Live: Wednesday, Aug. 21, 2019

10:40 a.m. New York time

I’ve entered a short iron condor position on XLY, selecting it as having the top implied volatility rank of any prospect on my list that isn’t a metal or an energy play. The position replaces IWM, which I exited yesterday for half of maximum potential profit. The position has 30 days until expiration, nearly two weeks short of my preferred 42 days.

By Tim Bovee, Portland, Oregon, August 21, 2019

Read More »

XLY Analysis

The Consumer Discretionary Select Sector SPDR Fund (XLY)

I have entered a short iron condor spread on XLY, using options that trade for the last time 30 days hence, on September 20. The premium is a $0.91 credit and the stock at the time of entry was priced at $119.35.

The profit zone for this position is between $124.41 on the upside and $108.41 on the downside.

The implied volatility rank (IVR) stands at 36.9.

Premium: $0.91 Expire OTM
XLY-iron condor Strike Odds Delta
Long 127.00 97.0% 6
Break-even 124.41 89.0% 12.5
Short 123.50 81.0% 19
Puts
Short 114.00 81.0% 19
Break-even 108.91 87.5% 12.5
Long 108.00 94.0% 6

The premium is 19.2% of the width of the position’s wings.

The profit zone covers a 4.2% move to the upside and a 9.6% move to the downside of the entry price, for total coverage of 13.8%

The risk/reward ratio is 4.2:1, with maximum risk of $384 and maximum reward of $91 per contract.

By Tim Bovee, Portland, Oregon, August 21, 2019

Read More »

Live: Tuesday, Aug. 20, 2019

2:05 p.m. New York time

I’ve updated IWM Analysis with results.

1:50 p.m. New York time

I’ve exited my short iron condor options position on IWM at 50% of maximum potential profit; a $0.90 debit. Results to come.

12:30 p.m. New York time

Three of my short iron condor options positions — IWM, QQQ and SPY — have moved within 10 percentage points of my target, which is 50% of maximum potential profits. I’ve entered exit orders on all three, at the 50% mark, which have not yet been filled.

10:20 a.m. New York time

I’ve moved beyond my reliance on exchange traded funds for my manage shares portfolio, entering a position on BIDU, the Chinese Internet company, for $112.22 per share. It’s something in a nature of an experiment and the extent to which I’ll mix in shares in individual companies will depend upon the results I get from these occasional forays. The broader universe from which I choose has in this case allowed me to fill the last of my five slots, which have been difficult to fill since the market declines of early August.

The entry signal on the DMI was on Monday after an earnings announcement.

The line-up:

sym slot # entry $/share sector
GLD 1 143.03 metals
SLV 2 15.88 metals
IYR 3 91.44 real estate
XLU 4 61.52 utilitiies
BIDU 5 112.22 technology

9:50 a.m. New York time

I’ve entered a shares position on XLU within my managed shares portfolio. The entry price was $61.52 per share. The entry rationale was a bull signal on Monday from the DMI indicator backed by a drop into oversold territory and then a rise back to the neutral zone on the DMI Stochastic Extreme indicator.

By Tim Bovee, Portland, Oregon, August 20, 2019

Read More »

Live: Friday, Aug. 16, 2019

12:50 p.m. New York time

IYR gave a buy signal today on the Directional Movement Indicator (DMI) today, and I have added the symbol to my managed shares portfolio for $99.44 a share. The DMI Stochastic Extreme indicator was at 29.9 at purchase, above oversold territory (10 and below) and rising.

I still have two empty slots in the portfolio in the wake of the broad market declines earlier in the week.

The line-up:

sym slot # entry $/share sector
GLD 1 143.03 metals
SLV 2 15.88 metals
IYR 3 91.44 real estate
(empty) 4
(empty) 5

By Tim Bovee, Portland, Oregon, August 16, 2019

Read More »

Live: Thursday, Aug. 15, 2019

2:45 p.m. New York time

SMH, which I rejected as a managed shares trade, has flipped back into a sell signal from the DMI, thereby providing an example of how useful the DMI Stochastic Extreme metric can be in detection potential whipsaws.

