Reallocation, possibly take some cash off the table

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Since moving long back into the TSP funds in February, I've not advanced much -- about 1%.  I'm 100% exposed here, with nothing in the G-Fund (cash).

Risk is higher than it's been since November.  Here's a chart that I posted yesterday in my other blog:

As with all my images, right-click on it to open in a new window or tab.

The chart shows a ratio of anticipated risk.  In the numerator we have an ETF, the VXZ, which is a longer-term measurement of anticipated risk in the markets, determined by longer-termed "greeks" on option prices.  In the denominator we have an ETF, the VXX, which represents the volatility index .VIX, which is the anticipated volatility in the next 30 days.

When the VXX is dropping in value, the market feels there is less risk, and typically, they are right.  When the VXX falls faster than the VXZ, the shorter-termed view is bullish and the graph moves upward from lower left to upper right.  When the market starts pricing in more volatility the VXX grows faster than VXZ, causing the chart to fall.

This is the situation that we are in now.

The chart above is a weekly chart, simply to filter the day-to-day noise out.  As you can see, I've placed a moving average along with the ratio, and that moving average *just* started to point downward.  This isn't good for our portfolio.  When this points up, and does so conclusively, we know that we will continue to be in a bull.  We still are, but the bull is getting tired.

The graph at the top of the chart is the slope of the moving average in the chart.  It shows when this ratio of VXZ:VXX is off to the races, and it also shows when it slows.  Your eye can see that it pays to watch this, as  we don't know what the right side of the chart will look like next week, next month, or next year.  When it falls below 0 that is a clear warning of heavier seas, and visibility to calmer seas disappears.

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It's the end of the month, and by my records, we have a reallocation chip left on the table.  It has to be executed today by 12:00 EDT, or if we do it tomorrow, it will count as one of our moves in March.

If you play the 4-Fund/4-ETF game (F-Fund / AGG, I-Fund / EFA, C-Fund / SPY, S-Fund / VXF), then here are your allocations going into March:

• F-Fund / AGG:  9%
• I-Fund / EFA: 22%
• S-Fund / VXF:  41%
• C-Fund / SPY: 28%

This does not account for cash, e.g., there is no provision to put 25% or 50% or 75% in cash.  The allocations above are fully invested.  Decrease each percentage as you see appropriate.

If you play the 3-Fund/3-ETF game (no F-Fund / AGG), then here are your allocations:

• I-Fund / EFA: 19%
• S-Fund / VXF:  52%
• C-Fund / SPY: 29%

I fall into this latter camp, as there simply is no compelling reason for me to play the F-Fund/AGG over the long haul, as bonds typically underperform in a low interest rate environment.

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Trading Plan for Today

I intend to reallocate my funds according to the 3-Fund/3-ETF levels shown above.  I do not plan to move any allocation to cash, as my wife has a longer time frame than many of you and can withstand drawdown more than those of you who are retired or are thinking of retirement.  Your situation may be different, and given the VXZ:VXX ratio above, you may want to consider taking a portion of your monthly gains off the table.

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Remember, you are responsible for your own investment decisions, and I am not.  Please take ownership for your actions and please do your diligence.

Regards,

pgd

February 18th Weekend Update

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I generally look at the TSP funds on a weekend-basis rather than a daily; the signals simply do not change that often so daily review is often the first to go in my time-constrained world.

The F-Fund, represented by the ETF AGG, which is the iShares Lehman Aggregate Bond Fund, while having a poor weekly view (e.g., it's in avoid mode), has signaled a short-term buy as of this past Tuesday.  I don't play the F-Fund but for those of you who do, you may want to give it a review.  Note that it is at comparable levels to the May 2010 time frame, and we all recall that the May - August period was one of declining equity markets but increasing bond values.  It's a different world now, because of interest rates, so do your homework.

Undoubtedly, the question of allocation will come up.  First, let's look at the overall performance of 4 ETFs which represent the available funds within the TSP universe:

We can see that over the past month, AGG / F-Fund has been lagging, and is down -0.56% over the measured period.  We also see that the equity markets are continuing to move higher, which generally does not happen (e.g., equity and bond markets typically are out of sync).  So where is the money actually flowing?

For this, I use a tool called Effective Volume.  EV measures the movement of money flow in and out of a security, and does so based upon the size of the transactions that cause a price change.  Hence, a valid hypothesis is that if the equity markets are in trouble, we should see money flowing out of them and into the bond markets.  Let's have a look.

