LOL!'s Market Timing Newsletter

[LOL!]

Today was significant for the portfolio because the ETF MTUM dropped below where I last sold and small-cap value ETFs are up from where I bought them, so my transactions in August are very profitable. 606 Bond funds have also dropped the past few days in a relatively big way for bond funds.

I have been tracking the alternative outcome of doing nothing and it had been winning until today when current portfolio popped significant ahead with a 5-figure difference in outcome, so today is my lucky day!

I made a few minor trades today: selling some IJS to pay a credit card bill and buying some bond ETF shares with the dividends paid today. Otherwise, it is steady as she goes. Thanks for reading!

 

[NW-Bound]

Regarding the earlier exchange on this thread about actual return of trading activity, indeed the difference from the benchmark will be small even if one jumps in/out of the market and varies the AA by 10% as long as the stock composition still resembles the market.

Much higher diversion from the benchmark occurs when one keeps the AA deviation for longer periods, or picks stocks to have a different composition than the total market. The difference of course could be good, or bad. And it can be much more than a few percents.

 

[LOL!]

Regarding the earlier exchange on this thread about actual return of trading activity, indeed the difference from the benchmark will be small even if one jumps in/out of the market and varies the AA by 10% as long as the stock composition still resembles the market.

Much higher diversion from the benchmark occurs when one keeps the AA deviation for longer periods, or picks stocks to have a different composition than the total market. The difference of course could be good, or bad. And it can be much more than a few percents.

Yes, the math checks out.

 

[NW-Bound]

The math does check out.

For example, I am looking right now at my trading account, which holds 40% of my investable assets and is my largest account. I have been selling covered calls on all positions that are most volatile, such as information technology, biotech, EM.

The idea is to make a bit of money, and to reduce volatility of my account too. To that 2nd goal, yesterday for the 1st time, I bought a slightly out-of-the-money put on the S&P. That put purchase was done on a lark as I usually only sell options, mostly covered calls. The put only covers 1% of my portfolio, and only cost me a few hundred bucks.

I am looking at the brokerage screen right now. My largest position is down -2.45%, while the S&P is down -0.65%. The whole account is down only -0.25% due to all the options. That large position is completely hedged by covered calls.

Long-term return is unknown, but the hedging by options works for me right now.

 

[LOL!]

And another day like yesterday: MTUM down, IJS up, bonds down! So a BIG day for me since I am overweight in small-cap value and under weight in MTUM. 961

I am not sure what's going on, but it almost seems as if a state actor is in here manipulating stocks. The difference between MTUM and IJS in the past 2 days is more than 8% which is HUGE for a pair of US stock ETFs with dozens of companies in each of them (124 for MTUM, 472 for IJS). My portfolio is weighted to the right side of this action for a change, but it makes me want to unwind soon.
Here is a chart from 9/3/2019, so the past week.

Does anybody have any idea what is going on? Is it the probe of giant tech companies by the 50 states which is trashing MTUM?

 

[NW-Bound]

Could this be the effect of Michael Burry? He recently opined that small cap stocks were neglected and undervalued.

And indeed small cap value stocks have been trailing the S&P for a while. The action of the last few days is nowhere near enough to close the gap.

 

[NW-Bound]

My equity positions go up more than 1.5% today. Not that impressive, if one considers that the Russell 2000 goes up 2.12%. But on the other hand, less than 1/5 of my positions are small cap. Just one of those lucky days.

Diluted out by the 63% stock AA, plus all that hedging with options to reduce volatility, and I have 0.88% left all in. Not complaining.

Nearly all the options are in-the-money and will get exercised next Friday, 9/20, unless the market crashes. I will have my stock AA reduced to 50% as I wished.

I am feeling greed coming on now, wishing I had gone offensive instead of defensive. Need to remind myself to stay with the plan.

 

[LOL!]

After a one-day pause, US small-cap value continues its upward slog this morning. It has quite a ways to go to catch up with the YTD numbers of US large caps and momentum equities still. I'm sure I will have to rebalance before too long. 362

 

[LOL!]

