Trade Setups for Friday

Here is a list of stocks that meet the breakout trade setup criteria of a 10 day Bollinger band width in the bottom decile for a 200 day look back. (CTSH,FMCN,HANS,INFY,INTU,
LEAP,RIMM,TEVA) The next step is to look for a big gap tomorrow (greater than 1 range above or below the close) then enter on a bull or bear range pivot in the same direction as the gap.The real time 2008 performance results are here

Below you will find a list of long and short candidates. Historically these long and short setups have performed quite nicely when using the entry levels specified next to the ticker and the exit rules below. Here is the real time out of sample performance review of the Ripe Trade results for the year 2008. These are the stocks that qualify for Friday with the entry price limits specified , good for the day only.

With the launch of the new VIX exchange traded funds ( ticker VXX, VXZ)  I wanted to find a way to work them into an asset allocation mix. The VIX has historically had a very strong negative correlation to the S&P. When the S&P goes down the VIX usually goes up. This strong inverse relationship makes volatility a great asset class for diversification.

The problem with typical asset allocation proposals of stock, bond, international, value, growth, large cap, small cap, etc is that in times of panic when you need the protection the most, everything gets perfectly correlated and all the asset class’s go down at the same time.

Due to the large negative correlation between the VIX and the major equity indices a relatively small allocation to the VIX would have significantly improved the risk-return profile of the S&P 500. In the 2006 paper “Improving Risk-Adjusted Returns of Fixed-Portfolios with VIX Derivatives” Gang Dong writes “that by allocating approximate 7% portfolio weight on a hypothetical derivative linking to VIX index, the portfolio approaches its optimal risk adjusted return ratio.” This optimal 7% allocation is based on a fixed portfolio that doesn’t get rebalanced. The full paper is here.

The VIX is a mean reversion machine so a weekly rebalancing seems like a more logical approach than a fixed portfolio. I worked up a rebalancing strategy to allocate X% in VIX and Y% in SPY then rebalance to the same X/Y allocation percent weekly.  Below is a chart that shows how the various allocations would have grown since 1993, based on a $100k account.  A 30% allocation to the VIX and 70% allocation to the SPY would have only suffered a maximum 14% peak to trough drawdown and grown a $100k account into $1,261,750 which is a 17% annual growth rate. As a comparison a $100k  account invested entirely into SPY would have suffered a max 48% drawdown and would only be worth $250 k which is a 5.89% annual growth rate.

The S&P Model is long as of the close of February 3rd. No open orders.

An even balance of long and short Ripe Trade setups and a pretty large list of Breakout setups, probably indicates a confused market.

Below you will find a list of long and short candidates. Historically these long and short setups have performed quite nicely when using the entry levels specified next to the ticker and the exit rules below. Here is the real time out of sample performance review of the Ripe Trade results for the year 2008. These are the stocks that qualify for Wednesday with the entry price limits specified , good for the day only.

Long Exit rules – Exit at the close on the day when a 2 day RSI close is greater than 50 or exit on the first profitable open with a 1 day delay. The 1st profitable open with 1 day delay dictates that I hold the position for at least 2 trading days which includes the entry day then exit on the 1st open that is greater than my entry price.
Short Exit rules – Exit at the close on the day when a 2 day RSI close is less than 70 or exit on the 1st profitable close with a 1 day delay. The 1st profitable close with 1 day delay dictates that I hold the position for at least 2 trading days which includes the entry day then exit on the 1st close that is less than my entry price.
These setups don’t have a stop loss, our research has showed through back testing that this strategy works best without a stop loss. A few ways to limit the risk without a stop loss are 1) Position Size – lowering your position size lessens risk. 2) Watch out for single sector exposure, don’t let one single sector become too big a percentage of your account. 3) Consider using options for blowout protection. For longs consider buying way out of the money puts and for shorts consider buying way out of the money calls. This will create a catastrophe stop that protects you even if the stock has an extreme overnight gap.These setups are for education and entertainment purposes only this is not a recommendation or solicitation. Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