The EV site above does not track AGG, as it's not a very dynamic nor huge-volume ETF.  Another site has adopted the EV methodology and while there are some issues with this alternate site, the presentation will serve our purposes.  Here is what Monest.net has to say about AGG and other "TSP tracking" ETFs:

The bottom panel shows Large Effective Volume (LEV, red), Small Effective Volume (SmEV, blue), and total EV, (TEV, green).  What we see here for AGG does not support a new signal in AGG -- LEV is flowing out while SmEV is constant, even over the past few days, essentially taking away any confidence that a rally in AGG will be sustained.

Because of this flow out of AGG, I personally would not consider moving anything into AGG at the present time.

I urge you to research the charts for SPY (C-Fund), EFA (I-Fund), and VXF (S-Fund), as the results will be  instructive and should cause you to post a question or two.

Regards,

pgd

New Buy Signals for Monday, February 7th

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Over the past week the three primary funds of the TSP signaled entry.  Here is the 1-month performance chart of the 4 primary funds available with TSP:

Here is what my personal GGT system has to say about the TSP funds:

Essentially, we have long signals for the equity funds and we have cash signals for the bond fund.

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Here are the allocations going into Monday, February 7th:

3-Fund Portfolio

This portfolio invests in only the three primary equity funds, using the G-Fund as a safe haven.  This is an aggressive fund in that there is no bond component:

1. G-Fund:  0%
2. I-Fund / EFA:  46%
3. C-Fund / SPY:  29%
4. S-Fund / VXF:  25%

4-Fund Portfolio

This portfolio invests in all available equity and bond funds from TSP, and uses G-Fund as a safe haven.  This is a more conservative fund because of the bond component.

Note that the bond component is in CASH right now.

1. G-Fund / Cash:  7%
2. F-Fund / AGG:  CASH
3. I-Fund / EFA:  40%
4. C-Fund / SPY:  28%
5. S-Fund / VXF:  25%

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Your actual situation may be different so adjust your cash position/allocation percentages accordingly with your risk tolerance.  I do suggest keeping the same ratio though, as this has been proven in the past to optimize returns.

My trades will be effective the evening of Monday, Feb 7th.  I am a 3-Fund Portfolio person ...

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Remember, you are responsible for your actions, and I am not.  Please do your diligence, and please take ownership for your decisions.

Regards,

pgd

A View of Starting 2011...

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And a new year begins ....

I'm starting 2011 in cash, having come off of a two week vacation over the holidays.  Volume within this time has been drying up, and I must say it has been doing so rather dramatically, so the availability of buyers and sellers has been limited.  It's never a good time to play the market when this is occurring, as the numbers can go against you as well as with you, so my conservative approach is/was simply to jump to the sidelines.

Overall View - 3-Fund

Here's a bird's-eye view of an index created using EFA (I-Fund), SPY (C-Fund), and VXF (S-Fund).  Right-click on the image to open in a new tab or window:

In a macro sense, the composite index is bullish.  The daily highs are above the 13d EMA, causing Bull Power to be positive.  Reinforcing this is that the daily lows are above the 13d EMA also, resulting in Bear Power being positive, which is bad for the bears.  Two different methods of calculating Elder's 13-day Force Index are "green", telling me that both these methods are resulting in numbers that are positive.  This too is bullish.  The 3rd ribbon from the top is also green, which is the 2d Force Index, and it is telling me that the index pulled back on Friday, indicating that we can enter the index (if this were possible) on Monday if everything moves higher.

A crack in the bull ice which may prevent me from entering a full position is shown in the MACD window under the ribbons.  What you see there is that the MACD Histogram is underwater (below 0), indicating a loss of momentum in the index.  This is visually seen too by the gradually decreasing MACD and MACD Signal lines -- they have recently crossed (histogram moves negative) and are trending downward.

On a bearish side the slope of the 13d EMA (red) is below the slope of the 34d EMA (black), and both are pointing down.  This too confirms/validates the loss of momentum.  If they cross below 0 we'll have no doubt about the portfolio nor where we want to be positioned.  As a personal note I rarely enter a position when the  slopes are pointing downward ...  This all being said, the slope values are still positive, so if they turn upward in their direction, I'll move back in.

