isa's long term trading journal

[isatrader]

Market Breadth Charts

I recently reread “The Visual Investor by John J Murphy” and it made me think about market breadth charts again for the first time in a while. So I thought I’d have a look at a few today and see what they say about underlining market strength at the moment.

Attached is the the following from stockcharts.com free charts section:
$CPC (CBOE Options Total Put/Call Ratio)
$NYAD (NYSE Advance Decline Issues (EOC)) – I’ve put the S&P 500 behind to compare.
$BPNYA (NYSE Bullish Percent Index) – I’ve included the point and figure chart and the plain line chart.
$NYHL (NYSE New Highs-New Lows (EOD))

 

[isatrader]

Weekend Update

Quick update this weekend. Down 1.96% since last week. Up 5.02% on the month still. Equity curve has pulled back to the 4 week moving average line. Market looks like it could bounce this week to try and retest the recent high, but the channel is flattening out and expanding, so I think there’s a good chance of it failing and falling back again. So will see how it plays out and might look to lighten positions a bit after the month end if it’s showing weakness.

 

[isatrader]

Palladium (PHPD) – Closed Position

Palladium (PHPD)

Entry Date: 16/9/10
Amount: 28 Shares
Entry Price: £35.04929 ($54.6194)
Commission: £12.50
Total: £993.88

Exit Date: 22/11/10
Amount: 28 Shares
Exit Price: £43.4975 ($69.775)
Commission: £12.50
Total: £1205.43

P/L: £211.55
Percentage Gain: 21.29% (27.75% in dollars)

Reason for trade exit
Precious metals have had an excellent run up since August. I have managed to capture 21.29% in Palladium and it is starting to show signs of an short term top. Technically MACD-H has no right shoulder and RSI is diverging from price. So I think a good time to take some profits for my account. I will look to possibly re-enter PHPD at a lower price as I think the metals rally has further to run yet, but needs a pause to rebase.

 

[isatrader]

Fresnillo (FRES) – Closed Position

Fresnillo (FRES)

Entry Date: 11/10/10
Amount: 127 Shares
Entry Price: 12.42638
Commission: £12.50
Total: £1598.54

Exit Date: 22/11/10
Amount: 127 Shares
Exit Price: £14.2355
Commission: £12.50
Total: £1795.41

P/L: £196.87
Percentage Gain: 12.32%

Reason for trade exit
Same as previous Palladium trade. Silver has had an excellent run, I got part of it in the ETF trade of PHAG a few months back and some in FRES, and again think it’s a good time to take some profits here. I like to sell into strength and not worry about missing further upside as I’ve made a good trade.

 

[isatrader]

Trading Update

I’ve been away for a few weeks on a trip to New York, so I haven’t been watching the markets as closely as normal. So I thought I should do an update to see how the market has done while I was away.

I got a really excellent book after doing the tourist bit outside wall street as the Borders there has a really good section of trading/investing type books. The book is called Reminiscences of a Stock Operator and was originally published back in the 1920s I think. But is excellent and just as relevant to trading today I think.

I’ve included the monthly chart of the S&P 500 as well as the normal weekly and daily chart, as it’s a new month and I’d like to look how the market is doing on a longer time frame. It’s looking promising currently. It has managed to stay above the declining 2 year trendline and is again challenging the 61.8% Fibonacci line. A monthly close above that would make me very bullish, although I already think this is the start of the 3rd wave of the uptrend since March 09.

Daily chart is at resistance point, but the reaction last week seemed to have good volume so I think a possible pause here or a break through and then retest could happen. But if I’m wrong it’s still fairly high in the range and above moving averages so would be no need to rush for the exits.

So I’m bullish at the moment. Lets see if the market agrees with me over the next few weeks.

 

[isatrader]

Account Update

My portfolio did ok while was away. Is a shame I had to close the Palladium and Fresnillo trades before I left, but were my highest risk trades, so needed to for piece of mind while I wasn’t able to trade.

