Wednesday, January 18, 2017

Embracing My Inner Nerd

The importance of having effective systems cannot be overestimated.  I mentioned in a previous post that I led a one-woman revolution and deleted every single chart in my Stockcharts account.  That was 9 years of chart growth.

It took me several days of invested time to rebuild my chart framework.  Utilizing the excellent framework of the the Dow Jones industry/sector build, my charts are presented numerically, so they order perfectly in accordance with their industry/sector, are named with the industry symbol and the sector name.  It creates the perfect index from my summary sector chart book with 108 charts to each of the individual sectors that contains a chartbook for all of the sector constituents.

  "Why bother?" you might reasonable ask.  There are two reasons.

Reason 1:  In test  driving my system this week, and I found that identifying opportunities occurs in a fraction of time of my other 'system': the speed due to the indexing nomenclature that allows me to go from the one list (all sectors) to the many (all charts).

I use the following resources, cobbled together in a fashion that suits my needs:

  • Stockcharts 
  • StockFetcher--this gives more flexibility in sorting and finding stuff than Stockcharts
  • Finviz - gives great profile information and summary information but lacks OTC data and their charting is not to my liking.
  • J3SG.com--provides institutional activity.
  • ThinkorSwim - This provides great granularity for making entries/exits.  
Reason 2:  This 'system' works for me because it suits my personality.  My professional life has always required that I wallow in detail and data to make sense of it.  Any system that doesn't give me that structure, which is how I build my understanding of 'stuff' is incompatible.

In the past, I've not let my system work as intended as I didn't trust what I was seeing because no one else was talking about it.  I want to share these two quotes comes from Justin Mamis, from The Nature of Risk--I offer them because I think that they are the cornerstones of how I feel that I must go about my work.

We need, we crave, the trust and belief from others, but when information is insufficient we need trust and belief in ourselves. We need the discipline to accept whatever is available, and the experience to understand all the ifs, ands, and buts, and yet still take the risk: we need to be able to make the decision. (p. 79).

Discipline means choosing what to do unencumbered by the fear of making a mistake. Confidence means trusting our intuition and that what we 'see' is what we "know." (p. 80)
There are 3 modes:
  1. Researching -- gathering the evidence
  2. Thinking -- integrating and making sense of the evidence
  3. Doing-- taking action on the evidence
 The market NEVER pays us to not take risk.  Risk is where the reward is.  So hand wringing and dithering are not constructive modes.  Accordingly,  the Mamis quotes that I pulled are centered on discipline, experience, trust and action of making a decision. If we have prudent money management and clearly state when we are 'wrong' about a position (time and price), then our risk can be quantified and mitigate.  That means that decision making is free of equivocation (hand wringing, dithering) .

So, my chart reorganization provided me with a disciplined approach to find strong sectors, strong charts in order to become more reflexive in my decision making.  And being reflexive centers on discipline and confidence (like 'wax on, wax off').


Tuesday, January 17, 2017

Weekly Sector Charts_01132017

I'm working my way up to providing a more comprehensive update on sectors.  I'm in a busy portion of my work life, so for now, I'll hit the highlights to include providing a comprehensive chart book on each of the sectors which you can find here.  This is not on the level of what I used to do, but for now you might find it useful.

Below is a list of the top 10 and bottom 10 DJUS subsectors:


Notice that in the middle of this table seats $DWCF which is the total US market--basically unchanged.




Friday, January 13, 2017

Sector Selector | Aluminum

Yesterday's all star sector was Aluminum.  CENX increased 15.3%, but there were several other strong peformers....and a bust for ACH and KALU.




Yes, it was news driven, WTO interested in Chinese subsidies for aluminum. And, per FINVIZ, 23% of CENX float is short.  Sustainable?  Unsure.  But it's worth keeping an eyeball on.

NVO Followup and More fun with Sectors









Bill the Cat sums up the NVO trade. Bad news came out (price fixing law suit) and knocked the chart below moving averages. (click to make larger)

More work needs to be done to repair the chart.  I'm out with a nominal loss as I had a good entry.  I'll let the chart figure out where it wants to go from here.

