FEEL TO PRINT THIS DAILY REPORT


"An Approach to Successful Stock Trading Combining   Company  Fundamentals with Chart Technicals"

Comments or Questions (TSM Service, Methodology, Performance or Your Success Stories Go Here - (rmiller@triplescreenmethod.com)

 


Friday's TSM Report (11/24/17)

.....  INDEX .....

Weekly TSM Stock Picks
TSM Open Trades
Open/Closed Naked Puts

TSM 10 Trading Lessons

TSM Performance (56 Quarters)
Subscribers Introduction
Building a Day Trading Edge
High Return Screens
Trader's Corner

*****
Inter-Market Linkages

Trader's Corner
*****
FaceBook Postings

Triplescreen's Group Page



Market Behavior - S&P 500


11/22/17:
 The S&P formed a narrow range candle on pre-holiday volume.  Nov/Dec are the two best months to be in the market.

 

 

 

Market Health Measures: This link provides a look at the yield curve chart. Watch for it to invert, and look at the inverted/flat curve that preceded the 2000 and 2008 crashes.  Here's another link that monitors the Conference Board's Leading Economic Indicators (LEI) , our most accurate forecast of economic health.  Notice below how each recession (the gray bars) was preceded by a downturn in the LEI.  Read Forbe's Ken Fischer's take on this measure here.  Finally, take a look at change in corporate profits.

 Here's another important article by Steve Reitmeister of Zacks.

 

Hedging with a Portfolio using Inverse ETFs (Find article here)

10/26/12 .... Eliminating Long-Stock Risk with Protective Puts (the Married Put) ...This is about buying a put in addition to stock as a vehicle to reducing/even eliminating the downside risk.  - Find article here and trade examples.

 

05/13/17...Hedging with the VIX...One of the hedge vehicles that you hear discussed today is the volatility index of the S&P's options, the VIX. As shown in the chart below, the VIX is a linear function of the % DrawDown of the S&P, especially so up to 20% DrawDowns. The relationship forecasts that a 10% DrawDown in the S&P will result in a 5.7 point increase in the VIX. Trading at 10.4 at Friday's close (05/12/17), this is more than a 50% increase in the VIX, i.e., the percentage change in the VIX magnifies the change in the S&P.

This means that I might buy $50,000 of VIXY (short-term VIX ETF) and expect a $25,000 gain to offset some of my portfolio loss.

This site shows some of the VIX ETFs available to trade: here. Another interesting article: How to Go Long on the VIX Index.

 


05/30/17...Hedging with Leveraged Inverse ETFs (TZA)...I have been considering using Inverse ETFs to hedge my gains in a taxable account, specifically using Call Spreads on TZA (the 3x inverse ETF on the Russell 2000). One would prefer a hedge to be relatively inexpensive (the cost of insurance) and leverage any downside move in a portfolio. Leveraged inverse ETFs seem to be a good answer to me, but as you'll see here, its effectiveness really boils down to a question of timing.

These leveraged ETFs are based on their underlying's futures and are rebalanced daily. So everyone understands, let's take a look at an exaggerated 8-day sequence where the underlying ETF went up 10% then down 10% four times. Starting at $100, the underlying would be worth $96.06 at the end of the 8 days. Note, it doesn't end up where it started because of the impact of compounded returns.

Now look what happens in that sequence with a 3x inverse vehicle, i.e., one that changes by 30% each day. At the end of the 8 days, this vehicle is worth $68.57. It lost 41.43% of its value. That's the downside to leveraged inverse funds: you have to be right about the timing of the hedge or it will be ineffective. Note, all leveraged inverse funds will lose money over the longer term. For that reason, one shouldn't buy and hold them over time. You must combine their use with a market timing strategy.

The chart shows the IWM (ETF for Russell 2000) performance since 5/18/10 in blue. Red shows the performance of an IWM 3x inverse ETF, like TZA, valued at $100 on that start date. Within 15 months, IWM experienced a major downturn, but by then our inverse ETF was ineffective: it's value went up, but not to a degree that made it profitable relative to our 5/28/10 buy price. It did, however, profit over the first month (more than 30%) when IWM suffered minor pullbacks.

Contrast that behavior with putting another hedge on in June 2015, a time when our market timer (maybe the beginning of the poorer performing 5 months of the year) told us to hedge our portfolio (green line). Within 2 months, IWM dropped 14%, while our hedge gained 54%. Within 8 months, IWM had dropped 25.9%, while our hedge gained 110%. Clearly, these type hedges work, but they have to be combined with a market timing vehicle, i.e., when you have evidence that the market is turning over, that's the time to put on the hedge.

Doing this with options on the 3x inverse ETF just increases our leverage and lowers our cost.