Finally, the portfolio is still bullish overall.  The prices are above the 13d EMA, and all of the longer EMAs have a steady, upward-pointing direction to them.

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I'm simply going to wait for a signal to re-enter, most likely the slopes of the 13d and 34d reversing and starting to move upward.  Stay tuned.

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Remember, you are responsible for your own investment decisions, and I am not.  Please take ownership for your actions.

Regards,

pgd

On vacation until January 2nd

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The blog will resume the weekend of January 1st.

Happy holidays and let's make this a prosperous 2011!

Regards,

pgd

VXF / S-Fund Signals Long, I-Fund/EFA and C-Fund/SPY still in CASH

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This will be rather brief, as we are in cash.

C-Fund / SPY

Overall, the C-Fund / SPY has individually been signalling cash since 11/12 and at the present moment, is maintaining that stance on the daily charts.  The present level of the C-Fund is $14.3578 / share, and with the SPY at $118.84 / share, the ratio between the two is about 8.2770.  GGT is indicating that we possibly could move back long again if the SPY moves above $120.96, so this would be a C-Fund price of about $14.62.  Hence, watch for closings above that level, but note too that this is a projection into the future, which needs to be re-done on the date of the crossing to determine validity.

S-Fund / VXF

The S-Fund /VXF signal has moved back long, as of 11/18, but I missed it.  The signal was tested again on 11/23, and presently remains long although I'm still sitting in cash.  I'm not convinced that this isn't a sucker rally for the VXF but I have to trust the signals, hence I'll throw my hat into the ring and move long as far as the VXF is concerned.  Had we moved on the signal date, the effective date would have been the close of 11/19, and the VXF price then was $51.08 as of that close, or down 1.7% from where we are today.  As you will see below, we would have allocated around 61% of our monies, so actual loss as of the close this past Friday is about 0.65%.

The S-Fund is trading at $19.9449 and the VXF is at $51.63.  This implies that the ratio between the two is 2.5886.  VXF is telling me that we're in trouble below $50.37, which is $19.46 for the S-Fund, so we've a bit of room above the "trouble zone".  We'll see if this trade works.

I-Fund / EFA

The I-Fund/EAF signal has officially been signalling cash since 11/12 and with the action this past week, has confirmed the move to cash on the weekly chart.  This is incredibly bearish and we'll need some time to get over this hurdle.

This being said, the I-Fund is valued at $18.9231 and EFA at $55.47, suggesting a multiple of 2.9313.    For the present moment EFA would need to clear $58.82, or an I-Fund value of $20.07.  This is quite a bit above where it is right now, and while possible, I don't see it in the near future.

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Performance and Allocation

To date, over the last 30 days, we have the following performance:

• SPY:  +0.34%
• VXF:  +4.46%
• EFA:  - 2.91%

Correspondingly, allocations for funding are as follows:

• SPY -- in cash and will stay in cash, but allocation is 31%
• VXF:  61%
• EFA:  -- in cash and will stay in cash, but allocation is 8%

I am not sure that the VXF entry won't be a sucker's rally but I learned to trust the signals long ago.

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Trading Plan for Monday, November 29th.

Because I have placed 2 intra-fund transfers this month, I cannot transfer this money until after 12:00 on Tuesday, November 30th.  I have placed an order at www.tsp.gov for a contribution allocation to reflect new additions at 61% of the S-Fund / VXF, and leave the remaining 39% in the G-Fund (think money market). Follow me at your own peril.

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Remember, you are responsible for your own trading decisions, and I am not.  Please take ownership for your actions and do your diligence before you blindly follow anybody.

Regards,

pgd

Move to Cash 11/17/10

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Anticipating a dead-cat bounce today (Wednesday, November 17th), hence I have placed an order at http://www.tsp.gov/ to move all my account monies to CASH.

Please go to http://greekgodtrading.blogspot.com/ to review rationale on the present market climate and why I am taking this action.  Basically, my primary indicator, the GGT Long-Cash Ratio (LCR), has been heading down for 4 days solid and the Elder 13d Force Index simply confirmed the action.

Here's the composite chart using the 3-ETF/3-Fund equal-weighting approach:

If anything on the chart above is not clear, specifically why this chart is breaking down, then please post a note below and I'll respond for all to review.

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Remember, you are responsible for your own trading decisions, not me.  Please do your diligence and take ownership for your actions.

Regards,

pgd