Housekeeping duties:  One of my housekeeping duties was to take wholesale delete all of my Stockharts' list.  Now, I've been a SC member for a long time.  What I don't care for on their chart lists is that you have to load both the symbol and then name into your chart lists.  Why on earth they just don't populate automatically, I'll never now.

I organized my charts in accordance with the S&P Dow Jones indices.  Click here to download your very own copy.  I downloaded from the website, but then I couldn't find it again--so I just uploaded my copy.

This document is a useful to see in a well organized fashion the hierarchy of sectors.   I created a master chart list with all of the individual subsectors.  I can see in an instant which sector is moving, and then go to the individual sector and see the charts that serve as the constituency for the sector.  Yes,  I LOADED all of the charts for each subsector in individual chart lists.  Yes, it was time consuming, but Excel helped.  I have a master spreadsheet that has the Dow Jones index symbol and all of the charts-it has almost 5400 rows on it.

Here's a snippet (above) of my charting.  I used the DJSubsector number, included the symbol, the industry and the subsector.  (Love concatenation in Excel).  The number ensures that my chart list always stays organized by major industry.

It's "bookish" work, but someone has to do it.  It was an investment in time, because it saves me time.  And while SC has charts by each sector, you can only look at them individually instead of in a more global fashion (e. g. chartbook, thumbnails, summary).  That's just poor design on their part, but I made it work for me.  In my next post, I'll share my chart setup.

Thursday, January 05, 2017

Chart to Share | NVO And Some Sector Stuff that's Nice to Know

I'm back at looking at charts again after being away from it for a while.  I have some favorite patterns that are high probability set ups.  There is always the probability that it goes the other way. So figure out your approach and manage your risks if you are wrong.

 Here's a chart that I would like to share:  NVO  I picked up a position @  $36.24 on 01/04/2017.  I wanted to share why.




(Click on image to make larger)

Context is everything in stock picking.  There is the market, the sector, and of course the individual chart as well as fundamentals.  Frankly, I pay less attention to fundamentals.  I don't have enough time nor interest to research and understand the salient fundamentals even though I am a financial professional.  Rather, I shortcut that by using institutional support as a proxy for fundamentals and do a quick look at summary data (BS + IS + Cash flow).   I figure those folks have the resources, so I'll just tag along and do cursory due diligence.  I never care what insiders are doing, and I never pay attention to that. 

Market and sector sentiment (e.g. what's happening to all the other frogs in the pot) all have to work together to increase odds of success in making a buy (long)/sell (short) decision with a favorable expected outcome.

 I've had many market data geekfests over the years.  One has to honor one's idiosyncrasies, and mine is centered on understanding salient data.  I've limited my data diet to 3 things:
  1. Understanding the contextual dynamics of sector rotation and where to mine that information
  2. Understanding the behavior of Institutional Holders (they are smarter and have more resources than I do) and where to mine that information. 
  3. Understanding how items 1 + 2 manifest in charts.
  4.  

 Sector rotation is a powerful thing....and the pharmaceutical sector's down draft is one that shows the effect on prices. Accordingly, my focus on sectors is one that points me where to look.  For me, I look at the 24 sectors, and then the 145+ individual sectors.  The sector performance is a signpost of where to dig for opportunities.

 I have all of the sectors (major + sub) mapped  in Stockcharts. I used to publish a weekly sector report on my charts to make it easy for others to see the work more elegantly  I may reprise that work.  For now, I use it as a gauge of understanding of what is going on in the church of what is happening now.

If you start to look at sectors regularly (e.g. a disciplined approach), you will realize that there is always a bull or bear market somewhere.  Let's take a look a pharmaceuticals of which NVO is a member of.  It is represented by $DJUSPR. 


