Dump it Here

[Skate]

Read a few of Duc's post & read the moderation of his words
@ducati916 knows the shift has been on for a few weeks now & his projections are solid (his posts align with a few of my technical indicators). The shift is not like a light switch (on or off) but more like a dimmer switch & it's turning clockwise, the room is getting brighter.

@ducati916 nailed it
I'm keeping this quote from the Duc as it explains the current market sentiment of the ASX. The extremes have receded but the road we're travelling on still has a few potholes with the occasional hill to climb. Till playing with the dimmer switch ceases the room won't get back to full brightness (if that's even possible in the short term)

The market has been on a sprint. Markets are marathons. When they sprint, they also pause for breath. The pauses do not indicate a reversal is imminent. Simply a pause is a pause.

Negativity always reigns supreme when market sentiment starts to fluctuates
Waiting for clarity can be very costly as change can sneak up in small increments. Typically, a change in market sentiment starts slowly, similar to "boiling a frog in cold water" some traders will not perceive what's happening in the markets till it's too late to capitalise. Bull markets always follow bear markets but vary in magnitude. When markets start to change they can change more sneakily at times when battered traders least expect it.

News
With expectations already so low, any new news can boost the markets, even bad news that's lower than expected can also lift the markets. What we are experiencing at the moment is profit-taking when resistance is nearing. With each market pullback a "dead cat bounce" or it's a "sucker’s rally" gets thrown around like confetti. Over emphasise of bad news spins a potential positive into a negative because it better suits the current narrative. Those blinded by negativity have a habit of craving "clarity" that a change has begun. Those waiting for "clarity" have already missed some early big gains.

Duc's words
"The market has been on a sprint. Markets are marathons. When they sprint, they also pause for breath. The pauses do not indicate a reversal is imminent. Simply a pause is a pause".

If I may add to Duc's quote by saying
Markets are always forward-looking as well.

Skate.

 

[Skate]

Has anyone conducted research on correlation (it would save me a lot of work)
I've been thinking of the correlation between the stock I tend to hold as a trend trader & the high correlation of positions @over9k is currently holding. As a trend trader, is there a way to use negative correlation as an indicator?

Various charts
Looking at the myriad of charts @ducati916 has been posting I'm seeing correlation everywhere. What I'm after is a reverse correlation or more bluntly, a negative correlation between securities & if it can be coded as an indicator. I'm thinking along the lines of using negative correlation in picking the turn of sentiment rather than using a combination of the garden variety indicators.

I’m a trend trader
I trade a multitude of portfolios & each portfolio holds a large number of positions. A portfolio is not diversified simply by holding many securities, I know this, particularly when those positions tend to move in the same direction at the same time. It's the very reason "I win big & I lose big" because of the high correlation of positions.

Evaluation time
With the start of the "New Financial Year" it’s due time for me to evaluate the performance of all my strategies & evaluate whether there is a way to insulate against future shocks, similar to the one just experienced.

They tend to move in unison
Positions in a trend all tend to "move in the same direction" thus having a high "correlation". There are benefits of diversification, I accept this. It would be an advantage in having a suite of positions that don't rise & fall simultaneously.

FYI: Correlation
Correlation is when the prices of shares move in similar directions. Negatively correlation is when the prices of shares move in the opposite direction. A highly correlated portfolio means when one security tanks, those highly correlated will do the same. COVID-19 was a wakeup call because I know now that it was "not the time" to be holding a stack of positions that had high levels of correlation resulting in losing 70% of my yearly profits, it was hard emotionally.

Correlation & negative correlation
To give you an example: Holding all the Australian Banks they are likely to move in the same direction & you may think you’re diversified by holding several of them, but this becomes redundant if they all behave identically. What we need to find is negative correlation stock that behaves exactly the opposite. Why? My thinking is that we could use negative correlation as an indicator in much the same way as we use an Index Filter to our advantage.

I’m open to suggestions

Skate.

 

[over9k]

Hey skate - here's a couple of posts I made in some other threads. Ignore the pricklyness/don't take them as directed at you or anything as they were a bit of a ragepost at another forum member.

They explain my entire play since I joined this forum so boil the kettle, it's a bit of a read.






Let's go back to before coronavirus for a moment.

