Power Dip Thursday Update

Wednesday’s strength brought some juice to the Power Dip model portfolio. Accordingly, the following positions will be sold on Thursday’s open:

ATMI, Inc. [[ATMI]] – loss

Aspen Insurance Holdings Limited [[AHL]] – flat

Zebra Technologies Corp. [[ZBRA]] – gain

Invacare Corporation [[IVC]] – gain

These sales will leave four open positions. However, there are only three Power Dips for Thursday, so the system will have only seven positions. Here are the three new additions:

CARBO Ceramics Inc. [[CRR]]

[[SBS]]

Annaly Capital Management, Inc. [[NLY]]

The system’s model portfolio is full with no positions being sold this morning.

However, there are still some valid dips, just in case someone feels a need to increase exposure on the long side.

Cadbury plc (ADR) [[CBY]] , Crown Castle International Corp. [[CCI]] , ev3 Inc. [[EVVV]] , Jarden Corporation [[JAH]] , Micromet Inc. [[MITI]] , National Bank of Greece (ADR) [[NBG]] , [[SMH]] , Teva Pharmaceutical Industries Ltd (ADR) [[TEVA]] , Texas Instruments Incorporated [[TXN]] , [[USD]]

I will soon be back to posting some more studies, so stay tuned!

I have added two new blogs to my blogroll. Not to seem snobbish or otherwise arrogant, but I carefully screen the blogs before adding them to the blogroll, mainly because I use my own blogroll as a daily reading list. The point is that these blogs are ones that I consider to be top-notch, worth spending my own valuable time reading.

The two newest additions are CSS Analytics and Quantivity. Both of these are what I term “hard” quant blogs, meaning that they may not be appropriate for beginning system/quantitative traders as the learning curve can be so steep as to be overwhelming. Regardless, the research, ideas, and perspective presented in both blogs are outstanding, and I wish them much continued success in the blogosphere.

On Monday’s open, the system will be closing three existing positions, and opening three new positions.

athenahealth, Inc [[ATHN]] , Target Corporation [[TGT]] , and Patterson-UTI Energy, Inc. [[PTEN]] will be sold for gains.

To replace these three positions, the system will be purchasing Terremark Worldwide, Inc. [[TMRK]] , [[PLX]] , and Invacare Corporation [[IVC]] .

Check this update to view the dates of purchase for ATHN, TGT, and PTEN.

First of all, let me offer my sincere thanks to Brandon for keeping the blog up-to-date with Power Dip signals while I was on vacation. The system will be closing out a few trades tomorrow morning and will be replacing those positions with new stocks. Look for the post in the morning.

I have updated the spreadsheet and I am happy to note that the system’s real-time results (with 70 trades logged) are beginning to come close to our historical backtested results. For example, the average trade is now approaching 0.70%, which is pleasing to see since it has been hanging around 0.40% for a month or more. I expect that it will eventually approach 0.90%-1.0%, which is what we expect from backtesting.

The win% is very close to the historical backtested average of ~68%.

Keep in mind that I have been diligent in accounting for commissions, and whenever possible, I have included the prices of actual fills, to account for slippage. What you are seeing are actual, replicable, real-time results of a dip-buying system.

Please note…

The system has been keeping 20% of available capital in cash, and has been using percent-risk position sizing, holding risk per trade at 1% of total capital. We can juice returns by allowing the system to use all available cash and by using 1.5% or even 2% risk per trade.

Over the next week, I will be posting the results of using all of the available capital with more at risk per trade.

If there are any questions about how percent-risk position sizing works, or how it can be manipulated to affect returns, please do not hesitate to ask.

Someone ask recently why the 10% stop was chosen for Power Dip.

It wasn’t really chosen but arrived at quantitatively through research and hundreds of thousands of simulated trades. This is intuitive to an experienced trader and fine and dandy as an abstract concept but real-world examples are what people tend to respond best to so today (so far), you have it.

Today is a PERFECT – real world example of why too tight a stop can be devastating to a system. A tighter stop would have stopped out a very large percentage of our trades yesterday, probably near the lows of the day. With the looser stop, most are recovering today and if the market holds up, we will get exit signals today on many for gains or small losses where the tighter stop would have taken us out for max losses yesterday.

These market ebbs and flows are normal and a good system is designed to quantitatively exploit these market characteristics (and the traders that are naive to them).

(Brandon posting for Woodshedder)

I apologize for the late post. My wife dragged me to some Prince/Purple Rain 25 year anniversary screening in Prospect Park (Brooklyn) last night and I was forced to drink heavily to prevent immediate blindness.

There are no exit signals being generated for any of the securities in the model portfolio portfolio but Thursday’s weakness generated a lot of new entry signals for the system. None of these will be taken in the model portfolio as it is full.

[[BPZ]] Church & Dwight Co., Inc. [[CHD]] [[CRI]] Cirrus Logic, Inc. [[CRUS]] Cymer, Inc. [[CYMI]] Dolby Laboratories, Inc. [[DLB]] Dr Pepper Snapple Group Inc. [[DPS]] [[ELGX]] EnerNOC, Inc. [[ENOC]] Hologic, Inc. [[HOLX]] Johnson & Johnson [[JNJ]] Kulicke and Soffa Industries Inc. [[KLIC]] Mattel, Inc. [[MAT]] Merck & Co., Inc. [[MRK]] Polycom, Inc. [[PLCM]] Penson Worldwide, Inc. [[PNSN]] Red Hat, Inc. [[RHT]] Schering-Plough Corporation [[SGP]] Tupperware Brands Corporation [[TUP]] Verigy Ltd. [[VRGY]] Verizon Communications Inc. [[VZ]]

(Brandon posting for Woodshedder)