November was my strongest month this year so far, with a 6.1% gain of £441.12. Which has brought my portfolio back into the middle of the range I have been in for the last year. I’m hopeful that December will be as strong and I can manage to close the year out above the £8k point.

 

[arabianights]

have you calculated any performance metrics yet?

 

[isatrader]

have you calculated any performance metrics yet?

Can you give me an example of what you mean? I did a comparision with the general market over the same time period a few months ago and I had outperformed it by around 14% over the time period. But not done much else except weekly percentages.

 

[arabianights]

Can you give me an example of what you mean? I did a comparision with the general market over the same time period a few months ago and I had outperformed it by around 14% over the time period. But not done much else except weekly percentages.

Yup basically that kind of thing, add in sharpe ratio etc... basically try to quantify edge I think is a good idea...

 

[isatrader]

Yup basically that kind of thing, add in sharpe ratio etc... basically try to quantify edge I think is a good idea...

Ok, thanks I will have a look into adding some performance metrics and try and explain my thinking for trades in some future posts.

 

[isatrader]

Relative Performance vs S&P 500

Attached is the chart of the relative performance of my account vs the S&P 500. As you can see I started during October 2008 seriously and was hit hard straight away. My preference for trading precious metals and commodities gave me a strong recovery early on. But I then made the mistake of trading leveraged natural gas which caused some big losses while the rest of my portfolio was doing well. I’ve made lots of mistakes in the last few years, but I think I’ve learned a lot more from them than my wins to be honest. My trading has stabilized in the last year, with much less wild swings and would have been much better had it not been for the high fees of trading in an ISA. My aim to remedy this is trade less frequently in my ISA and try to catch longer term moves and leave the active trading to my spreadbetting account.

Performance since Oct 08
My ISA account is 7.04%
S&P 500 is -2.42%

=> I am 9.46% above the S&P 500 currently.

Chart is below

 

[isatrader]

Sharpe Ratio

As requested by Arabian Nights. I’ve attempted to do a sharpe ratio. Not sure if it’s right or not. So let me know if I’ve messed it up please.

The ratio says it’s: 0.247

If I’ve done it right. Can you tell me if that’s good or bad please as will be interesting to know. Thanks

 

[arabianights]

The chart V S&P should worry you. Although over the entire time period you've beaten the S&P, you've basically stagnated since Jan 2009 while the overall market has been in a huge bull run. But you could argue that you've taken less risk so that's not necessarily an issue, so:

The chart versus the S&P also shows a problem with sharpe ratio in that, like everything else, it's bloody hard to use over such changeable market conditions; I'd run another analysis since Jan 09 and see what you come up with.

Also, a secondary point: You need to look at cumulative returns - is the S&P there cumulative?

 

[isatrader]

The chart V S&P should worry you. Although over the entire time period you've beaten the S&P, you've basically stagnated since Jan 2009 while the overall market has been in a huge bull run. But you could argue that you've taken less risk so that's not necessarily an issue, so:

The chart versus the S&P also shows a problem with sharpe ratio in that, like everything else, it's bloody hard to use over such changeable market conditions; I'd run another analysis since Jan 09 and see what you come up with.

Also, a secondary point: You need to look at cumulative returns - is the S&P there cumulative?

I think I set it up as cumulative. I do agree that it’s a worry that it’s catching up with me. But until last month my portfolio had a large leveraged natural gas position in it, which I had made various rookie mistakes with such as averaging down, using a bad trading vehicle in LNGA, and not cutting my losses early. The other major problem I had was that I was using commodity ETFs which were all priced in dollars and so even though the majority of my trades have been right this year the exchange rate has held them back. I’m trying to remedy this by balancing my portfolio better with a mix of ETFs priced in dollars and stocks in pounds. The recent performance seems to show that it’s more in line with the S&P now and not opposite it anymore. But there's still a lot of work to do and a lot to learn still. But I look at the equity curve in a positive way as my draw downs have been minor all year and are not swinging around wildly anymore. I think now I’ve got risk a bit more contained that I can start to work on making more profit.