Before coronavirus hit, there was already a long and consistent trend of business and work moving away from face to face/bricks and mortar and to distance/online based on purely economic reasons. The ability to order items direct from the manufacturer online, the ability for even a middle-man to sell items from a massive warehouse with rent a tenth of the price per square foot and massive economies of scale to boot, the ability for a business to reduce its necessary office space and therefore rent and fitout costs by 20% if its employees were to stay home/work from home just one day a week (let alone all of them), the ability to talk to someone halfway across the world in seconds virtually for free on a zoom call vs having to fly what could be teams of people for a day straight, pay for all their flights, food, accommodation, lost work, time away from home and so on and so forth were all major competitive advantages and resulted in half the bloody economy undergoing a structural readjustment based on nothing other than economic/cost reduction grounds.

This is the very trend I have been talking about ad nausea since my first comments in this thread.

What coronavirus has done is put that trend on steroids. We haven't seen 5% more people working/ordering stuff from home in the last 6 months, we've seen 10x it. Or whatever. I could post up a whole stack of data here (and believe me, there's no shortage of it out there, heaven knows I've spent long enough poring through it all) but the exact numbers don't actually matter all that much - what matters is knowing that it's a massive increase that isn't going to reverse and that's all we really need to worry about.

So from there, we ask ourselves, why? The answer is twofold, but both answers share the same source. Firstly, there's the lockdowns. Government imposed lockdowns literally required that many people work and buy from home. Secondly, human behaviour. Many both workers and businesses have voluntarily decided to keep everyone working from home because A: people themselves don't want to get the virus and B: getting the virus stops you from working. Even if you didn't actually care about your employees, keeping them uninfected makes sense from a purely business point of view. What is key with these two realities is understanding that even if all government imposed lockdowns were lifted, employees and businesses are VOLUNTARILY avoiding human contact. This means that government imposed lockdowns or not, the end result is still very similiar: Avoidance of human contact, i.e working & ordering from home if at all possible.

And you can prove this to yourself quite easily - if it was only about the lockdowns, why hasn't stay-at-home tech fallen off a cliff once the lockdowns have been lifted? Why hasn't everything else taken off like a gunshot? Why haven't we seen an inversion of what we saw previously?

There is a reason why what I have dubbed "stay at home tech" has outperformed all the major indices massively. There is a reason why basically all markets except stay-at-home-tech have tanked every single time bad virus headlines/data has hit the news and stay-at-home-tech has often actually increased on those days and that reason is that it is the VIRUS which is dictating human & business behaviour and therefore markets.

But the deeper point that people like duc are failing to recognise is that the coronavirus has not diverted a previous trend or created a new one - it has simply accelerated something which was ALREADY OCCURRING ORGANICALLY.

There is a reason why all the airline execs are saying that business travel will never return to previous levels. There is a reason why the airbnb ceo is saying his business will never return to previous levels. There is a reason why so many companies are mothballing entire floors of offices or buildings. There is a reason why office rents are down 25% and outright purchase prices are down 40%. There is a reason why jets are being retired and scrapped en masse. There is a reason why chief exec's of office furniture companies are saying their business will never return and they're attempting to pivot to home office fitouts. There is a reason why sales on ebay & amazon are absolutely stratospheric even when their bricks & mortar competitors have been allowed to reopen, and the reason is exactly the same for all of these things:

THIS WAS ALL GOING TO HAPPEN ANYWAY.

This is NOT a divergence from a previous trend, this IS the previous trend. It's just been put into overdrive and 5 years of change has occurred in about 5 months.

This is not to say that this is going to continue in perpetuity. I have never claimed that things will. Once the virus, and therefore the reason for the ACCELERATION of this phenomenon is gone, plenty of people will return to the office and plenty of money will go back to consumables like food rather than tv streaming services or what have you. But as long as the virus remains, so will this acceleration of this ALREADY OCCURRING trend.

But once a vaccine is found, things are NOT going to return to their pre-virus levels because those levels WERE GOING TO CHANGE ANYWAY.

I'll bet you any sum of money you like, absolutely anything, that zoom, amazon, ebay et al will NOT return to their pre-virus levels. Any sum you like.

Anyone who thinks that this is some kind of aberration and/or will simply be reversed once a vaccine is found, or that a single day of bounce in the rest of the market in response to, say, better-than-expected employment data disproves my assertion, is utterly, utterly clueless.

