Fidelity Sector Rotational System Surges Ahead of $SPY Benchmark

I must start this post with my sincere thanks for the comments you all left me on my semi-retirement post. I was treuly moved by your comments.

Because when one semi-retires from something, no one wants to hear that the semi-retiree has been doing nothing. That would represent pure laziness and sloth. Why would one semi-retire if he was going to do nothing? Indeud, I have been enjoying semi-retirement, having recently purchased a beautiful piece of property on the Cacapon River, West Virginia’s cleanest river.

Fishing the Cacapon

I caught a nice smallmouth shortly after this picture was taken.

So life is good. Which is a nice segue to the reason I am posting this, which is that my Fidelity Sector Fund Rotational System killed it in July, and surged ahead of its $SPY benchmark.

The system rocketed up 7.5% in July, once again outperforming $SPY, which gained only 5.2%. The system is also outperforming $SPY in August, but the month is not even half-finished.

Year-to-date, the system has logged gains of 20.8%, and that is net of fees, commissions, etc. $SPY has gained 19.1% YTD.

The top five ranked Fidelity Sector Funds are as follows:

  1. FSAVX (Automotive)
  2. FSRPX (Retailing)
  3. FBSOX (IT Services)
  4. FSRBX (Banking)
  5. FSPHX (Healthcare)

The system rotated into some new funds last week. It is currently holding FSAVX, FSRBX, and FSRPX.

I’ll leave you with a little chart porn. Below is the equity curve and monthly performance for the system, starting in 2012. I use 2012 because that is when I started trading the system in real-time. Click on the graphic to make it larger.

Fidelity Rotational System Performance August

Best to everyone!

The Important Matter of my Semi-Retirement from iBC

My first post here at iBC was on November 12th, 2007iBankCoin and System Trading with Woodshedder were forged in the fires of the approaching Armageddon, and I believe the blogging and the trading that took place during that period of time left an indelible mark on my psychology. In 2007 and 2008 I was transitioning from a purely technical swing trading style to something more quantitative. I had experienced years of success with discretionary trading, but as mentioned above, something about that period of time changed me. If memory serves, I finished 2008 up 10%, which was fairly remarkable considering everything that happened.

Six years ago, many things were different about finance and financial blogging. The retail investor had risen like a phoenix from the ashes of the 2000 bear market. They still believed that they could beat the market, and beat the experts. Technology and software was exploding, and these developments gave the little guy a belief (maybe an erroneous one) that they could stand shoulder to shoulder with “professionals” (I use that term lightly). Then came the crash of 2008.

Fast forward to 2013, and I think the strength and numbers of the retail investor have been greatly diminished. Conversely, the strength and numbers of finance websites and bloggers have greatly increased. For a small fish like myself, this makes it hard to excel as competition grows and the number of interested eyeballs decreases.

There are numerous sites out there that exist in pretty much the same space as my blog. These bloggers, researches, statisticians and traders are very good at what they do, and they do it full-time.  My full-time job has become more and more demanding, and the outcomes that I can produce there are much more important to our planet than whether or not I can write about quantifiable strategies that can beat the market. As I have become more and more invested in the work I do full-time, the number of hours I spend on it have increased in both mental and physical terms. My boys, 12 and 7, and my wife, also compete for my attention. In the end, something had to give, and it just makes sense that the 1-2 hours a evening that I spend researching and writing is not generating enough of a return to be sustainable.

I love iBankCoin. This blog has been a huge part of my life for a long time. Blogging here has afforded me incredible opportunities. I have met incredible people, and I have been able to use it to network with people who have helped me develop my skills in a way that would never have been possible without the blog.

I will still write here from time to time. I plan to keep posting updates to my Fidelity Sector Rotational System, and I would like to write about abnormal market behaviors. But I can no longer keep up the day-to-day updates.

To my partners Fly, Chess, RC, and Mr. Cain Thaler,  keep up the excellent work fellas. Fly, I think you know that I hold you in the highest regard, and you are without a doubt one of the few distinguished gentlemen left in this world.

If anyone would like to contact me in the future, my email is woodshedder73 at the google mail.

