Included below is the spreadsheet with October’s trades. Note the carnage.
Out of a universe of 2,376 stocks, there are currently 183 eligible stocks, which means if any of the 183 gave an entry signal, they would be ranked and added to the Power Dip portfolio.
Two weeks ago, there were 1,343 eligible stocks, out of a universe of 2184.
If the market continues to weaken, the Power Dip may very well turn itself off. The system has already begun and may continue to curtail the amount of trades it makes.
On Friday, Forest Oil Corporation [[FST]] and [[DENN]] both were stopped out. The system is long 4 positions.
On Monday’s open, the system will be purchasing The Kroger Co. [[KR]] ]. It is the only pick for Monday (see info above about the system curtailing its trades).
Hi Wood,
When the system starts reducing the number of tradeable candidates, do you reduce your position size and/or reduce the number of open positions? Just curious as to whether you take clues and additional steps from the signal of reduction in candidates or just rely on the actual reduction of opportunity to manage your risk. Thanks!
– Mikey
Mikey, I do not reduce position size, although I am trying to work out a way to reduce position size when the broader markets look extended. The problem with that though is that markets are lot more likely to stay extended than they are to stay depressed, and so I could find myself steadily reducing position size while the market keeps going up up up.
When the market begins to roll over, I just let the actual reduction of opportunity manage the risk.
For example, CNO stopped out yesterday, and so the system is left with only 3 positions- KR, CXO, and CQP. With a maximum of 10 positions, it is easy to see that the system is 2/3rds in cash, and there was no new signals for Tuesday’s open.
The best adjustment so far has been to adjust the ranking of signals (assuming there is more than 1 signal) according to the broader market behavior. Something that looks promising is to use an aggressive ranking, which would rank higher high volatility stocks, only when the market has already begun pulling back. When we get signals in a market extended to the upside, it makes better sense to use a more conservative ranking. If not, when the market pulls back, all the high volatility stocks get hammered, and may get stopped out.
Another way to look at it is that we want to give a higher ranking to defensive plays like KR when the market is extended while after it pulls back, we want to try and get in some more volatile small caps.