Consumer discretionary, flat for a month:


Consumer staples, flat for almost three months, down 6% in the last month:


Energy, flat for 2.5 months and down 15% over the past month:


Healthcare, flat for almost 3 months:


Industrials, done SFA since the end of april and down 10% over the last month:


Materials, flat for just over a month:


Utilities, flat for three months and down 10% over the last month:


Real estate, flat for three months and down 7% in the last month:


Even communications is flat for the last month after its run up until start of june:


Meanwhile, tech has done almost nothing but climb since the march slump and is up over 50% in that time, 20% in the last three months, with 8% of it being just in the last month:


And my "stay at home tech" like zoom:


Ebay:


Amazon:


Are up 100-150% since their march lows and 20% over just the last month.


I said a month ago when I joined that the U.S would see a 2nd wave/2nd slump. Since then, consumer discretionary is flat, consumer staples is down 5%, energy is down 15%, healthcare is flat, industrials is down 10%, materials is flat, utilities is down 12%, real estate is down 7%, and communications is flat.

Meanwhile, tech is up 3% and my stay-at-home tech is up 20%.

And wouldn't you know it, it was basically bang on a month ago that the run we saw (in some sectors) up until the 8th of june reversed at the exact same time that the virus cases started spiking:



So are you still going to sit here & claim I'm wrong and that this is all just one giant coincidence? That the virus data has nothing to do with anything when *nothing* except tech has gained since the reopenings, and most of the indices have actually fallen? All of which flipped trajectory at the exact same moment (like, to the day) that the virus case trajectory also flipped?

You still want to sit here & claim it's all a giant coincidence and that there's no trend here?



I then followed this post up with my personal holdings:


It's not gambling frog, I've been a bit more sophisticated than just eyeballing them. You might have noticed that here's a few names conspicuously missing. I do not hold apple, facebook, google, or slack for example.

Here's everything:



Iirc I've had one red day in the last month. One. Even today was green whilst the djia dropped 1.5%.

I've been more than open about what I hold/buy & why - if people want to ignore me then that's fine, but as far as I know, my returns have been miles above everyone else's.


It is not a coincidence that this all flipped trajectory at the exact same moment the virus case numbers did. I've been calling a 2nd slump/2nd wave since I joined this forum and have received little more than dismissal and ridicule for it. Yet, every other sector is between flat and down 15% over the last month vs my portfolio being up 20% and I have no intention to sell as I firmly believe that it is the virus which is dictating ALL of this (and I've explained why) and the virus is not going away.


I'm a geopolitics/governance and macro economics/developmental economics guy by training (I have degrees pouring out of my ears by this point), so I see some things miles before the numbers guys' models tell them what's going on, same as their models tell them things that I don't know. Both sides always know something the other doesn't.

It's taken me WEEKS (and actually months if you count all the stuff I was working on/figuring out prior to the virus) of poring through data, reports, presentations, applying my own understanding, and even a bit of number crunching for me to get to this point. I have not just bought this stuff on a whim. I could go into why I have chosen these particular stocks one by one if you like and would reciprocate in kind with your reasons why you hold them, same as I/we could go into why I haven't chosen other stocks like apple or facebook which one would assume would be included in a portfolio like this if you didn't know any better.

I also have holdings here in AU but aside from kogan (the reason for ownership should be obvious for) they're travel/aviation, iron ore miners, and gold miners, so a very different kettle of fish. Same type of thinking applies though.

Let me know if you're interested

 

[martyjames]

Hi Skate

I was thinking kind of along similar lines over the past few days. Couple of thoughts - 1.In April and May most long only trend following systems started spitting out a ton of buy signals - as your Action Strategy shows, you opened a lot of positions on 11 May. Can the number of new buy signal generated per week actually be turned into an indicator of some sort. When this indicator drops the market is turning possibly..
2. Use the relative strength of different sectors (ASX indexes) as an indicator - eg defensives v tech stocks etc

anyhow just a couple of random thoughts!
cheers
Marty

 

[willoneau]

Hi Skate , aren't you already using neg correlation with your GTFO indicator?

 

[willoneau]

I am thinking that you need to have different instrument than stocks that you can trade with your system that gets you in when you have to get out of stocks.
One example that comes to mind is a neg correlated EFT that you buy when you get the GTFO indication, or maybe gold?

 

[willoneau]

By the way it has also got me thinking about it, now to go do some research.

 

[over9k]

Depends on the sector as to what your GTFO indicator would be willon - you'll probably have to be more specific and even then, likely need a specialist sector X trader to get a proper answer anyway. Nothing ever happens in a vacuum either so the GTFO indicator for sector X might actually be found in sector Y - this could be as simple as when thing X always trails/is closely linked with thing Y so if something happens in Y, you nuke your positions in both X and Y.