Best to everyone,

Wood

3 Higher Closes Beneath the 50 Day Average: Bullish or Bearish?

After seeing $SPY run up to the 50 day average and then reverse, I was feeling pretty good about my expectation that the correction would continue. Then I read the Quantifiable Edges study, Why The Strong Breadth The Last 3 Days Should Be Viewed Positively By Bulls, posted in What I’m Reading This Weekend. 

After seeing Hanna’s breadth results, I’m very curious about what the results of this study will be. As I’m writing this, I still do not know.

The Rules:

  • Buy $SPY at the close after 3 consecutive higher closes AND the close is beneath the 50 day simple moving average
  • Sell $SPY at the close X days later
  • No commissions or slippage included
  • All $SPY history used

The Results:

3 Consecutive UpDays

There were 94 occurrences of this setup and 39 trades were able to be held for the full 50 days.

As the chart shows, this setup under-performs $SPY buy and hold. This may be due to the requirement that $SPY close beneath the 50 day moving average. I would call the results of this setup neutral to bearish.

The results posted by Quantifiable Edges are more bullish than my results. I would like to see that breadth study add the condition for the close to be beneath the 50 day average.

I have written many, many times about how hard it is to find a study that yields bearish results. The market has a bias to the upside, and study after study shows the bias. This study, however, does not. The results, while not earth-shaking, should be viewed as a caution signal. My interpretation is that we can expect more volatility, more up and down, while ultimately moving sideways, for at least a few weeks.

Fidelity Sector Rotational System 66% in Cash

This system goes to cash anytime the S&P 500 is trading beneath its 50 day simple moving average. However, since the Fidelity sector funds must be held for 30 days lest a .75% penalty be incurred, the system doesn’t always go to cash exactly on the day that the S&P 500 closes beneath its 50 day average. This is indeed the current state of affairs. One of the funds held by the system was purchased on June 19th, and is thus still being held. The other two funds were sold on the close of June 21st, which is the day after the close beneath the 50 day average. The system takes end-of-day signals and acts on them at the next close.

Year-to-Date Results

Fidelity Sector Funds Rotational System: 9.9%

$SPY Buy and Hold: 11.3%

If the market continues to correct, it is possible that the system’s underperformance will be mitigated, and the system may even catch up or get ahead of the S&P, since it is 66% in cash. If the S&P takes off from here and re-takes its 50 day average, the system will be even farther behind.

The max drawdown year-to-date for the system is at 5.25% while the $SPY max drawdown year-to-date is 6%.

Top Ranked Fidelity Sector Funds

The top five funds, as ranked by the system, are as follows:

  1. FSPHX (Healthcare)
  2. FSPCX (Insurance)
  3. FBIOX (Biotechnology)
  4. FPHAX (Pharmaceuticals)
  5. FSDAX (Defense and Aerospace)

My Gut Feeling

Of course I am biased as I trade the system in a Fidelity 401K, but I believe the S&P goes lower which will give the system a chance to catch up. The wild card may be a squeaker close above the 50 day average before a reversal lower. If this happens, the system will once again be 100% long and will catch any downside while having missed the previous move back up to the 50 day average. That is the worst-case scenario.

 

Stocks Up or Down 25% in a Quarter

There is a breadth measure that I’ve been keeping an eye on. It is simply a count of the number of stocks that are up and down 25% or more in a quarter. Here is a good primer on this breadth measure: How to Use Market Breadth to Avoid Market Crashes.

Let’s take a long-term look at how this particular breadth measure has performed (click to enlarge):

Up or Down 25 pct in a quarter

The red is the number of stocks down 25% or more in a quarter (65 days) and the green is the number of stocks up 25% or more in a quarter. What is obvious is that every crash or bear market was preceded by the red measure growing and the green measure shrinking.

I like this indicator, and I think it will work, but I’m not quite sure how to use it, yet. I need to do some backtesting and figure out what it looks like to be in cash when there are fewer stocks up 25% or more in a quarter then the number of stocks down 25% or more in a quarter. Also, most times that the red is higher than the green, nothing major happens, and the market resumes the uptrend. Does this indicator give any clues that something more than a normal correction is ahead? I don’t know, but I’m going to poke at it a little bit and see what happens.

The good news is that the current reading shows that there are 596 stocks up 25% or more and only 439 stocks down 25% or more. This lends weight to my current stance that we are just experiencing a normal market correction.

