Closed Positions:
The model closed out the position in LAD this morning at $25.15 for a -3.2% loss. The shares traded up most of the morning before fading and closing slightly under our exit price.

New Positions:
In addition to the seven new positions the model opened yesterday, the model opened another seven positions today. It is extremely rare for the model to initiate this many new positions over a two day period. Also, despite my comments last night, the model added to both FCS and PACW this morning. All of these trades were made based on the trading rules of the model. All of today’s trades are shown below:

Open Positions:

Summary:
Our Select Equity Model gained 0.12% today, which was inline with the 0.37% increase in the SPX. Altogether, the trading session was relatively uneventful with most of our positions vacillating in a relatively tight range. Clearly, the market was holding its collective breath for the big AAPL release after the bell. I suspect tomorrow will show more movement compared to what we saw today.

My biggest losers today were PII (-1.1%), IVN (-1.3%), and LGF (-3.2%). Some of the long positions that stood out from the crowd were FAF (+2.1%), JAKK (+2.7%), STKL (+4.4%), and IOC (+5.1%). The rest of the model performed inline with the market.

The model is currently positioned 98% long and 50% short (leverage = 1.48). Today, my Momentum Indicator flipped bullish. So, for the first time in three weeks, both my proprietary indicators are looking for higher prices. The SPX has lost approximately 40 points (-2.9%) since the last time both indicators had a positive bias. Although those timing indicators don’t always work, it’s nice when they do. Here are the current values of each indicator:

Volatility Oscillator (V.O.) = +21.4 (short market if below 10 or above 90)
Momentum Indicator (M.I.) = 37.7↑ (long market until local maximum below 37.7)

With both my indicators now solidly bullish, the rules of the model dictate that I close my short position in IWM; however, I didn’t cover a single share today. I didn’t cover any of my IWM short because I wasn’t comfortable being 98% long with no hedge against a slew of big-name earnings reports after the bell. Considering the market reaction to the earnings reports out of AAPL et al, it appears as though being 98% long would be a very profitable posture.

This is an excellent example regarding one of the difficulties in trading a rules based model. One can create a model with trading rules that result in significant outperformance over time; however, putting those rules into practice is much more difficult than it sounds. It is imperative to follow the rules in our trading model; however, it is more important to protect capital. From time to time, I will deviate from my model to do just that.

‘Rules made up by you, the only rules you should live by.’ – Pennywise

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