Rudesheim, Germany
Despite Friday’s pullback it was another positive week for US equities with the S&P 500 up ~2.6% on the week:
Tentatively, it looks as though prices may have moved out of the downtrend channel that they have been in for the past ~6 months – but we might still see resistance at ~400 since this is the 100% extension area from the March highs (based on the prior downtrend from the beginning of the Year (Jan)). If the uptrend continues this would place the pivot low at ~360, or the 161.8% Fibonacci (golden ratio) extension level. If we do not see a breakout above 400 we might well see a re-test of this (support) level. So, the placement of the D pivot point is still not confirmed and 380 (at the 127% Fibonacci extension level and bottom of the tentative new up-channel) is another potential support area.
In terms of performance:
most asset classes showed positive returns over the past week with Commodities being the only loser. We have been selling shares in DBC over the past few weeks as the different tranches have been reviewed – this helps smooth out the impact of timing (review date) luck.
Graphically, Rutherford performance looks like this:
with current holdings in the portfolio as shown in the following screenshot:
Tranche 1 (the focus of this week’s review) is holding a ~35% allocation to DBC with the balance in Cash.
Checking current rankings and recommendations from the BHS model we see the following picture:
i.e. still no Buy recommendations but a lot more positive green short-term HA signals.
So, let’s take a look at the rotation graphs:
that are still not showing strong longer term strength with no assets showing a positive rotation having relative longer-term momentum greater than the benchmark AOR Fund. A check of the HA Charts shows promising shorter term strength in VNQ, VTI so it will be interesting to see if we get follow-through into the top right quadrant. Over the past few weeks we have added shares of TLT to the portfolio and, although this asset class has performed well and continues to show reasonable short-term strength it is falling behind a little in terms of relative longer term strength (right to left movement).
Based on the above information I am going to sell holdings in DBC in this Tranche 1 and use the cash to buy a few shares (~25% allocation) in the benchmark AOR fund:
This will leave me with ~75% of available funds in Cash to invest when we finally see some new Buy recommendations. A little over 50% of the total portfolio value will then be sitting in Cash.
Hello David. I have an interest in seeing how various crossover/crossunder patterns might work for me. (1) Regarding EMAs: What is the definition of “X/Os” and of “X/O Price/SMA” and how do they help you make investment decisions? (2) What is the value of the Rank Trend Table. Thank you for your valuable work. John
John,
The “wisdom” assumes that the EMA defines the trend and that if the short-term trend (shorter EMA) lies above the longer-term trend that the (bullish) trend will continue and that we should be long on that asset. The converse is also true, therefore, for a long-only portfolio, one would sell when the short-term EMA crosses below the longer-term EMA.
The argument is similar for a simpler SMA cross-over (X/O) i.e. we would go long when price lies above the SMA and exit when it drops below the SMA.
Of course, these systems are sensitive to the lookback periods chosen for the MA’s – and the efficacy of the “system” will depend on the lookback periods chosen and the “real” behavior of the market at different periods in time. As with any system, a given set of parameters will work well under some market conditions – and not so well under others. System diversification is probably the best way to “smooth” these discrepancies.
The default values used in the Kipling workbook are relatively “robust” numbers that “average” acceptable performance over long periods of time (using past historical data for testing) – but there is no guarantee that they will perform well going forward.
Get back to me if you have any other questions.
Regards
David
Hi David. Oh shucks! I didn’t want to hear your statement: “As with any system, a given set of parameters will work well under some market conditions – and not so well under others. System diversification is probably the best way to “smooth” these discrepancies.” I keep searching for something REALLY simple
that works all the time but never can find it. Oh well………
Thanks for your good reply. John
John,
The “holy grail” system requires insight/knowledge/prediction of future market behavior. Unfortunately, at the moment, my crystal ball is in the workshop getting fixed – this is a common occurrence as a I seem to drop it at least once a week 🙂
David