Monthly Archives: November 2011

Investment Readings

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With the US equity markets in daily roller-coaster mode, below are investment articles offering big picture analysis beyond just the daily market swings and headlines:

Rainbow Convergence Has Predictive Value – Tom McClellan

Changing the Rules in the Middle of the Game (pdf) – John Mauldin

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Desperate Times Call for Drastic Measures – Bob Eisenbeis, Cumberland Advisors

US Government Debt Crisis Hovers in the Background, Part 1 and Part 2 Here – Satyajit Das

Adam Hewison’s Daily Market Video Update (free):

It’s All Very Taxing (pdf) – Howard Marks

Is This the Best Stock Market Indicator Ever? (part 1) John F. Carlucci

Secret Fed Loans Gave Banks $13 Billion – Bloomberg

Grantham Calls Corporate Profits Freakish – Bloomberg

Apple Computer: Massive P/E Compression – Systematic Relative Strength

Disclaimer: No current positions in stocks mentioned. Please note that Scott’s Investments and its author is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott’s Investments.

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Disclaimer: Stock Loon LLC, Scott's Investments and its author is not a financial adviser. Stock Loon LLC, Scott's Investments and its author does not offer recommendations or personal investment advice to any specific person for any particular purpose. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of www.scottsinvestments.com

(Only) 3 Low PEG, High Momentum Stocks

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Each month I update a fundamental/technical screen at Scott’s Investments and track the results real-time.  October’s list of 11 stocks is here and the screen returned -2.53%, out performing SPY which returned -6.26% over the same time period.   The screen is not intended as a comprehensive portfolio, but a list for further research, and proper risk management techniques should always be considered.

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The screen looks for the following:

  • earnings growers still reasonably priced as judged by the PEG ratio 
  • low debt 
  • a history of high return on equity and investment, and 
  • price momentum as gauged by the percentage the stock is trading to its 250 day high. 
  • The stocks are then ranked based on fundamental factors as compiled by stockscreen123.

Apple (AAPL) was on last month’s list but dropped off this month’s list due to the stock’s fading price momentum.  Only three companies qualified for this month’s list, primarily due to the recent equity market sell-off which resulted in many equities trading well below their 250 day high.

The three companies on this month’s list are a diverse mix – True Religion (TRLG), an apparel retailer, Questcor Pharmaceuticals (QCOR), a biotechnology company, and NeuStar (NSR), a communication provider.  All three companies have appeared on this stock list in the past.  They all sport little or no debt, a high historical return on equity and investment, and a PEG ratio below 1.  Their price strength and momentum in the midst of an otherwise dismal equity market should be noted:

Ticker Name Trend SS123 Rank MktCap PEG LT ROE% 5YAvg ROI% 5YAvg
NSR Neustar, Inc Here 87.12 2319.56 0.94 17.96 16.84
QCOR Questcor Pharmaceuticals, Inc. Here 82.12 2595.62 0.92 43.34 42.57
TRLG True Religion Apparel, Inc. Here 78.89 823.18 0.82 28.88 27.84

For some free daily video updates, please click on the video below:

Disclaimer: No current positions in stocks mentioned. Please note that Scott’s Investments and its author is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott’s Investments.

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Disclaimer: Stock Loon LLC, Scott's Investments and its author is not a financial adviser. Stock Loon LLC, Scott's Investments and its author does not offer recommendations or personal investment advice to any specific person for any particular purpose. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of www.scottsinvestments.com

Is This December Similar to 2007 & 2008 for Gold & Stocks?

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Chris Vermeulen just posted a new, free article Is This December Similar to 2007 & 2008 for Gold & Stocks?  He is watching the US Dollar closely for keys on where gold (GLD) and US equities (SPY) may be headed.  Below is an excerpt from his article:

In short, we are entering a tough time to trade the market. Volatility is low, there are a few holidays and typically we see volume thin out as December unfolds. Light volume generally favors higher prices for stocks and commodities which is one of the reasons we get the holiday lift in prices. 
The recent selloff in stocks is looking overdone to the down side and ready to bounce any day. So I am looking for signals to get long the SP500. Overall risk remains very high as sellers are still in control of the market and because we are looking to put on a trade against the intermediate trend which is down. 
On Friday morning myself and my followers exited our short position on the SP500 at the open locking in 13.5% profit. We exited the position because the intraday charts are showing signs of a potential bottom and we want to avoid the tear your face off short covering rally that I feel is just around the corner. Now we are waiting for a another low risk setup and will take action to go long or short depending how things unfold in Europe.

Disclaimer: No current positions in stocks mentioned. Please note that Scott’s Investments and its author is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott’s Investments.

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Disclaimer: Stock Loon LLC, Scott's Investments and its author is not a financial adviser. Stock Loon LLC, Scott's Investments and its author does not offer recommendations or personal investment advice to any specific person for any particular purpose. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of www.scottsinvestments.com

Ranking the Dividend Champions on Volatility and Returns

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I last rated the Divided Champions on October 23rd, when the US equity market was in the midst of a nice October rally.  November, and especially the  last two weeks, has not been as nice for US equities so now is a good time to check in on which Dividend Champions are holding up well.


Using a custom excel spreadsheet containing price data for the current Dividend Champions, I began by calculating the historical volatility over the past 63, 126, and 252 trading days of each Dividend Champion. I chose these timeframes to correspond closely to 3, 6, and 12 month time frame.


I then averaged the three volatility numbers and used these values to assign a volatility rank to each Dividend Champion.  The higher the rank, the lower average historical volatility over 63, 126, and 252 days.


