Week of 10/9/2011 Mousetrap
Condition Bear Market
S&P Target 940
Hedge XLE 9.96% Closed
Hedge XLF -2.85%
Position Date Return Days Call
AWR 7/5/2011 -3.64% 45 Closed
BKI 5/31/2011 0.60% 131 Hold
CFI 6/22/2011 -0.88% 109 Hold
SE 6/27/2011 -4.27% 104 Hold
CLH 7/6/2011 -6.59% 95 Hold
GCI 7/14/2011 -23.44% 87 Hold
AGO 8/5/2011 -11.38% 65 Hold
DISH 8/10/2011 18.33% 60 Hold
GTAT 9/8/2011 -31.72% 31 Hold
CSGS 10/3/2011 0.80% 6 Buy
Cash-Neutral 5/31/2011 0.00% 131
Mousetrap Return -5.65%
S&P Return -8.59%
Hedged Return -0.09%
Mousetrap Annualized -26.29%
S&P Annualized -39.94%
Hedge Annualized -0.43%
Annualized Advantage 13.65%
Hedged Advantage 39.51%
Slight change of pace…
I had originally planned to write an update once a week and only post during the week if I needed to change a position. The start of a bear market right when I was loading the portfolio complicated everything, including how I reported the numbers. If I had counted the cash positions in the beginning, the numbers would have been this:
Mousetrap Return -5.65%
S&P Return -13.29%
Hedged Return -0.09%
Mousetrap Annualized -26.29%
S&P Annualized -61.82%
Hedge Annualized -0.43%
Annualized Advantage 35.53%
Hedged Advantage 61.39%
Well, that wouldn’t be fair. I was only accidentally in cash most of the time, so such an “advantage” would have just been dumb luck.
Nevertheless, one cash position is genuine, since the hedge eats up my margin and requires the model to only be 90% loaded (90% long, and 90% short on margin).
It’s been four months and the model is now fully loaded. The only need for an update at this point, then, would be a change in either the hedged or the long positions – neither of which will happen that often.
If my guess is correct, a new position should only average once or twice a month. I’ll only update, then, on the weekend, and only during the week if a new position occurs.
As noted on the model, we are in a bear market. What is not shown is the fact that the sector rotations are breaking down, which happens during a strong bear market rally. We’ve been due for that rally to 1250, and it appears that we’ll likely get it this quarter.
The model does NOT try to play rallies or corrections, but only tries to broadly time a bull or a bear market – so it will remain hedged.
Some weeks ago I promised a more complete description of the intermarket analysis I use (which involves interest rate changes and sector rotations), so I plan to use the time I’ve been spending on the daily updates to finally get that paper out.
The only piece of “advice” I’d give here is to not let the market fake you out. This bear is far too volatile for traditional short term trading techniques to work well, and I continue to see traders being stopped out on both the upward and downward “traps” this market continues to make. I don’t know how much of that is pure accident, or how much is HFT manipulation. I suspect it is more of the latter than most of us think. Even the “news” appears timed to fake people out with the bearish news hitting right when we are exhausting a downward move, and the bullish news faking us out on the other side. DO NOT PLAY THE NEWS!!!
On a final note, I now have two “closed” positions, a long position in AWR (-3.64%) with 10% of the portfolio, and a short position in XLE (+9.96%) with 80% of the portfolio, for an average of an 8.45% realized gain during a time that the S&P had a -13.29% loss.
Not too bad, so far. I’m quite pleased with the performance of the model and hope it continues to function this well.
Tim