05/16/17...Monthly Analysis of Value Line 1700...This first table shows the monthly performance of the equally-weighted, Value Line Arithmetic Index since May 1984. Unlike similar treatments that track the Dow or the S&P - both large cap indexes the Value Line Index is unweighted by company size and consists of a wide range of company sizes (1700 stocks in all). This index also reflects more what TripleScreen is actually trading. Several points are obvious in this data:

1. The top 7 months of the year, based on performance, were Nov through May; the contrast is remarkable: $50k invested in the good 7 months grew to $2,874.269 in these 33 years, while $50k invested in the bad 5 months fell to $35,270.

2. December has been a winning month in 29 of these 33 years; next best has been November at 24 and 9 (clearly December is a special month for the market).

3. There were 2.29 as many winning versus losing months in the good 7 month period and only 1.16 as many in the bad 5 months (clearly, the bad 5 months puts the market winds in your face).

4. There also were three times as many months returning more than 5% than losing more than 5% (46 and 15) - and nearly twice as many high performing months; whereas, that ratio was equal in the bad period (24 and 24).

5. Worst month to be in the market was September - it and June were the only months to have an overall losing sum for these 33 years.

6. October was the only month to have losses greater than 20%, and it had two (1987 and 2008).

7. Over this period, the market has performed better under democratic administrations (Obama averaged 18.4%, Clinton 14.4%, Reagan 13.8%(only a portion of his two terms), Bush elder 12.6% and Bush younger 4.8%).

8. The 1st year has been the best in the Presidential cycle, averaging 199%, while the 2nd year has been the worst at 39%.

Based on this data, I have always felt that I was better off shifting my 401k funds into bonds during the 5 month period. Though the 5-month period is difficult, the impact on short-term trading is less severe than just holding over a longer term.


In the chart, I included the option where one left the $50,000 invested every month. It would have turned into $2,027,513 in the 32.6 years. That's 29.5% less than you would have accumulated being invested only in the best 7 months each year (Nov 1 to May 31).

The compounded annual growth rates (CAGR) are as follows: 7 month invested (13.1%), 5 month invested (-1.1%), 12 month invested (11.9%).

What's even more important is that the 7-month investment strategy would have experienced a 30% max draw down during this period; the 12 month strategy a 53.9% draw down; and the 5 month strategy a 54.9% draw down.

Obviously, on all accounts, we're better off being in the market long term on a 7 months a year basis. Also, you eliminate the market risk entirely for the 5 most dangerous months of the year.

Too, I want to emphasize that short-term trading, though not immune, does not suffer as badly during the down 5 months each year because TSM's emphasis continues to be trading quality stocks (those with upwards earnings revisions), in strong industries (top quarter of 265 industries), that are pulling back to established areas of support. In 2008 the S&P experienced a 38.5% draw down, while TSM made 450 half position trades (329 or 76.6% winning trades) and returned 111%.

Let's say that you have a diversified portfolio, say worth $1 million and you want to protect it during the bad five months of the year (say from a 5% pullback, which would cost you $50k). You're in a taxable account so you cannot change your portfolio mix (say go to bonds) without incurring a tax on your gains, which may be substantial this year. What do you do?

This second chart breaks down these good/bad period returns of Value Line by year. What it shows is what staying out of the bad five months does for you is to avoid the risk of the large fall, which have all occurred during those months. Most years though the bad five months just had a smaller return.

Daily TSM Long Trades

Note, I don't make every one of these trades myself, though I do make many. Trade results are hypothetical. Think of TSM results as what's possible from these forecasts. Note, it's highly unlikely that you (or I) will consistently match these results (because one would have to be sitting in front of a computer screen all day long while the market's open). Having said that, I do actively trade TSM screened and forecasted stocks for my own accounts (TradeStation).

Links of Interest

History:  Dividends, Splits

Company Profile | MSN Stock Ranking | Schaeffer Research | IBD Stock Check Up

Daily Chart | Daily Point & Figure Chart | Other Key Statistics | Zacks Fundamentals


and Next Earnings Report Date

Stock Picks for Tomorrow

See Article supporting use of 8-period moving average for entry. I use this to enter when a stock is falling at the open.

 

 + EPS revision over past week: 

HP BBG AMAT RH ANDX MLCO

Zacks Ranking from >2 to 1

(see this for explanation as to the power of this approach:  Back Tested this grouping with the 2-period RSI )

 
TRTN CNTY WTW

TSM Stocks that Became Zacks 1 Ranked in this past Week (updated in the morning)
11/24/2017 Date Became a Zacks 1
DXC Nov 14,2017
TRTN Nov 14,2017
KRO Nov 15,2017
CNTY Nov 18,2017
JBL Nov 18,2017
WTW Nov 18,2017
MKSI Nov 21,2017
NTAP Nov 21,2017
OC Nov 23,2017
CMI Nov 24,2017
KBH Nov 24,2017

 

TSM Stocks (VGM "A" or "B", Zacks 1 or 2, Top 50 of 265 Industries)

