Dividends, Dichotomy or Rotation? - December 22, 2011

[Billy]

Forum Clusters 111222.xlsx

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.




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.



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.



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).



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

[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