10 a.m. New York time

Only the metals among my 87 exchange-traded funds have buy signals on the Directional Movement Index (DMI). SLV is already in my managed shares portfolio, and I’ve added GLD. Not much in the way of diversification at this point, but good metrics.

SMH also had a buy signal on the DMI. However, the DMI Stochastic Extreme metric is above 90, suggesting that the symbol is overbought and poised for a fall. I’m passing on it.

The managed shares line-up:

sym slot # entry $/share sector
GLD 1 143.03 metals
SLV 2 15.88 metals
(empty) 3
(empty) 4
(empty) 5

By Tim Bovee, Portland, Oregon, August 15, 2019

Read More »

Managed Shares Trading Rules

(See the prior version of this rule set here.)

The goal of this rule set is to create a highly diversified mid-risk portfolio of exchange-traded funds, managed daily  according to crossovers in the Directional Movement Indicator (DMI) technical analysis tool that signals trend changes. A buy signal is generated when the DMI+ (uptrending) crosses above the DMI- (downtrending). A sell signal is when the DMI- crosses below the DMI+.  Investopedia gives an explanation of the DMI system, here.

Method

My holdings consist of a portfolio of five exchange-traded funds picked from a pool of funds. For signaling, I use the DMI applied to a daily chart.

I use a large pool of about 90 exchange traded funds, including U.S. general index funds, sector funds, international global and country-specific funds, and a few futures-oriented funds in metals and agriculture.

Each trading day, I do the following tasks:

Update the pool with new DMI trend readings (which are binary: Above the signal line or at or below the signal line).

  1. Compare with the final trend signal of the day.
  2. Exit any holdings whose signals have changed from buy to sell.
  3. Bring the holdings count up to five positions by selecting according to these criteria:
    1. The DMI is showing a buy signal.
    2. The most recent date that the signal for each symbol switched from sell to buy is preferred over earlier signal dates. If the number of symbols on the most recent signal date is insufficient fill out the portfolio, use the next most recent date. For any selection date where there’s a choice of symbols to use, make each selection using a random number.
    3. Each fund in the portfolio represents a unique sector compared to the others.

More briefly, the selection criteria for my five positions:

1) Buy signal. 2) Newest trend. 3) Unique sector.

 

Live: Wednesday, Aug. 14, 2019

2:40 p.m. New York time

My options positions — on GDX, IWM, QQQ and SPY — remain within their profit zones. IWM is 14 cents away from my point for managing the trade, at 50% of maximum potential profit.

2:10 p.m. New York time

I went through my 90-some-odd funds using the DMI Trend metric. Only three would be candidates for a trade: GLD, SMH and XLP. For collateral confirmation, I looked at the DMI Stochastic Extreme, which shows all three as being at the peak of the trend, suggesting that there is less likelihood of continued rise. So I’m passing on all three, especially given today’s rapid decline in the markets.

The DMI Stochastic Extreme is a metric that was developed by Barbara Starr and published in the January 2013 edition of Technical Analysis of Stocks and Commodities. (The article is behind a paywall.)  TDAmeritrade’s ThinkOrSwim education site has a brief description of the metric.

1:55 p.m. New York time

Here are the percentages for my latest two exits.

IYR produced a 1.6% loss over five days for a -199% annual rate. The loss was $1.49 per share.

USO produced a 1.4% loss over two days for a -256% annual rate. The loss was 16 cents per share.

I’d say today has been a roller coaster ride, but only we start at the top of the roller coaster and then jump out of the car on the way down. Here’s the current, sadly lonely line-up for my managed shares portfolio:

sym slot # entry $ sector
(empty) 1
SLV 2 15.88 metals
(empty) 3
(empty) 4
(empty) 5

SLV remains uptrending by the DMI indicator, and the DMI Stochastic Extreme shows that it has not yet reached the extreme. True, the DMI+ has moved below the average — the DMA — and so I would be reluctant to make a new entry. But I’ll continue to hold until the DMI Trend shows a sell signal.

