More on volatility

I wanted to expand a bit more on my volatility focus.  Again, this focus is new for me, but one that I’ve been employing with some success.  Below is a chart of SNEN.  I entered this position when volatility was low.  I’m looking at the %B (in light purple).  The scale in on the left.  You can see the unsustainability of moves above 1.  I marked the top of the %B along with the tops in the chart. 

Now, this is a cheap stock that any normal person ought not be trading.  But I’m not normal, and I like to find these. As you can see these moves (and these are daily candles) are huge as a percentage.  I sold this stock into the surge a day or so ago for $2.  I re-entered at $1.70.This chart is making to my eye a pretty decent basing pattern.  Further it is in the compressed natural gas (stations and converters) in China. 

 

 

SPRD is another name that I was in. I sold it today at $3.10 with a $2.62 basis.  @ 1.20 %BB, this move on huge relative volume is unsustainable (though it may show otherwise!).  These Chinese small caps are very much like Chinese firecrackers. 

 

Another example of a stock that made my year in 2007.  Against all sound advice, I do not diversify, but you wouldn’t expect me to, would you?  I was NOT using any volatility measures at the time.  I did have the presence of mind to sell into the rocket ship upwards.

 

Timothy asked a great question in the comments section about the interface of RSI with %B.  I wished I were as smart as the real technicians.  Admittedly I know enough to be dangerous, and perhaps these tools in my hands are the equivalent of a toddler handling a gun. 

I am a tenacious student, though.  And as I reflect, I’ve been dong ‘this’ consciously, now, for almost 4 years.  And…I’ve been 90% of the money managers in a difficult market. I’ll take that as progress.  (Admittedly, I do not know if the 90% is correct or not, but I suspect so).

YTD and One Year Comps from FINVIZ

From FINVIZ   

It’s easy to be blown away by the incredible gains this year to date.  But even with those gains, note the 1 year performance…Basic Materials still down 25% after a 28% gain this y-t-d.

FINVIZ is easily one of the most informative sites to do quick looks at stuff.  I incorporate it in my chart studies because I still will not buy a stock if I do not understand the fundamentals. 

Risk/Position Management <> Prescience

Tim Knight has a terrific post regarding Paul Tudor Jones. I'd recommend your watching the videos if you've not seen them already. You can find them at Tim's post below.

http://slopeofhope.com/2009/07/paul-tudor-jones-the-trader.html?dsq=13439734#comment-13439734

What I enjoyed about watching these videos is the re-enforcement that any of this 'stuff' we call investing/trading is still based on managing uncertainty and managing risk.  We’ve a tendency, I think, to believe that some people have a remarkable prescience about what the market will do.  To see PTJ nervous and uncertain was comforting.  So here is ‘a great one’ uncertain as to which way the market is going , and it struck me that he is no more prescient than any other.  Rather, it emphasized the importance of market participants to distinguish success as DIFFERENT from prescience (which implies some certainty). 

There’s really no such thing a prescience. Success is simply a result of good risk management. (That applies to most things in our lives).  For every stock you buy or sell short, you are making some decision using some criteria about the future direction.  You’ll be wrong a good portion of the time.  So long as you manage (curtail) your losses and manage (optimize) your gains, your failures will be minimized and your optimized gains will look like prescience.  The curtailed losses, because they are managed, make the winning positions look like prescience. 

Don’t confuse good position management with prescience.  And be careful not to ascribe super abilities to your favorite market pundit.  I believe that if more people understood that success comes from good risk management v. some ‘special foresight’ that, particularly given the prolific proclamations of so-called stock gurus, there would be less misery and more investor education.

While I’m much better and picking winners and jettisoning losers, I’ve a long way to go in BETTER management of my positions to optimize gains. 

Sunday “Stuff”

I’ve written more posts in the last 3 days than the last three weeks!  It feels good to write again.

My husband recently went on a couple of canoe fishing expeditions.  It is not something that we’ve done in a very long time.  He was reminded on how much he enjoyed it.  We have since bought a canoe and went on recon for other items needed. Part of that recon was going to Bass Pro Shops.  Wow! It was one of the most extraordinary shopping experiences I’ve ever had.