 

[Skate]

I am thinking that you need to have different instrument than stocks that you can trade with your system that gets you in when you have to get out of stocks. One example that comes to mind is a neg correlated EFT that you buy when you get the GTFO indication, or maybe gold?

@willoneau I was thinking along similar lines. I haven't started my research as I was hoping this has already been canvassed. Using BBOZ (Betashares Australian Equities Strong Bear) might be my starting point. I should also point out the "GTFO indicator" has inbuilt lag (by design) & it works superbly under "normal" trading conditions. I'm seeking to add an additional layer of protection as an early warning indicator (similar to a tsunami early warning device)

Correlation is the issue

I also have holdings here in AU but aside from kogan (the reason for ownership should be obvious for) they're travel/aviation, iron ore miners, and gold miners, so a very different kettle of fish. Same type of thinking applies though.

Easier to simply buy the ETF. Given the signalled under-performance, you'll get a fair bang for your buck this way as the sector generally is underpriced as compared to some individual stocks.

Let me say straight off the bat: Holding "stay-at-home-tech" is currently a smart move & profitable. COVID-19 has given everyone "fair-bang-for-your-buck" as Duc has mentioned. We have all enjoyed the "bounce" in our own individual ways. I'm not questioning the quality of anyone's portfolio but rather having a technical indicator to pick the change in market sentiment with reduced lag.

As a scenario
Trading a variety of trend following systems have been profitable over the last 5 years but could you imagine if my strategies weren't mature or not being in considerable profit when COVID-19 hit (I was lucky in both respects). Imagine if I started my trading journey at the beginning of this year the COVID-19 flash crash, it would have been devastating.

On reflection what would have been a quick indicator?
Information drives the market, I just want the information about sentiment change a little sooner than most, is that too much to ask?

It's an idea, but it a measure of something entirely different

Can the number of new buy signal generated per week actually be turned into an indicator of some sort

"Momentum" using moving averages is common. "Strength" can be a measure of the average of new weekly highs & lows. The volume of shares being traded that are on the rise is another measure. "Market Volatility" is another great measure & my research confirms that the Aussie VIX (XVI) moves in unison with the (VIX), but using the average of the Aussie VIX to measure volatility lacks the accuracy of the alternative.

I'm at a Crossroad
It's well known that traders are driven by two emotions: fear and greed. Too much fear can sink stocks well below where they should be & when traders get greedy, they bid up stock prices way too far - there must be a precursor to gauge the change in sentiment in real-time. I’m trying to harness the negative correlation to trending stock. I'm sure @peter2 would have a wealth to share in this regard.

Skate.

 

[willoneau]

Using BBOZ (Betashares Australian Equities Strong Bear) might be my starting point.

I was looking at BEAR myself.

 

[willoneau]

Although when looking at trading BEAR all I see is buying pullbacks in a long term down trend.

 

[Newt]

Must confess did (hypothetically) look at my current index filter "off" periods as potential BBOZ buys last night. Was only a quick eyeball, but fairly confident the safety lag built into that filter meant no profit or losses in BBOZ - just to sluggish to enter and exit.

Suspect any hedging of this fashion would require more aggressive trigger conditions off XOA, ROC or whatever you're currently using.

2nd thought - starting to get into shorting territory, and the vast majority of the time ASX stocks trend positively.

Pretty sure Clenows "Stock on the Move" had some strong opinions on the dangers of stock correlation and strategies for handling - recommending momentum ranking for bull markets and hedging strategies for bear periods. (Disclaimer: Have never read the book)

3rd thought - Peter2 or Trendnomics are going to remind us to stop fiddling with our strategies to make them perfect any moment now....!

https://chrischow.github.io/dataandstuff/2018-11-10-how-not-to-invest-clenow-momentum/

Amazon product ASIN 1511466146

 

[Warr87]

I recommend you read his books. they are good. I can't remember if he includes hedging but he does point out that when the markets go down correlation tends to change and everything goes down. that is, the US market goes down and chances are the ASX goes down too. And in the event of a global event everything does as well. So correlaton is good for diversifying, but be aware that in an event like 2008 or COVID, in such market downturns stocks will be correlated. Clenow doesn't seem to like equities that much either tbh.

Diversifying with some FX that isn't correlated could be useful. CFDs can be used with FX too. And as for hedging with an inverse ETF, I think you would likely lose money if the market is sideways or up, and only make money if the market moves sharpely down. I could be wrong but Iwould love to be able to test a strat that hedges with an ETF and goes long with equities. The other option is to use options. You would lose your premium but if it went down you would recoup some loses. I have no clues with options though but I wish I knew more just for this fact.

