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Saturday, December 5, 2015

Weekend Portfolio Analysis (December 5, 2015)

Writing today from the Universal Studios in Orlando, Florida, after a super quiet week where the market went up only 0.035%. I mean, the SPX index barely moved. Did it?

Rumor has it, there is no way I'm escaping a forced visit to a Harry Potter themed park today. Love demands so many huge sacrifices folks.

By the way, my girlfriend and I have been planning a tour across the United States by mid next year. No, it won't be funded by the huge proceeds from this ultra-popular site. I just happen to have a job that offers me a lot of freedom, so why not use it? As soon as our rent contract comes to an end, we'll be that more free. We intend to use that freedom and money renting AirBnb places throughout the US, driving from one city to the next every 3 or 4 days. During the day, I will be working on my software gig, remotely with my Canadian employer, just as I have been doing for months. They don't care whether I am working from La Tour Eiffel or the Sahara Desert, as long as the work gets done. So, that'll be it: a 2 - 3 month tour, where our goal is to visit 20 to 30 cities coast to coast. If you want to spend some time, talk about ISIS, markets, women, or simply share a couple of beers while I'm visiting your city, you know I'm always up for that kind of stuff.

But wait a minute?!!? What the hell is this? This site is not about tourism? This site is not about frugal trips by a random, irrelevant immigrant? You came here for your weekly dose of portfolio analysis, so let's get down to it, shall we?

Market Conditions
(Click on image to enlarge)
Stochastics: 39 (neutral)
McClellan: -48 (neutral)
Stocks above their 20 Day Moving Average: 52% (neutral)

No man's land again. Dangerous to sell Credit spreads right here. The beast can move with violence in either direction. I would be particularly afraid of selling Calls here in the middle of the historically strongest period of the year, and with a pending Fed announcement in a few days that only Allah knows how it will move the markets.

Although the market made big moves this week, it did not reach neither optimistic nor pessimistic extremes. My existing positions were not threatened either and as a result I spent my time saving commissions and counting stars.

December positions
SPX 1880/1885/2190/2195 Iron Condor
Looking great. No concerns. 92% probability of success.

RUT 1010/1015 Credit Put spread
This used to be an Iron Condor whose Call side was closed early for a small profit. The Put side looks really safe with RUT priced at 1183 and just two weeks to expiration. No threats on the horizon.

January positions
SPX 1865/1875/2200/2210 unbalanced Iron Condor
6 weeks to expiration. 82% probability of success. Looking great for now. Adjustment points are 1960 and 2165 for the week. With SPX currently trading at 2190, it seems highly unlikely for adjustments to be necessary in the next few days. 

Action Plan for the Week
Sit on existing positions as a good boy. Nothing to do there other than slowly suck the dough out of them.

As for new opportunities, I would love to sell January RUT Call Spreads above 1270 but the Russell will need to rally by more than 2% in order for me to get the credit I want.

To the downside, if RUT revisits the previous swing lows in the 1140's, barely 3.6 lower from current levels, we may have a shot at selling RUT January Credit Put spreads below the 1000 strike price for decent credits.

There are countless ways to tell a human being how much you suck. The market has the best and most creative ones of all.

The Sniper had been shorting the Euro for a month, successfully following a 300pip+ downtrend. Usually, if the exit conditions have not presented themselves in a couple of weeks, the position ends up being a winner. Following a trend for a month? No question at all. Always a winner. Until now. This is the first position in more than 15 years that results in a loss after such a long time successfully following a trend. The Euro moved from the low 1.05's to the high 1.09's in a single day. More than 4 cents in a day is a remarkable and exceptional move for a currency. Do you want to know how frequently a move like this takes place? Well, the last time the Euro moved more than 4 cents from Low to Close was more than 6 years ago on March 19, 2009. In 15 years of data that I have, it has only happened 4 times. All of them during the 2008-2009 world financial crisis. The Sniper exited the short position at the end of the day taking a 1.09% loss, after being up more than 4% last week.

The most frustrating loss ever.
You would think that redesigning the strategy so that it exits in the middle of the day instead of waiting until the close, or using trailing stop losses would be beneficial for avoiding a case like this one. The sad news is, all my tests indicate that both techniques deteriorate the performance of the strategy, BY A LOT, during the past 15 years. Waiting for the closing price results in reversals that save the day more often than not. Adding Trailing Stops prevents the robot from riding super huge gains of +5 to +10% for the portfolio with a single position. The tests don't lie. The fewer Stop Loss conditions and rules, the better the performance is in the long run. This was just, well, one of those things. Trading is frustrating at times. Other strategies, with predefined Profit Targets, that I have explained on this site in the past, like this one, would have easily caught a win with this trend.

This was probably the last trade of 2015. If that is the case, the Sniper ends up his first year of real money activity up +7.30%. Below my expectations, but still crushing the +3.82% posted by the Barclay Currency Traders Index (Professional audited Forex Traders) for the year as of this writing.

Economic Calendar
Tuesday: Europe GDP. China's CPI and PPI
Wednesday: US Crude Oil Inventories
Friday: US Core Retail Sales, PPI, Retail Sales

Good luck this week folks!


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