The scale of the store is huge, and it is designed to titillate the outdoor enthusiast.  Prices are set accordingly, so I promptly made a list of stuff I needed and surfed the net.  I did make about $100 worth of purchases to include a fishing net, paddle, and a couple of things for the dogs:  a stuffed animal to be shredded and a ‘hyperdog’ ball launcher. 

On the internet, I found some dry bags for the inevitable flip, canoe back seats.  We will likely do some camping, so I’ll need to provision for that as well. 

For longer term readers, you know that I went on a fit by 50 kick.  In just over a couple of weeks, I’ll turn 49.  At last year’s birthday, I committed to this goal.  By January, it seemed to be a faded memory, coinciding with my client work that absorbed all manner of time to the expense of all else. 

I’m ready to embrace the Newtonian law of a body in motion stays in motion and forever remember that a body at rest stays at rest.  I’m starting out simply—I rode my bike.  It was depressing how winded I became so quickly.  But the body responds quickly to exercise, just as the brain responds to the stimulation of learning. 

My post last evening has sparked an interest in my putting in a new stock screener to find bollinger band with lows and highs.  When forced to WRITE the stock screeners, it forces one to THINK about what one is trying to accomplish. The key is to THINK and DO not THINK instead of DO. 

Saturday P.M. Post

I’ve spent most of the week in decompression.  Part of decompressing was returning to my study of charts.  I found that return to familiar territory to be a pleasant diversion.  I’ve been spending some time over on Tim Knight’s blog. I used to post there very regularly. 

Being over there last week was also a return to roots, so to speak.  The tone on the blog was tough, largely because the recent stock market rise has been met with incredulity—and for that the market was shorted.  The results were damaging to performance.

On another blog, a blogger noted that on Seeking Alpha, it was noted that shorting Bidu was as easy as shooting fish in a barrel.  Right.

 

If I’ve learned a thing (and I’ve learned it the expensive way), it is that it really doesn’t pay to be too early.  And my friend (friend by way of the book, as I don’t know him) Stan Weinstein preaches, you do not short stocks that are not below their 30 week moving average. The above is a daily chart—the weekly looks all the worse in terms of over performance.

SNEN—I ended up selling this because the gain was too much in too little time. I would like to re-enter this name at a more favorable price.

You’ll remember that my ‘new’ strategy for this year has been to buy low volatility and sell high volatility.  WH is another name that I own(ed) in this fashion:

I sold at $7.  I re-entered at $5.06, for much fewer shares when the volatility came down.  You will also remember that I had this baby as a featured post of “Acapulco cliff diver” on the March 9 swan dive.

Adding volatility measures to my screening has improved my results greatly.  You can learn about volatility quite easily by going to Stockcharts.com.  There is lots of free stuff there, and you can print out all of these high quality articles and place them in a notebook and have the nicest TA book in the world. This is from their website: 

 

Bollinger Bands measure volatility by placing trading bands around a moving average. These bands are charted usually two standard deviations away from the average, so as the average changes, the value of two standard deviations also changes. This value is the Bollinger Band Width, which represents the expanding and contracting of the bands based on recent volatility.

During a period of rising price volatility, the distance between the two bands will widen (BB Width will increase). Conversely, during a period of low market volatility, the distance between the two bands will contract (BB Width will decrease).

There is a tendency for bands to alternate between expansion and contraction. When the bands are unusually far apart, that is often a sign that the current trend may be ending. When the distance between the two bands has narrowed too far, that is often a sign that a market may be about to initiate a new trend.

 

MGIC is another name that I am in.  I DID NOT sell this one. Though, I should have.  I’m not always very disciplined.

 

My point to share is that I believe that adding a volatility filter will help reduce your risks of entry.  And while you may chose to hold, as I did, you may want to reconsider buying when volatility is high—that’s high risk. We want to IMPROVE our odds of making successful buys/sells…and low risk entries help us do that.

Remarkably Similar

 

The above are SPRD and CNTF….remarkably similar.

