The three critical screens I use to populate Linear Regression Projection-Convolution (LRPC) portfolios are the following. Since the Gauss portfolio is up for review on Monday, I’ll use it as an example.
1, The security must show a Buy recommendation in the Position column. For many LRPC managers, you can stop right here and use this single screen to construct and manage your portfolio.
If the maximum number of assets is selected to be three, those ETFs passing the first screen are USRT, RZG, and RZV. RZG and RZV are both small-cap stocks, but one is growth and one is value so both ETFs qualify for inclusion in the portfolio.
2. Heikin-Ashi candles are the second screen and there is a high correlation between these first two screens. Both the HA5 and HA10 should be positive or coded green. In the Gauss example the three ETFs with the Buy recommendation also show both HA candles to be green.
3. The third screen I use is outside the Kipling spreadsheet. This screen is the Point and Figure or PnF Ratio where RSP is used as the benchmark for equity ETFs and AGG or BND for bonds. We are looking for ETFs that are performing better than an equal weighted S&P 500 ETF. Here is an example of the PnF Ratio when applied to USRT. Note the right-hand column of X’s is higher than the preceding column of X’s. This is the buy signal we are looking for. USRT satisfies all three requirements or passes all screens so it is included in the portfolio.
While there are additional judgments such as not purchasing ETFs in the same asset class or buying too many shares of a particular ETF, the three screens listed above will serve investors well when it comes to constructing and managing a portfolio.