Dividends, Dichotomy or Rotation? - December 22, 2011

[Billy]

12020

Yesterday was another strong afternoon for the 20 DMF and cumulative TICK with some bullish divergence at the close. Without a follow-through into a clear uptrend, IWM is now much overbought within its recent sideways trading range.

12018
12017

There was dichotomy between accumulation in the NYSE stocks and distribution in the NASDAQ stocks. So far, it looks like portfolio rotation with a neutral impact on net accumulation/distribution. Besides the ORCL contagion, this may signal the start of illegal (who cares anyway and where are the cops?) window-dressing.

12023

All odds, probabilities and edges remain on the shorting side. Today’s pre-market and early trading might be quite shaky when looking at the long list of expected news between 8:30 and 10:00am.

12021

IWM will be trading ex-dividend ( -0.36 $) today. Backtesting has shown that the robot doesn’t need to adjust its trailing stop for dividends.

IWM stalled at Weekly R1 (74.38) which was also in confluence with Daily R1 yesterday. Today’s Daily R1 is at 74.79 or just one cent under the robot stop of 74.80. The same rule as yesterday will apply : if the robot is stopped out, it will stay in cash overnight. The suggested new short entry limit at 75.24 is for discretionary trades only. If the stop is not hit, there are 2 fail-safe stops ready to trigger in the 20 DMF Model (see today’s Pascal commentary).

12019

The Precious Metals Sector Money Flow triggered a buy signal and the GDX robot will cover its short position and enter a new long position at the open today. The initial stop will be 8.2% below the actual entry price, so size your position according to your risk tolerance, especially if trading the triple leverage NUGT ETF. GDX will be trading ex-dividend (0.61$) on Friday 12/23 so expect a quick dividend as a bonus on the trade. Please read Pascal’s GDX comments for details of the signal.
Billy

12022

[Rembert]

Billy,

Regarding dividends ... when short a stock or ETF at the close of the ex-dividend day ... I assume one has to pay the dividend to the party one is borrowing from ?

[Billy]

Billy,

Regarding dividends ... when short a stock or ETF at the close of the ex-dividend day ... I assume one has to pay the dividend to the party one is borrowing from ?

Yes, that's correct.
Let me add that stops for leveraged ETFs need to adjust to the UWM dividend. The indicative stops are not dividend adjusted. The best is to use conditional stops if IWM hits 74.80
Billy

[nickola.pazderic]

Hi Billy,

Due to circumstances, my TWM and TZA positions were stopped out according to today's signals. However, the official robot is still in the trade (74.80 being the stop).

This is very unfortunate.

Is there an official policy or suggestion in situations such as this?

I would bet it did not only happen to me.

Many thanks,

[Timothy Clontz]

I think Billy said to treat TZA manually. I got stopped out too.

Probably should just stick with IWM in the future unless I can monitor.

[nickola.pazderic]

That hurts is right!

But we could simply re-enter the trade in any vehicle and follow the IWM stop as if nothing had happened (one must make up the loss in equity in either case to be profitable).

Does anyone want to go short again?

[Timothy Clontz]

It was only a small part of one account. My other account was shorting IWM and unaffected. Lesson learned for me, but I'll just leave the TZA alone for now.

[mklein9]

I would say that stops and buys should always be conditional on IWM if the goal is to follow the robot as closely as possible, whether the vehicle being used is a leveraged and/or inverse ETF or futures, etc.


Also there is an issue today in that IWM went ex-dividend with a -0.36 drop (as Billy pointed out). That means that the 74.80 stop would have triggered today if it had not been exactly the same day as ex-dividend occurred. However, the IWM robot's stop was not adjusted for the dividend. Is that the intent, or was this an oversight? I would not imagine that back testing has a case exactly like this, and we end up in the position longer than testing would have indicated.

-Mike

[Billy]

Nickola and Tim,

I feel very sorry for you.
The stops for derivative ETFs are automatically generated on the robot page. That's why we stress so much that they are INDICATIVE and for DISCRETIONARY leveraged trades only.
The "true" stop is always conditional to IWM stop being hit.
Either you can enter such conditional stops with your broker or you have to monitor price RT.
I recalled the need for adjustment in my reply post to Rembert.
Re-entering a leverage trade is discretionary and I can't provide "universal" guidelines since it has never been quantified or backtested.
Billy

[Billy]

I would say that stops and buys should always be conditional on IWM if the goal is to follow the robot as closely as possible, whether the vehicle being used is a leveraged and/or inverse ETF or futures, etc.