Fidelity Sector Rotational System Surges Ahead of $SPY Benchmark

I must start this post with my sincere thanks for the comments you all left me on my semi-retirement post. I was treuly moved by your comments.

Because when one semi-retires from something, no one wants to hear that the semi-retiree has been doing nothing. That would represent pure laziness and sloth. Why would one semi-retire if he was going to do nothing? Indeud, I have been enjoying semi-retirement, having recently purchased a beautiful piece of property on the Cacapon River, West Virginia’s cleanest river.

Fishing the Cacapon

I caught a nice smallmouth shortly after this picture was taken.

So life is good. Which is a nice segue to the reason I am posting this, which is that my Fidelity Sector Fund Rotational System killed it in July, and surged ahead of its $SPY benchmark.

The system rocketed up 7.5% in July, once again outperforming $SPY, which gained only 5.2%. The system is also outperforming $SPY in August, but the month is not even half-finished.

Year-to-date, the system has logged gains of 20.8%, and that is net of fees, commissions, etc. $SPY has gained 19.1% YTD.

The top five ranked Fidelity Sector Funds are as follows:

  1. FSAVX (Automotive)
  2. FSRPX (Retailing)
  3. FBSOX (IT Services)
  4. FSRBX (Banking)
  5. FSPHX (Healthcare)

The system rotated into some new funds last week. It is currently holding FSAVX, FSRBX, and FSRPX.

I’ll leave you with a little chart porn. Below is the equity curve and monthly performance for the system, starting in 2012. I use 2012 because that is when I started trading the system in real-time. Click on the graphic to make it larger.

Fidelity Rotational System Performance August

Best to everyone!

The Important Matter of my Semi-Retirement from iBC

My first post here at iBC was on November 12th, 2007iBankCoin and System Trading with Woodshedder were forged in the fires of the approaching Armageddon, and I believe the blogging and the trading that took place during that period of time left an indelible mark on my psychology. In 2007 and 2008 I was transitioning from a purely technical swing trading style to something more quantitative. I had experienced years of success with discretionary trading, but as mentioned above, something about that period of time changed me. If memory serves, I finished 2008 up 10%, which was fairly remarkable considering everything that happened.

Six years ago, many things were different about finance and financial blogging. The retail investor had risen like a phoenix from the ashes of the 2000 bear market. They still believed that they could beat the market, and beat the experts. Technology and software was exploding, and these developments gave the little guy a belief (maybe an erroneous one) that they could stand shoulder to shoulder with “professionals” (I use that term lightly). Then came the crash of 2008.

Fast forward to 2013, and I think the strength and numbers of the retail investor have been greatly diminished. Conversely, the strength and numbers of finance websites and bloggers have greatly increased. For a small fish like myself, this makes it hard to excel as competition grows and the number of interested eyeballs decreases.

There are numerous sites out there that exist in pretty much the same space as my blog. These bloggers, researches, statisticians and traders are very good at what they do, and they do it full-time.  My full-time job has become more and more demanding, and the outcomes that I can produce there are much more important to our planet than whether or not I can write about quantifiable strategies that can beat the market. As I have become more and more invested in the work I do full-time, the number of hours I spend on it have increased in both mental and physical terms. My boys, 12 and 7, and my wife, also compete for my attention. In the end, something had to give, and it just makes sense that the 1-2 hours a evening that I spend researching and writing is not generating enough of a return to be sustainable.

I love iBankCoin. This blog has been a huge part of my life for a long time. Blogging here has afforded me incredible opportunities. I have met incredible people, and I have been able to use it to network with people who have helped me develop my skills in a way that would never have been possible without the blog.

I will still write here from time to time. I plan to keep posting updates to my Fidelity Sector Rotational System, and I would like to write about abnormal market behaviors. But I can no longer keep up the day-to-day updates.

To my partners Fly, Chess, RC, and Mr. Cain Thaler,  keep up the excellent work fellas. Fly, I think you know that I hold you in the highest regard, and you are without a doubt one of the few distinguished gentlemen left in this world.

If anyone would like to contact me in the future, my email is woodshedder73 at the google mail.

