% figure before???
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Re: Stock scream room

Post by pmward » Thu Mar 21, 2019 11:26 am

There is definitely a lot of wisdom in permanently holding some of all asset classes just in case. Even in times when the direction and trend seems certain, the market really can do anything.
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Re: Stock scream room

Post by Kriegsspiel » Thu Mar 21, 2019 5:26 pm

Was this posted here yet? "The Key To Investing Success Is Less Stress." Advocating for 35% stocks:
Financial advisers will generally recommend what has become the standard asset allocation, which is 80 percent in stocks and 20 percent in bonds, with investors allocating more to bonds as they age. But even that is too risky. Some well-known hedge funds have put out papers saying that even a 60/40 portfolio isn’t well diversified when viewed from the perspective of how each asset class contributes to the overall risk of the portfolio.

I propose an allocation to stocks of 35 percent for all investors in all circumstances, and an allocation to bonds of 65 percent. The reason being is that most advisers focus on returns to the exclusion of all else. They start by asking how much money you want in retirement, then they have you figure out how much you are willing to contribute and back out the rate of return you need. Most people assume an 8 percent return from an equity portfolio. I’m not going to quibble with the historical returns of the stock market—everyone knows what they are—but I will say that few people realize those returns because of suboptimal behavior along the way. In other words, buying on the highs and selling on the lows. Or, they only faithfully dollar cost average on the way up.
You there, Ephialtes. May you live forever.
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Re: Stock scream room

Post by pmward » Thu Mar 21, 2019 7:11 pm

35% also happens to be pretty close to risk parity.
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Re: Stock scream room

Post by pmward » Wed Mar 27, 2019 4:02 pm

I feel like we are playing ping pong. Every other day we are just bouncing back and forth between about 2800 and 2820. Neither level wants to give.
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Re: Stock scream room

Post by ochotona » Wed Mar 27, 2019 8:25 pm

pmward wrote:
Wed Mar 27, 2019 4:02 pm
I feel like we are playing ping pong. Every other day we are just bouncing back and forth between about 2800 and 2820. Neither level wants to give.
Futures below 2800 now...
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Re: Stock scream room

Post by ochotona » Thu Mar 28, 2019 5:57 pm

PMWARD, USMV iShares Edge MSCI Minimum Volatility USA ETF looks like a possibility. It has several years of track record, seems to work as designed, tested out will during Q4 2018. I could get back to my 40% stock position and only be exposed to 25% SPX volatility. Only 15 bips expenses.
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