1:05 p.m. New York time

In my managed shares portfolio, I’ve exited USO for $11.42. IYR also switched on the DMI to a sell signal, and I exited at $90.02.

12:35 p.m. New York time

After thinking through the problems with my managed shares trading, discussed below, I’ve decided the best solution is to switch from the Fisher Transform to the DMI, developed in 1978 by J. Welles Wilder. It compares well with the Fisher Transform in terms of the timeliness of the signal. Both methods have occasional false signals — whipsaws — which are quickly corrected by the indicator itself.

An Investopedia article gives a good explanation of the DMI.

Of my three remaining holdings, IYR and SLV are uptrending according to the DMI and should be held. One holding, USO, has moved to downtrending on the DMI, and I shall exit.

Of the symbols I passed today, SMH has a DMI buy signal, given yesterday, and I shall considering entering a position.

The revised rules can be found here.

I think this will result in slower turnover, greater likelihood of profit, and also, greater difficulty in filling the five slots in my portfolio.

10:40 a.m. New York time

Happy Inversion Day! Yields on the 2-year and 10-year Treasury notes inverted from the usual pattern, with the 10-year notes having a lower yield than the 2-year. Normally, the 10-year notes yield ore to cover the additional time risk.

An inversion is usually followed by a recession, but not for months. So although the headlines are playing the click-baity panic mode for all it’s worth, I’m sitting back with a calm smile — What? Me worry? — and allowing my rules to keep me out of the trouble. The rules don’t guarantee profits. They do mitigate loss.

As they did this morning in my experimental managed shares portfolio, when the Fisher Transform metric gave a sell signal on ARKW. I sold, for $48.47, which is $1.64 below the entry price. ARKW produced a -3.3% loss over six days for a -199% annual rate.

I then reviewed 14 buy signals given yesterday in search of a replacement for ARKW, and also GDXJ, which I sold the day before. No luck. All had either switched to sell signals this morning, or showed non-trending charts that warned me away from entering positions.

The managed shares line up:

sym slot # entry $ sector
(empty) 1
SLV 2 15.88 metals
(empty) 3
IYR 4 91.51 real estate
USO 5 11.42 energy

So far, the managed shares experiment has produced not a single profit. That tells me that:

  • We are in a non-trending market
  • My management rules need to have an additional metric that tells the degree to which the market as a whole, and a specific symbol, are trending.
  • To enhance the odds of profit, I should trade only uptrending symbols and for the best odds, the surrounding markets should also be uptrending.

Something to ponder.

By Tim Bovee, Portland, Oregon, August 14, 2019

Read More »

Live: Tuesday, Aug. 13, 2019

11:10 a.m. New York time

In my managed shares portfolio, GDXJ gave a sell signal, and I exited for a $40.28 credit, producing a 68 cent loss, or 1.7% over seven days for a -87% annual rate.

I have no immediate replacement waiting, so that slot will remain empty today. The line-up

sym slot # entry $ sector
(empty) 1
SLV 2 15.88 metals
ARKW 3 50.11 technology-internet
IYR 4 91.51 real estate
USO 5 11.42 energy

By Tim Bovee, Portland, Oregon, August 13, 2019

Read More »

Live: Monday, Aug. 12, 2019

9:55 a.m. New York time

I’ve filled the empty slot in my managed shares portfolio, adding USO after a Fisher Transform buy signal, confirmed on the chart by a 5-day exponential moving average cross. Here’s the line-up:

sym slot # entry $ sector
GDXJ 1 40.79 metals
SLV 2 15.88 metals
ARKW 3 50.11 technology-internet
IYR 4 91.51 real estate
USO 5 11.42 energy

By Tim Bovee, Portland, Oregon, August 12, 2019

Read More »