(Click on image to make larger)

Pharmaceuticals tumbled 15.5% from August to early November due to the well-earned negative publicity regarding drug price overcharging.  The entire industry was out of favor as chart after chart will show.  But no need to look at lots of charts. We can see the encapsulation in this index.  Click here to be transported to the excellent WSJ FREE resource for this sector and explore other sectors.  Note that the Dow Jones index for any sector is composed of X number of items while the universe of stocks that populate that sector is larger.

For example, below are the eight stocks that are constituents of the he Pharmaceuticals Index.  Notice that NVO is not one of those; rather, it is a sector constituent along with 84 other stocks.  As these index stocks go in composite, so goes the index. Naturally, the other members of the sector are going to feel the emotions that are governing the index.   I encourage you to go to the WSJ website and explore, it is an excellent, free service with a wealth of tools that will allow you to see the market more broadly.



That's a long preamble...

As you can see from the DJUSPR index, it is making a nice "W" bottom recovery.  I picked up the NVO chart on a scan looking at compressed volatility and then did my due diligence.  Here's what I like about NVO:
  • In a sector that is recovering
  • Is showing recovery (accumulation) on its chart
    • prices are consolidating in a narrow range foreshadowing a range expansion (up or down--no one has a crystal ball)
    • volume is increasing
    •  volume air pocket above denotes a low volume of potential sellers waiting to ease their pain should price move up.  My experience is that such volume profiles attract price movement as there are not a lot of eager sellers. (The converse is if there is a large volume bar and low pockets below.  The sellers are in your current volume bar and if price drops they sell).
  •  It has excellent institutional support (though I qualify that below)
    • Renaissance Technologies holds this as its #1 position as of 09/30/2016.  Below are their top 10 holdings from J3SG.com (fabulous, free resource).


And I will close with the top 10 Institutional Holders in NVO.  Overall, there was a reduction of 10M shares among the top 10 holders. This number is not insignificant.  Institutional holders will need to step in to make this price expand into a higher range.  As this data is as of 09/30/2016, the 12/31/2016 filings might show

I'll be publishing more charts that I like. None of these are recommendations, but perhaps a little bird-dogging to show you some places to hunt.

Friday, December 30, 2016

New Year

No one is more ready for a New Year than I am.  I'm ready to toss this wretched old thing to the curb.  In addition to personal tragedy, the political silliness and meanness was stressful, sad and exhausting.

If I were to have one wish for the new year, that would be to compel our leadership--no matter which side of the aisle or ideology they stand to embrace the precepts embodied here:

In the time of war
Raise in yourself the Mind of Compassion
Help living beings
Abandon the will to fight
Wherever there is a furious battle
Use all you might
To keep both sides' strength equal
And then step into the conflict to reconcile.

Vimalakirti Nirdesa
I've had this on my Wisdom Page for a long time. I was compelled to come back to it this year.  It is simple.  It is powerful.  It is a singular call to action.  It works at any level of our personal or political lives.


Wednesday, December 28, 2016

Process

I found myself discussing the importance of 'process' with someone recently.  The essential:  If the process is well thought out and well executed, then the outcome will be shaped accordingly. This was my observation shaped by decades of business experience.  I was speaking specifically in terms of leveraging the expertise of different constituencies to tackle large organization/institutional initiatives.  But it applies to solo endeavors as well. 

What am I talking about?  I'm talking about the importance of overlaying a solid process to achieve a desired outcome.  It means that whatever goal we are tackling, our process that we develop (and follow!) toward achieving that goal is one of the greatest predictors of our success in reaching that goal.

Some examples.  If we want to get physically fit, then we need an exercise plan that will incorporate nutrition, strength, cardiovascular and flexibility components to achieve optimum results.  If we want to be fiscally fit, then we need a financial plan that will incorporate proper savings and spending levels, and an investment plan that makes sense for our risk profile.

Hopefulness that in our doing nothing will yield great results will universally result in poor outcomes--unless one is extremely luckily.  My sitting here typing coupled with great hope that my cardiovascular fitness will improve will yield a disappointing result. Living beyond one's means consistently will not yield good results for long term savings.