Reflections and Prospections

Time to reflect on some past charts and look at some new.  Prospections is not a word, but I think it ought to be.  When I started this blog, I was sure that there was a word for “perplexion”…..I call it an agent that perplexes.  Language would never evolve if folks did not feel some freedom to add words to the lexicon.  Now that I’m back to writing a bit more, I’m going to exercise that free will!

For UNG I suppose that many of the folks that bought when I thought there was no one left to sell were the ones that were remorseful sellers.  Much has been written about the vagaries of UNG.  I’ll not repeat them here, but I’m still holding this though I bought at magenta.

 

 

Magic Software.   This stock can be called nothing but thin and speculative. As they are holding a boat load of cash and are recently profitable and are breaking out of an important range, I bought some in an extended price jump that I normally wouldn’t jump into.  If FINVIZ is to be believed, they have $1.13 in cash per share.  Seems pretty low risk to me—see but see my UNG comments above!.  Click on their name to be transported to their website. 

Here’s a longer term chart

 

A trio of observations.  First, here’s a good example where money can be dead as a hammer for a long time.  Second buying and holding through a bubble (witness the nose bleed levels of 2000) is goofy.  Third, look at the base in this stock. 

 

Bottom Line Technologies…..here’s an interesting chart—another former glory turned gory in 2000 tech bubble.  I’m beginning to wonder if tech—not big cap tech so much—but small cap tech may be coming into a resurgence.  I’ve no position here, but you might put them on a watch list.

Sunday Post

To say that I’ve been out of touch with my life since January would be an understatement. I had two critical client undertakings where people were depending on me.  I take such trust pretty seriously.  And to the exclusion of all other things in my life (sleep, exercise, friends, writing, family), I worked on those matters.

Now, after having fought the good fight in one matter, I have some time freed up.  I’ll need to knock on some doors and get some client work to backfill, but I can take a little break for a month or two if I want.

This weekend was lovely.  We went to the Pork, Pine and Peanut Festival at Chippokes Plantation.  We went by boat—and many people travel there that way.  It did not seem to be very well attended in terms of foot traffic. The flotilla, though, is clearly where the party is and becomes a Mardis Gras atmosphere.  We never stay that long to witness though there is always an acquaintance or two that brings back stories.  Okay, it did look like there was a couple channeling the ad slogan for the Pork Council:  Pork the one you love.  They were in the water, but not too much was left to the imagination.  I was neither disgusted or titillated—I would have like to have been something…I’m just numb still.

Nevertheless, the day could not have been better.  The boat ride was smooth, and the cloud cover offered just the right mix of rays and cover.  We invited a younger couple who have invited us to their home a couple of times.  They were a delight.  They are active and travel widely—the camping, hiking, hard travel.  She’s an art teacher and he is an industrial engineer with many similar interests to my husband’s.  Perfect company on a perfect day.

I’m feeling very out of synch with the market as this last month and a half have been very time consuming.  But there are two observations.  First, I must observe that my UNG post (where I thought there was capitulation) was a great example of the market going further than you think.  Second, an in reinforcement of that, the market is likely to act in a way that will cause the most people to lose (the ‘obvious’ head and shoulders).

Funny how the market is like that.  I never forget Stan Weinstein’s comment that the market is designed to put the money of many into the pockets of a few.  I will begin ‘reconnecting’ with the market.  It feels like we are at an inflection point….and I’m not sure which way the market muscle will flex.  But as a watched pot will never boil, neither will a watched bearish pattern break down.  I paid a high tuition for that in my early to the party entry into shorting banks and insurance companies.

Coming up for air

Since March 1, I’ve been working with a client to overcome what ultimately became an insurmountable issue.  The client has ceased trading.  Working cooperatively with the bank and its largest vendor, it is working on transitioning backlog and valued associates to another dealer.

These months have been the most difficult in my career—and I’ve had a tough career.  I’ve finally experienced the ‘disaster’ that I was always so successful at avoiding.  And as I work through my last day of it today, the outcome is one that will ultimately allow many of the associates to continue in their service to their valued clients.

I plan on taking a little time off to regroup.  I’ve been working non-stop since January 22—with even little in terms of weekend breaks.