 

[over9k]

Skate - if you're looking for an indicator, after the lockdowns end, look at behavioural data on the street level. I'm talking numbers of people in restaurants, foot traffic in shopping centres etc etc. These are the things which will tell you the public's sentiment reference how scared they are of the virus etc. Only once human behavioural/spending patterns start returning to normal will there be any, you know, return to economic normal.

We aren't even at the point of rolling whack-a-mole lockdowns being a thing of the past though, so this has a LOT of legs yet.

 

[willoneau]

I'm in WA , what lock downs?

 

[Skate]

Skate - if you're looking for an indicator, after the lockdowns end, look at behavioural data on the street level.

@over9k behavioural science is a fancy way of saying “why people act the way they do”. Behavioural science helps you understand how people think, how they react, how they make decisions & how you understand them more effectively.

Strategies react to patterns caused by the emotions of traders
Coding a strategy on the behaviour of individual shoppers has merit but it would be more suited to a discretionary trader. The process you described would be impossible to code.

Skate.

 

[over9k]

I don't know the specifics of your platforms or apps or whatever but surely you could use data like shopping centre foot traffic to just have a break point?

You know, once foot traffic increases by X amount, you sell.

But the lockdowns are going to be with us for a long time yet so might be putting the cart before the horse here a bit?

I'm deploying my remaining 30% cash into my stay-at-home tech even now. I'm buying some nvidia tomorrow.

 

[ducati916]

@willoneau I was thinking along similar lines. I haven't started my research as I was hoping this has already been canvassed. Using BBOZ (Betashares Australian Equities Strong Bear) might be my starting point. I should also point out the "GTFO indicator" has inbuilt lag (by design) & it works superbly under "normal" trading conditions. I'm seeking to add an additional layer of protection as an early warning indicator (similar to a tsunami early warning device)

Correlation is the issue


Let me say straight off the bat: Holding "stay-at-home-tech" is currently a smart move & profitable. COVID-19 has given everyone "fair-bang-for-your-buck" as Duc has mentioned. We have all enjoyed the "bounce" in our own individual ways. I'm not questioning the quality of anyone's portfolio but rather having a technical indicator to pick the change in market sentiment with reduced lag.

As a scenario
Trading a variety of trend following systems have been profitable over the last 5 years but could you imagine if my strategies weren't mature or not being in considerable profit when COVID-19 hit (I was lucky in both respects). Imagine if I started my trading journey at the beginning of this year the COVID-19 flash crash, it would have been devastating.

On reflection what would have been a quick indicator?
Information drives the market, I just want the information about sentiment change a little sooner than most, is that too much to ask?

It's an idea, but it a measure of something entirely different

"Momentum" using moving averages is common. "Strength" can be a measure of the average of new weekly highs & lows. The volume of shares being traded that are on the rise is another measure. "Market Volatility" is another great measure & my research confirms that the Aussie VIX (XVI) moves in unison with the (VIX), but using the average of the Aussie VIX to measure volatility lacks the accuracy of the alternative.

I'm at a Crossroad
It's well known that traders are driven by two emotions: fear and greed. Too much fear can sink stocks well below where they should be & when traders get greedy, they bid up stock prices way too far - there must be a precursor to gauge the change in sentiment in real-time. I’m trying to harness the negative correlation to trending stock. I'm sure @peter2 would have a wealth to share in this regard.

Skate.

Mr Skate,



Real time. This is set for weekly, which for you is your chosen time-frame. You can choose daily or monthly. Or you can like the x3 Elder methodology track all 3 as a comparison to your chosen time-frame.

jog on
duc

 

[qldfrog]

Skate - if you're looking for an indicator, after the lockdowns end, look at behavioural data on the street level. I'm talking numbers of people in restaurants, foot traffic in shopping centres etc etc. These are the things which will tell you the public's sentiment reference how scared they are of the virus etc. Only once human behavioural/spending patterns start returning to normal will there be any, you know, return to economic normal.

We aren't even at the point of rolling whack-a-mole lockdowns being a thing of the past though, so this has a LOT of legs yet.

I would even say look at the refusal of facts in dedicated covid threads here.
number of deaths etc would be a bad indicator as psyche is the one which matters
Maybe a headline count in a commercial network.exclude ABC SBS etc as they do not care about click numbers
But commercial: News ltd etc just track closely whatever the masses are interested in.pure business sense

 

[Skate]

Skate.