In the past few days US Total Bond Index has dropped about 1.4% while the Short-term corporate bond index has dropped only 0.3%, so that is a worthy disparity to make a trade on. So I sold some SPSB and bought some SPAB a moment ago. With the FOMC meeting next week maybe the slide in Total Bond will abate and I can get a 0.5% or more move upwards. It isn't much, but these trades don't cost me any commissions or taxes, so a half percent here and a half percent there and pretty soon we are talking about a billion dollars. But really the way I think about this is that I missed a loss of 1% in the past few days. 413

 

[LOL!]

Update on the last trade: The recently purchased bond fund shares have gone up 1% in 6 trading sessions which is outstanding, so much much better than holding any cash. But the short-term bond funds shares I sold have since gone up about 0.4%, so the net is only 0.6% better than doing nothing.

And folks are worried about bond funds?

 

[NW-Bound]

Almost 2 weeks ago, I wrote:

Nearly all the options are in-the-money and will get exercised next Friday, 9/20, unless the market crashes. I will have my stock AA reduced to 50% as I wished.

I am feeling greed coming on now, wishing I had gone offensive instead of defensive. Need to remind myself to stay with the plan.

The market suddenly collapsed midday on Friday when the Chinese delegate on trade talks canceled their planned visit to American farms.

As a result, not all the covered call options were assigned. My stock AA is reduced, but still at 58%.

Today, the market is recovering. I will look to sell more covered calls on the more volatile stocks and ETFs that I have, and keep the more defensive stocks such as utilities and consumer staples.

 

[LOL!]

Update: So on a day like today I like to sell the asset class that I own that has gone up the most intraday and use the money to buy the asset class that I own that has gone down the most. That means I submitted an order to exchange VBTLX (total US bond) into VSIAX (small-cap value index). I intend to unwind this trade in a few days or weeks by using a different account where I will sell some other US small-cap that I own to buy a US bond index. This way I avoid any frequent trading restrictions in all these accounts. The accounts are all tax-deferred, so no tax issues from the transactions. 311

So with bond ETFs down about 0.5% and small-cap value ETFs up about 1.3% right now, it is time to unwind the above trade from last month. I've submitted an order to exchange VSIAX into VBTLX. This is not all the VSIAX that was bought last month, but it is more than half. I consider this a rebalancing move from stocks to bonds as the portfolio is overweighted in equities at the moment. 331 I will admit that if I had done the exchange a week or so ago, then it would have been more profitable, but it is hard to be perfect with market timing.

After the market close, I will look to see if I need to continue to rebalance or not.

 

[LOL!]

That last trade was reasonably profitable since the stock market dropped the past 2 trading days and bond funds went up. I just checked my asset allocation and I am a tad underweighted in equities mostly due to the 2-day drop in stock markets. I did receive some quarterly dividends and more will show up on Monday and later in the week since it is the end-of-month and end-of-quarter.

Thus, I think next week I will be buying equities with the cash and with an eye to getting my AA back in line. But there is no particular stock sector that is a compelling buy to me. Maybe MTUM? Maybe an international developed ETF?
706.

So if you have any ideas of what equity ETF to purchase, send them my way please. Thanks!

 

[LOL!]

Today (Tues) seems to be starting off as a rather odd day to me. US small-caps were up more than 1% in the first 45-50 minutes of trading, then things cratered quickly. I'll have to check the news later today.

Anyways, I took the dividend money from equities received in the past week and bought odds and ends to get back to minimal cash. 981

 

[NW-Bound]

The Purchasing Manager Index (PMI) fell to 47.8, indicating contraction of the domestic manufacturing activities (50 is neutral).

That knocked the air out of the market, right in mid trading.

 

[LOL!]

OK, thanks for that news update. It's turning into almost a 3% delta from high to low today.

 

[LOL!]