There are many other types of examples. Regardless of our goal, the same overlay stands: a considered approach to any desired outcome is the result of good planning and hard work.   Thus, the aphorism, "Luck is where opportunity and preparedness meet."

Notwithstanding our  best efforts to consider all things in our plan,  we can be certain that unanticipated events may unfold.  No one has a crystal ball.  No one.  So when such things happen, having some grace and courage under fire helps us craft Plan B. There's no shame in having a Plan B.  I've been in business situations where I have had to have a Plan C in addition to A and B. 

The key to successful execution on those plans (any plan) is simply to say if "X" happens then I will do "Y".  The discipline is to not shrug when "X" presents itself, but rather to act.  If I have another accident in my car, I will take driver's lessons.  If my weight gets beyond ###, I will cut back on sweets. 

Simply put: 

  • Set a goal.
  • Define desired outcome(s).
  • Plan a strategy.
  • Execute a strategy.
  • When shit happens, adjust accordingly.

Shit always happens which is why it was my favorite bumper sticker in the 1980's.  True then.  True now.  Naturally the upcoming New Year is rousing such thoughts.  I'm going to dial back to 2008 when I produced a Mind Map of my resolutions...(Rummaging in blogger bin......)  Here it is.


It is sad to have to put 'fun' on a resolution list.  But this was my "balanced score card approach".  It does work...so long as one maintains the rigor of managing by it.




Sunday, April 17, 2016

The Big Short

I haven't posted in this space for more than 4 years.  I watched the movie, The Big Short, weekend before last, and I was reminded of much of the good work/research that I had done in this space. There was a point where I didn't think that I would want to view the movie, as so much of it seemed to be a "been there, done that."  Due to some DNA quirk, much of the 'subprime is not a problem' fell false to my ears.  Accordingly, I spent an inordinate amount of time doing amateur research; but I did it, doggedly.  And what I concluded was that there was no way that subprime would not be an issue.

There were several things that led me to that conclusion--not just based on general ramblings of others. You can see some of what I wrote here on subprime, and what I wrote here on hedge funds and systemic risk.

  1. First and foremost, the average income (for people who had income) to loan balance ratio for issued mortgages lowered considerably. Naturally this was a requirement to be able to sell over valued homes.  Runaway home-prices + easy money.  This statistic has NOTHING to do with subprime, but everything to do with stupid underwriting.  And I dug through the information published by the government to find this statistic.  Again...no one reported on this salient fact.
  2. The risk curve on the mortgage insurers underwriting reports had shifted to the left.  Meaning that defaults were happening more quickly and in greater number.  None were reporting on this published fact (but there was lots of conjecture--correct conjecture).  The supportable facts were there.   I found these reports on line after a bit of rabbit holing on line, and once the fan blades were flinging dung they were soon yanked and not available later.
  3. All of the banks were still basing their loan loss reserves based on passed delinquencies, per my review of the financial statements of both mortgage lenders and the mortgage insurers.  I didn't understand that in relation to number 1 above.  I also don't understand why none were reporting on this--it was one of the easiest things in the world to discover and it was something that was worthy of being reported.
  4. The amount of synthetic instruments (credit default swaps) were not reported on any exchange. Accordingly, after reading some information about what happened in 1929 and the role of off-exchange instruments in the collapse, I believed that there would be a problem.
  5. That insurance companies who heavily invested in bonds had balance sheet risk was not anticipated in the news outlets.  My research (and I wrote about it in this space) told me that it would.
One of the things that I identified with in the movie is the "early is wrong."  Most palpable to me was the emotional wringing that these guys went through--to be 'right', but not seeing evidential matter in the market prices to support their positions.  I though the movie did a great job of conveying that angst and inner turmoil.

Finally, the tongue in cheek nature of several of the asides to explain some of the technicals was inspired.  The complexity of all of it is snooze worthy--but having the likes of Selena Gomez, Anthony Bordain explain it made these concepts accessible.

I may spend a little more time looking at a few market 'things' and posting here.