Also there is an issue today in that IWM went ex-dividend with a -0.36 drop (as Billy pointed out). That means that the 74.80 stop would have triggered today if it had not been exactly the same day as ex-dividend occurred. However, the IWM robot's stop was not adjusted for the dividend. Is that the intent, or was this an oversight? I would not imagine that back testing has a case exactly like this, and we end up in the position longer than testing would have indicated.

-Mike

The stop on IWM was intentionally not adjusted. I don’t know if backtesting has a case exactly like today, but if you start adjusting stops for dividends, you need to adjust everything, from pivots to ATR. In our tests, it really never made any difference for performance, so we opted for simplicity.
The issue is with leveraged and inverse ETFS which are not robot trades but discretionary trades.
Billy

[roberto.giusto]

Does anyone want to go short again?

Nickola,

given the market environment we have been experiencing since August, and adding the fact that, as Billy said, the multitimeframe pivot system may not work as effectively during the holidays, I would treat each robot signal with caution, and above all assign less risk than normal to each trade.

At present, I play the official trades with my minimum position size, and am not planning to add at least until after the holidays. Maybe this is the ONE trade and I could be leaving a fat profit on the table, but I believe that when the holidays will be over there will be plenty of other more profitable robot signals. For now my number one priority is capital preservation.

I tell you this because I have the slight impression, from the way you have been writing during the last few days, that you are becoming a little emotional. If that is the case, the best thing you could do is trade less, and not more.

Please forgive me if I am wrong in my assumption, and know that I would give this suggestion to my best friend, a suggestion coming from the many lessons the market has taught me! :)

And after speaking to a friend, I take a chance to speak to all the other friends here: you all are a unique and continuous source of inspiration, I always consider myself very lucky to be able to read from all of you, administrators and users alike.

I wish you all a Merry Christmas and Happy New Year.

[nickola.pazderic]

Thanks. I appreciate that.

My emotion in the question "Does anyone want to go short again?" was irony !

Like you, I went light into this trade. I saw some other discretionary traders, like Erik Swartz, anticipate and then trade the bounce move perfectly for nice gains. I don't like to enter trades I don't think will work, but from all I've read about trend following, it is absolutely necessary to follow the signal.

Getting stopped out early puts me in the peculiar position in which I hope the trade gets stopped out at 74.8. With the robot we are reduced to rooting for a market move like home town fans root for a football or basketball team. Of course rooting is pointless, but I have some identity tied to the outcome in either case. What's worse, I root for a market move against the positions of my friends.

Lastly, that I was stopped out shows once again that wet ware beings will always have some trouble with robotic commands, unless we are ourselves fully automated. Since such mistakes are common, I don't think people will be interested in an explication of the circumstances that lead to the error.

Happy Holidays

[manucastle]

Thanks. I appreciate that.

My emotion in the question "Does anyone want to go short again?" was ironic !

Like you, I went light into this trade. I saw some other discretionary traders, like Erik Swartz, anticipate and then trade the bounce move perfectly for nice gains. I don't like to enter trades I don't think will work, but from all I've read about trend following, it is absolutely necessary to follow the signal.

Getting stopped out early puts me in the peculiar position in which I hope the trade gets stopped out at 74.8. With the robot we are reduced to rooting for a market move like home town fans root for a football or basketball team. Of course rooting is pointless, but I have some identity tied to the outcome in either case. What's worse, I root for a market move against the positions of my friends.

Lastly, that I was stopped out shows once again that wet ware beings will always have some trouble with robotic commands, unless we are ourselves fully automated. Since such mistakes are common, I don't think people will be interested in an explication of the circumstances that lead to the error.

Happy Holidays

Hi Nickola,

Go on, wish harder for 74.80 !!! Put us all out of our misery.
(I use the IWM stops for my 3x trades).

Just joking :O)

Have a very happy Christmas.

Trev