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


Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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