Best to everyone,

Wood

3 Higher Closes Beneath the 50 Day Average: Bullish or Bearish?

After seeing $SPY run up to the 50 day average and then reverse, I was feeling pretty good about my expectation that the correction would continue. Then I read the Quantifiable Edges study, Why The Strong Breadth The Last 3 Days Should Be Viewed Positively By Bulls, posted in What I’m Reading This Weekend. 

After seeing Hanna’s breadth results, I’m very curious about what the results of this study will be. As I’m writing this, I still do not know.

The Rules:

  • Buy $SPY at the close after 3 consecutive higher closes AND the close is beneath the 50 day simple moving average
  • Sell $SPY at the close X days later
  • No commissions or slippage included
  • All $SPY history used

The Results:

3 Consecutive UpDays

There were 94 occurrences of this setup and 39 trades were able to be held for the full 50 days.

As the chart shows, this setup under-performs $SPY buy and hold. This may be due to the requirement that $SPY close beneath the 50 day moving average. I would call the results of this setup neutral to bearish.

The results posted by Quantifiable Edges are more bullish than my results. I would like to see that breadth study add the condition for the close to be beneath the 50 day average.

I have written many, many times about how hard it is to find a study that yields bearish results. The market has a bias to the upside, and study after study shows the bias. This study, however, does not. The results, while not earth-shaking, should be viewed as a caution signal. My interpretation is that we can expect more volatility, more up and down, while ultimately moving sideways, for at least a few weeks.

Fidelity Sector Rotational System 66% in Cash

This system goes to cash anytime the S&P 500 is trading beneath its 50 day simple moving average. However, since the Fidelity sector funds must be held for 30 days lest a .75% penalty be incurred, the system doesn’t always go to cash exactly on the day that the S&P 500 closes beneath its 50 day average. This is indeed the current state of affairs. One of the funds held by the system was purchased on June 19th, and is thus still being held. The other two funds were sold on the close of June 21st, which is the day after the close beneath the 50 day average. The system takes end-of-day signals and acts on them at the next close.

Year-to-Date Results

Fidelity Sector Funds Rotational System: 9.9%

$SPY Buy and Hold: 11.3%

If the market continues to correct, it is possible that the system’s underperformance will be mitigated, and the system may even catch up or get ahead of the S&P, since it is 66% in cash. If the S&P takes off from here and re-takes its 50 day average, the system will be even farther behind.

The max drawdown year-to-date for the system is at 5.25% while the $SPY max drawdown year-to-date is 6%.

Top Ranked Fidelity Sector Funds

The top five funds, as ranked by the system, are as follows:

  1. FSPHX (Healthcare)
  2. FSPCX (Insurance)
  3. FBIOX (Biotechnology)
  4. FPHAX (Pharmaceuticals)
  5. FSDAX (Defense and Aerospace)

My Gut Feeling

Of course I am biased as I trade the system in a Fidelity 401K, but I believe the S&P goes lower which will give the system a chance to catch up. The wild card may be a squeaker close above the 50 day average before a reversal lower. If this happens, the system will once again be 100% long and will catch any downside while having missed the previous move back up to the 50 day average. That is the worst-case scenario.

 

Stocks Up or Down 25% in a Quarter

There is a breadth measure that I’ve been keeping an eye on. It is simply a count of the number of stocks that are up and down 25% or more in a quarter. Here is a good primer on this breadth measure: How to Use Market Breadth to Avoid Market Crashes.

Let’s take a long-term look at how this particular breadth measure has performed (click to enlarge):

Up or Down 25 pct in a quarter

The red is the number of stocks down 25% or more in a quarter (65 days) and the green is the number of stocks up 25% or more in a quarter. What is obvious is that every crash or bear market was preceded by the red measure growing and the green measure shrinking.

I like this indicator, and I think it will work, but I’m not quite sure how to use it, yet. I need to do some backtesting and figure out what it looks like to be in cash when there are fewer stocks up 25% or more in a quarter then the number of stocks down 25% or more in a quarter. Also, most times that the red is higher than the green, nothing major happens, and the market resumes the uptrend. Does this indicator give any clues that something more than a normal correction is ahead? I don’t know, but I’m going to poke at it a little bit and see what happens.

The good news is that the current reading shows that there are 596 stocks up 25% or more and only 439 stocks down 25% or more. This lends weight to my current stance that we are just experiencing a normal market correction.

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