So I noticed that SPSB was trading higher today and up more than a total US bond index fund ETF which is unusual. Normally a short-term bond index ETF like SPSB does not move as much as something like AGG, BND, SPAB. So I sold all my shares of SPSB. Now with the cash I intend to buy something equity ETF that has dropped a lot today like IJS or SPSM or both. 060 I'll update if I make a trade.

Update: Bought shares of SPSM (US small-cap index ETF) when a limit order executed. I intend to hold only a day or so and will sell a similar number of shares if the price goes up, but in a different account where I already own shares. That way, no commission and no taxes either for a quick turn-around. If the shares go down, I'm not sure what I will do.

 

[LOL!]

Oh, well, bought too soon, but there is more buying of equities on the horizon, but just not today.

 

[NW-Bound]

Yesterday, 10/2/2019, the ADP report came out not as strong as expected. The Dow dropped almost 500 points.

Today, the market was in the green, when at 10AM eastern time, the ISM non-manufacturing index came out weaker than expected. That immediately knocked the Dow down 300 points.

I though of buying back some covered-call options to book the gain, but decided against it, fearing the market would drop more.

Went on an grocery run with my wife, and came back home after the market close. Found the market ended up in the green.

Crazy stuff! That's why I don't know how to do daytrading. I have been trying to do month-trading using options, and even that is plenty hard.

 

[LOL!]

Yep, it's a crazy unpredictable stock market, but what else is new?

Since MTUM has been doing better than the stuff I bought, I decided this morning to sell shares of BND (total US Bond) and buy shares of MTUM (Momentum ETF, basically large-cap US hot stocks) 534 My intention is to sell when I've made $500 which might happen (hopefully?) by the end of the day.

As for the SPSM that I bought on 10/1 which subsequently tanked on me, my position is now in the black, so it has surprisingly recovered at least for now.

 

[NW-Bound]

Because I cannot tell what the market is going to do day-to-day, I use options to slow down my trading frequency. I sell out-of-the-money covered calls on stocks I hold that are outperforming the market, betting that they will revert to the mean. I sell out-of-the-money cash-covered puts on stocks that are currently weak, but something that I do not mind owning if I get assigned.

Currently, I am short covered calls on semiconductor stocks, and cash-covered puts on some healthcare and pharmaceutical names.

My intention is usually to let them expire at the month end, and to take assignment if that happens. I figure being forced to sell high and to buy low is not a bad thing.

However, I have been closing them out to book gains when the market goes crazy as it has been doing recently, in order to take short-term gains.

 

[LOL!]

I gotta post an update for this morning's trade while things look good and before they head down: Almost, almost there!

Update: I've decided that I cannot stay overweighted in equites through the weekend, so I have to sell something here in the last 50 minutes. I cannot sell the MTUM bought earlier today and buy something else with the money without violating the free riding rule, so I will sell some SPTM (total US stock market) in the next 50 minutes in the same dollar amount of the MTUM that I was intending to sell. By posting that I am going to sell will actually make me go through with it. I won't update this thread until after today.

 

[LOL!]

Things don't always seem as they appear is the message of today. On Friday, I made a trade that netted about $500 which was what I was trying to do, but ...

I sold BND and MTUM, then sold SPTM to get back to my desired 60/40 asset allocation. 806. No commissions and no taxes along the way since all in tax-deferred accounts. On the face of it MTUM gained me the $500. However, BND went up after I sold shares and I sold shares of SPTM below the high of the day, that is, too soon. If I had simply held BND and SPTM to the market close, I would have gained another $150 or so, so net was about $500 - $150 or $350. Now money is money and I am not complaining since this little one-day gain is like getting an over 200% yield on BND, but there is a lot of risk involved, so don't forget about the details behind the scenes.

 

[LOL!]

I meant "I sold BND and bought MTUM, then ..." in the previous post. Sorry.

 

[LOL!]

Used the cash created by selling SPTM on Friday to buy BND today at a lower price than I had sold BND for on Friday.

So I'm back to no cash and my desired asset allocation.