Best of the Best

More about Zacks style grades here
 
Symbol
 
Industry
 
Zacks
 
Value
 
Growth
 
Momentum
 
VGM
CMI 4 1 B B A A
BCC 13 1 A A B A
UFPI 13 1 B A D A
VSH 15 1 A A F A
PPC 20 1 A B B A
TRTN 20 1 B A A A
CNTY 22 1 B B A A
ACCO 4 2 A A A A
GOLF 27 2 B B B A
THO 1 1 B A F B
KLAC 4 1 C B B B
MKSI 19 1 C B A B
MBUU 27 1 B D B B
PII 27 1 C B D B
WLK 28 1 B C A B
COHR 4 2 D A B B
LOGM 18 2 D A D B
FTV 23 2 C B B B
MCHP 26 2 C B B B
NXPI 26 2 C C B B
ARW 28 2 A F B B

 

*****************

4th Quarter:  54 wins & 4 losses (93.3%) for $97.47 points

3rd Quarter:  44 wins & 6 losses (88.0%) for $48.22 points

2nd Quarter: 51 wins & 10 losses (83.6%) for $32.71 points

1st Quarter:  60 wins & 1 loss (98.4%) for $91.42 points

 

Open position(s):  CAT(1/2), CAI(1/2), MCHP(1/2), WTW

Entry Points for My Possible Buys:  CMI(<$159.56)


These trades I have made over the week so far:  $2,626 Profit in 21 wins & 9 loses

More TSM Watch Lists
  • Ex-Dividend this week:     

  • Earnings Report this week (look for GAP opening): see list in TSM Screen Membership Tab of this week's TSM report:      

  • TSM Stocks with Earnings Estimate Increases > 5% for Current Quarter (last 4 wks):  
    HFC CRC ENTG ANDX LOGM FCX WLK TRTN RH CNTY
    CPN PPC YRD HP FB VLO AMAT SODA PII PSX
    BCC ANDV MLCO GOLF WGP FTNT NTAP SPGI NVMI OC
    BBG ALSN RUSHA ROG OSK KRO EXAS WYNN ACCO  
    EC MKSI CWH SGH TEL DXC SFM CHUBA NXPI  

***********

  • TSM Stocks with 5% or more of its float being shorted:  

  • TSM Stocks with Insiders buying shares:  

  • TSM Stocks with ESP (Zacks Earning Surprise Prediction); Find more about ESP here.  ESP >1% for TSM stocks:       Most accurate analysts think these stock's earnings should be higher 
    HFC EC HP RUSHA LOGM FCX AMAT SFM SPGI PII
    CPN CRC ENTG CWH FB VLO TMUS TRTN PGR NVMI
    BCC PPC YRD GOLF WGP FTNT NTAP SODA WYNN ACCO
    BBG ALSN MKSI ROG OSK KRO EXAS WLK CHUBA NXPI
    ANDV ANDX MLCO SGH TEL DXC RH NFX DHI CNTY
                    PSX

Potential TSM Naked Put Trades

TSM Put candidates are supplied each evening and show the trade that could have been made at that day's closing, but barring a significant overnight occurrence, these Put trades should still be available the next morning.

The following chart shows the relationship between initial % Downside protection and days to expiration when the Short Put trades were executed.  From 2011 through 2013 (to 7/16/13) 117 trades were made (17 losses) for about $41,000 in profit with average annualized return of 16.6%.  Below, the green points are winners (size of bubble related to size of win), while the white points were losers.  The following points can be made::

    All losses were either trades made with longer than 25 days to expiration or falling below the red regression line; using the equation in the chart, with 10 days to expiration, I need at least  10.6% {(0.0044(10) + 0.0619)x100} downside protection--for 20 days, I need 15% and for 25 days, 17%;

Potential Written Puts for 11/24/17
(I require Puts to have Delta < 0.15 - 85% probability expire worthless) 

Note, these are available Puts for TSM stocks, not necessarily ones that I recommend

Special Report:  Writing Puts for Income

Naked Put Strategy:  Find articles that I wrote about the benefits of writing naked Puts (really cash-backed Puts) below--especially if you're trying to allocate money conservatively at a higher rate of return.  That's right, writing Naked Puts is a conservative play.  Believe it or not, it's even more conservative than buying stocks outright.  Envision five market scenarios for a given stock over the next 30 days: stock goes up a lot (>10%), stock goes up a little (to 10%), stock stays the same, stock falls a little (to 10%), stock falls a lot (>10%).  Well if you own that stock, you make money with the first two; if instead, however, you had written the 10% Out-of-the-Money Put, you make money in the first four scenarios and don't lose as much in the fifth.  Enough said.

 

Articles about Selling Puts:

  • Trading Options for Income here

  • Tips on Writing Puts here

  • A Strategy for Greater Returns here

Married Put Strategy (MPS Trades):  TSM stock trades (building capital) are executed over the short term: on average, each trade takes 6.7 days. The TSM Short Put trade (generating income) averages less than 30 days.  The third leg of the TSM system, the Married Put trade (income in an iffy market) will last 6 months or longer.

 

The MPS marries a long TSM stock position with a long in-the-money Put.  It's goal is to generate income and capital in a risk free way.  It's a simple concept, probably best seen by an example.  See the MGA trade details in the above link.