Any more suggestions you might have are welcome and I really appreciate you taking the time to do the comments you have already. Thanks

 

[isatrader]

Sharpe Ratio - 09 & 10

I managed to get the cumulative figures for each set up, but can’t seem to get them to work on the same chart in excel. So I’ve tried another metric of dividing my portfolio by the S&P 500 as it shows relative performance as a single line, so is much clearer.

Also for the Sharpe ratio I’ve done since Jan 09 as you suggested arabian, and also split the 2 years up.

Both years combined: 0.35225197

Sharpe Ratio 2009: 0.524202882
Sharpe Ratio 2010: 0.002520957

 

[isatrader]

Sharpe Ratio - 09 & 10

I thought it would be good as a comparison to do the same for the S&P 500. So attached is the chart

Both years combined: 0.727363586

Sharpe Ratio 2009: 0.905364912
Sharpe Ratio 2010: 0.481463556

So my figures were much lower than this. Does this mean my risk reward is much lower?

 

[isatrader]

Market Breadth Charts

Attached is the the following Market Breadth Charts from stockcharts.com free charts section:

$CPC (CBOE Options Total Put/Call Ratio)
$NYAD (NYSE Advance Decline Issues (EOC)) – I’ve put the S&P 500 behind to compare.
$BPNYA (NYSE Bullish Percent Index)
$NYHL (NYSE New Highs-New Lows (EOD))
$NYA200R (NYSE Percent of stocks above the 200 day moving average)
$NYA:$USD (NYSE/US Dollar)
$NYA:$SPX (NYSE/S&P 500)

I think these are really interesting and give me some concerns about the current move higher. Advance Decline is still strong, but last weeks move was a little bit weaker than the market. The Total Put/Call Ratio is getting near to an extreme, but is not there yet though. The Percent of stocks above the 200 day moving average is at 76.21%, so still has room to go higher before the end of the bull run as well. The main concern is that the $NYA is lagging the $SPX. During the previous bull run the $NYA lead the $SPX. The NYSE Bullish Percent Index is still strong however.

Overall it still looks bullish to me, but with some warning signs starting to appear.

 

[isatrader]

Nickel – Entry

Ticker: NICK
Entry Date: 7/12/10
Amount: 55 Shares
Entry Price: £17.7091 ($27.95 @ fx rate 1.5790)
Commission: £12.50
Total: £986.50

Entry Grade: 62.5%
(Calculation: High-Entry price/High-Low) Entry Grade above 50% is my target

Nickel has been a good performer for me throughout the last few years. My current open position is up around 10%, and I’m currently reading Reminiscences of a Stock Operator, in which the value of pyramiding a winning position is emphasized so well. So I thought I’d take the advice today and buy more Nickel instead of buying copper. Copper broke out to a new high today and I considered buying that, but Nickel usually leverages coppers gains, so I thought it better to add to my open position of that instead.

 

[isatrader]

ANTO – Entry

Ticker: ANTO
Entry Date: 7/12/10
Amount: 64 Shares
Entry Price: £15.22845
Commission: £12.50
Stamp Duty: £4.87
Total: £991.99

Stop Loss: £13.62
Target: £18.28

Entry Grade: 35%
(Calculation: High-Entry price/High-Low) Entry Grade above 50% is my target

Antofagasta has had an impressive run and today broke out to a new high. My entry in this is a breakout play.

 

[tafita]

Hi Isatrader

It's good to see a longer term technical trader on these boards who uses similar techniques to my own. (I do not use so many indicators on my charts though). Keep up the good work

I breakout trade placing limit orders with my broker and pyramiding positions using technical entries to do so. I reduce risk by using a 1% risk per trade rule which allows me to pyramid without excessive risk on each trade. I also calculate monthly and annualised returns against the FTSE 100 as I am a trader of UK shares and also use sharpe ratio to keep myself in check.

Lots of luck

Tafita