Think about your Investments – Examples are good for Education and Ideas, but don’t follow like Sheep – Control your own destiny.
I’m reviewing the Dirac Portfolio mid-day today so as to avoid severe overload of information as End-Of-Month (EOM) reviews become due. We’ll start with a quick look at the Dirac Portfolio quiver that is comprised of 40 stocks (rather than ETFs) that are considered for inclusion in the portfolio:
At the present time the portfolio is holding 18 stocks as shown above. Here’s how the portfolio has performed since inception in January:
The portfolio survived the “Covid Crash” in March – through the placement of trailing stop-loss orders (TSLOs) – and was able to get back into the market reasonably quickly in April. The portfolio is presently up ~28% Year-To-Date (ignoring the $5k infusion of Cash in March) – really quite impressive.
So, let’s take a look at current rankings and recommendations:
where we are still seeing a lot of green in the HA signals (and in price relative to EMAs). For this portfolio I am using the BHS model with no “target” filter (because I want some degree of diversification) and fast response to short-term price action with the use of 3- and 5-day look-backs for the HA signals. I also have the BL/SH option turned on (“Yes”) with a 10-day measurement of the slope of the Linear Regression Projection curve. Look-backs for the basic momentum slopes (LRS1 and LRS2) are set at the default 60- and 100-day values. I have chosen to limit the number of assets to be held to 20 – hopefully to allow for diversification within the single (US Equity) asset class.
A few adjustments are called for and these are shown in the following figure:
I will be selling 3 assets (ADSK, LRCX and XLNX) and adding 5 assets (AMZN, CHTR, EL, EW and NFLX) to bring the total number of assets held up to the maximum level of 20 stocks.
David
David
Dirac performance for 2020 is terrific. What is the primary thing you look for when selecting stocks for the Dirac quiver? If that is something you wish to treat as proprietary info, I understand.
Thanks,
Richard
Richard,
I was looking for stocks with good size and liquidity so I narrowed my initial list to the stocks in the S&P 500 and the Nasdaq 100 (500-600 allowing for duplicates). I then ran an analysis of 20-day (and 50- and 100-day) returns over the prior 12-month period and ranked the assets on the best looking statistical performance. I looked at a number of statistical performance distribution numbers and can’t remember which ones I finally settled on – but this gave me my 40 asset “quiver”. I have chosen not to change the quiver for at least 12 months but I will probably dig out the files and update the analysis at the end of the year. When I do that I will write a post with a little more explanation. It’s a lot of work running the analyses – but, so far, it seems to be worth the effort.
David
Thank you David. Great work. Looking forward to seeing your end of the year post.
Richard
A little carnage over the last 2 days. With my 1 Standard Deviation volatility stops in place I have been stopped out of 9 of my positions in this Portfolio – CDNS, SNPS, ABMD, SPGI, AMD, AMZN, NOW, ADBE and CHTR. Tech stocks are getting hit really hard – we’ll have to see where we go from here.
I’m not too keen on the tight stops with greater than a 30% probability of getting stopped out but I also don’t want to give away the nice gains that this portfolio has seen so far this year. I may consider using smaller positions with wider stops somewhere down the line – but, of course, this will cut back on potential returns in a bullish move higher. It’s always a balancing act.
David
David,
I too was stopped out of many positions in many portfolios today. I’ll need to do some interim portfolio reviews over the next two weeks.
Lowell
David,
With the S&P up close to 7% in the prior 30 days and a 400+ gain the day before the selloff is there a high probability of profit taking at play here? Since profit taking is fairly common, do you see any value in using the proceeds from the sale of stopped out holdings to immediately invest in other holdings that may look less at risk rather than going to cash? Would this lessen the chances of being “Whiplashed”?
Richard
Great question Richard.
There are a number of stocks in the Dirac quiver, that are not currently held, that are showing Buy signals – so there may be an opportunity to rotate into these assets. However, I want to watch the behavior of the broad market in the next few days. If we look at the SPY chart (https://www.dropbox.com/s/3ip4e2r9o020dyz/SPY_200904.PNG?dl=0) we see that Friday’s close is just about sitting on the trendline of the lows of the past ~2 months. So, the question is, will this act as support? or will this prove to be the breakout of a larger pullback to the downside? The selloff of the past 2 days seemed strong but, again, Friday’s close was barely outside the weekly Expected Move (EM) as identified by the green/red horizontal lines in the referenced figure. So not too surprising or, necessarily, significant. Friday’s low was significantly lower than the close so I will be watching to see whether prices stay within next week’s EM or whether they will move outside and take out Friday’s low – or bounce and even close above the EM range.
For “traders” that follow “seasonal” trend tendencies, the trading day following the labor day weekend is usually bullish – so we’ll see whether this trend is reflected in Tuesday’s trading. If not, then maybe we could go lower. If we are up, maybe the recent selloff was just profit taking, but, if it was a reflection of the feeling that Biden may win the election then, unfortunately for us as investors, that might be more bearish.
Of course, anyone that was sticking to a strict “monthly” review schedule would wait for another month before making a decision – pros and cons of doing this too. Personally, I will be looking for re-entry points before the next review, but will try to be a little patient in making my decisions. As I’ve mentioned on numerous times on this blog, I don’t like stop loss orders and they get to me emotionally – but, sometimes, they do pay off (as in March) – and, since I don’t have a strong Options hedge in place to cover this portfolio, I feel that I need stops in place. It’s just a matter of where I choose to place those stops – the 1 Standard Deviation stops (with ~30+% probability of getting hit) may be too close and a smaller position with 1.65 SD stop (10% stop-out probability) may be better, or at least easier emotionally.
David
Great answer David. Rhanks