There is a lot of talk right now about the January barometer, so I decided to take a look at the numbers for myself. If you aren’t already familiar the January barometer dictates that as the S&P goes in January so goes the rest of the year February through December. For example if January was positive then you should expect the rest of the year February through December period to be up, if the January S&P return was negative then you should expect the rest of the year February through December period to be down.
Since 1934 the condition of a down January in the S&P 500 predicted a down rest of the year ( Feb- Dec) 13 out of 30 occurrences for a 43% accuracy. A positive January has predicted a positive rest of the year in 36 out of 44 of the occurrences since 1934 for a 81.8% accuracy. When January was a down month the average return for the balance of the year was +.53%. When January was an Up month the average return for the balance of the year was +9.6%. As a comparison the return for all periods from Feb – Dec was +6.14% with 54 up and 18 down or a 72% win rate.
This past January the S&P was down -8.56% and was the worst January on record since 1934. The 2nd worst January was in 1970 and the S&P was down -8.5%,the following 11 months the S&P advanced 8% in 1970. The 3rd worst January was 1990 and the S&P decline -8.27% that month, the following 11 months the S&P advanced .35%. Below is a table that shows the historical 11 month performance statistics of the S&P after an X% decline or rise.

Hot January industries historically beat the S&P in the next 11 months. A portfolio of the top 10 industries during January, outperforms the S&P in the ensuing 11 months with an average gain of 15.8% for the top 10 industries vs. 7% for the S&P. The table below shows that since 1970 a portfolio of the top 10 industries has out performed the S&P in 11 out of the past 14 instances when January was a down month. The average 11 month return following a down January was 8.14% for the top 10 portfolio vs. -2.38% for the S&P.

For a list of the components of the top performing industries displayed below, click here.

Ripe Trade

The S&P Model is short as of the close of January 29th. This model will stop out @ 889.5 and cover the short and get long tomorrow February 3rd if the VIX stays less than 49.54.

The NASDAQ model is flat and in cash. No open orders.

The VIX Model is long as of the close on January 22nd. No open orders.

The road map image below shows the current long and short term influences on the S&P and real time out of sample performance results on the models mentioned above, for a longer term model performance history click on the links above.

Below you will find a list of long and short candidates. Historically these long and short setups have performed quite nicely when using the entry levels specified next to the ticker and the exit rules below. Here is the real time out of sample performance review of the Ripe Trade results for the year 2008. These are the stocks that qualify for Monday with the entry price limits specified , good for the day only.

[youtube:http://www.youtube.com/watch?v=CQCgFl1S9Oc 450 300]

The S&P Model is short as of the close on January 29th. This model will cover the short and get long at the close on Monday Feb 2nd if the VIX stays below 45.53.

The NASDAQ model is short as of the close on January 29th. This model will cover the short at the open on Monday Feb 2nd

The VIX Model is long as of the close on January 22nd. No open orders. FYI 2 new VIX ETFs started trading on Monday VXX and VXZ.

[youtube:http://www.youtube.com/watch?v=spEnKk-wj1U 450 300]

Below you will find a list of long candidates. Historically these long and short setups have performed quite nicely when using the entry levels specified next to the ticker and the exit rules below. Here is the real time out of sample performance review of the Ripe Trade results for the year 2008. These are the stocks that qualify for Monday with the entry price limits specified , good for the day only.

Long Exit rules – Exit at the close on the day when a 2 day RSI close is greater than 50 or exit on the first profitable open with a 1 day delay. The 1st profitable open with 1 day delay dictates that I hold the position for at least 2 trading days which includes the entry day then exit on the 1st open that is greater than my entry price.

Short Exit rules – Exit at the close on the day when a 2 day RSI close is less than 70 or exit on the 1st profitable close with a 1 day delay. The 1st profitable close with 1 day delay dictates that I hold the position for at least 2 trading days which includes the entry day then exit on the 1st close that is less

These setups don’t have a stop loss, our research has showed through back testing that this strategy works best without a stop loss. A few ways to limit the risk without a stop loss are 1) Position Size – lowering your position size lessens risk. 2) Watch out for single sector exposure, don’t let one single sector become too big a percentage of your account. 3) Consider using options for blowout protection. For longs consider buying way out of the money puts and for shorts consider buying way out of the money calls. This will create a catastrophe stop that protects you even if the stock has an extreme overnight gap.

These setups are for education and entertainment purposes only this is not a recommendation or solicitation. Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.