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I repeated these steps for each stock’s dividend adjusted return over the same time period.  I then calculated the risk-adjusted returns (calculated as the returns divided by the historical volatility) for each Dividend Champion over the past 63, 126, and 252 trading days.  These three values were then averaged and each stock was assigned a risk-adjusted return ranking.  The higher the historical risk-adjusted return, the higher the ranking.  I consider this my “overall” rank for each stock and is similar to a sharpe ratio calculation.  


Below are the current rankings, with the highest number in the ranking columns equating to the highest rated stock for that category:

For some free daily market updates, check out MarketClub:

Symbol Average of 63-126-252 Day Volatility 63-126-252 Day Volatility Rank (higher #=lower volatility) 3-6-12 Month Returns 3-6-12 Month Returns Rank (higher #=higher returns) Average 3-6-12 Risk Adjusted Return: Risk Adjusted Return Ranks (higher #=higher returns)
MMM 34.16% 48 -9.6% 17 -0.30 14
ABT 19.52% 95 7.9% 90 0.44 94
ABM 48.19% 13 -7.3% 22 -0.17 24
AFL 49.00% 12 -10.4% 15 -0.26 18
APD 33.92% 49 -8.2% 19 -0.27 17
MO 16.68% 102 7.9% 89 0.49 95
AWR 26.22% 82 -2.4% 41 -0.09 39
ADM 38.10% 38 -4.3% 29 -0.12 33
T 19.40% 96 -3.0% 37 -0.14 28
ADP 27.18% 78 -0.4% 51 0.01 56
BDX 27.38% 77 -11.3% 14 -0.45 6
BMS 29.93% 67 -9.6% 16 -0.32 12
BKH 29.44% 71 2.8% 65 0.10 68
BWL-A 23.61% 89 -0.7% 49 -0.01 51
BRC 48.11% 14 -7.9% 20 -0.20 22
BF-B 30.08% 65 8.0% 92 0.29 86
BCR 28.09% 73 -11.8% 10 -0.39 10
CWT 26.51% 81 -2.7% 40 -0.10 37
CSL 46.21% 18 1.8% 60 0.05 58
CTL 29.75% 70 -6.6% 23 -0.25 19
CB 28.78% 72 7.6% 86 0.28 84
CINF 35.95% 43 -2.4% 42 -0.08 41
CTAS 33.69% 50 -4.5% 28 -0.12 30
CLC 42.20% 26 5.5% 75 0.14 73
CLX 24.05% 88 -1.2% 47 -0.04 46
KO 20.06% 92 -0.7% 50 -0.02 48
CL 21.15% 91 5.6% 76 0.30 87
CBSH 37.86% 39 -5.3% 26 -0.14 26
CTBI 39.93% 31 4.4% 73 0.11 70
CTWS 32.05% 55 6.2% 79 0.20 79
ED 18.48% 99 11.0% 96 0.68 98
DBD 42.79% 24 -4.0% 32 -0.12 31
DCI 38.81% 36 14.9% 98 0.41 93
DOV 43.26% 21 -11.5% 12 -0.28 16
EFSI 24.80% 85 7.0% 85 0.26 82
EV 49.66% 10 -18.9% 4 -0.41 7
EMR 37.22% 41 -6.3% 24 -0.18 23
EGN 45.16% 19 -4.9% 27 -0.10 38
XOM 28.03% 74 1.8% 62 0.09 66
FDO 27.41% 76 10.8% 94 0.34 88
FRT 31.35% 59 1.1% 57 0.06 61
BEN 49.64% 11 -22.1% 2 -0.48 5
GPC 30.72% 62 8.0% 91 0.28 85
GRC 62.49% 2 -9.5% 18 -0.14 27
FUL 50.79% 9 -0.1% 52 0.00 54
HGIC 104.91% 1 93.4% 103 0.70 100
HCP 35.88% 44 6.1% 78 0.19 78
HP 58.18% 5 -2.9% 39 -0.04 45
HRL 24.16% 87 7.9% 88 0.36 91
ITW 39.26% 34 -11.4% 13 -0.31 13
JNJ 18.67% 98 -2.1% 44 -0.10 36
KMB 16.12% 103 7.6% 87 0.51 96
LANC 29.78% 69 15.0% 99 0.52 97
LEG 39.97% 30 -3.4% 35 -0.07 43
LOW 31.96% 57 2.5% 64 0.08 64
MKC 23.17% 90 2.2% 63 0.11 71
MCD 17.88% 100 12.1% 97 0.68 99
MHP 36.33% 42 6.6% 82 0.22 80
MDT 33.29% 52 -3.9% 33 -0.12 32
MCY 32.77% 53 5.7% 77 0.17 76
MGEE 28.03% 75 3.4% 66 0.14 72
MSEX 29.94% 66 0.0% 54 0.00 55
MSA 58.85% 4 3.7% 68 0.07 63
NC 54.22% 7 -12.6% 9 -0.23 20
NFG 39.98% 29 -13.4% 8 -0.33 11
NDSN 46.44% 17 -1.5% 46 -0.02 49
NWN 24.79% 86 -0.1% 53 -0.02 50
NUE 39.54% 32 -2.9% 38 -0.08 42
ORI 42.97% 23 -33.7% 1 -0.89 1
PH 43.06% 22 -1.1% 48 -0.03 47
PNR 39.51% 33 1.5% 59 0.06 59
PEP 19.87% 94 -3.4% 34 -0.17 25
PNY 30.61% 63 1.8% 61 0.07 62
PBI 34.95% 46 -16.3% 5 -0.51 3
PPG 35.77% 45 3.4% 67 0.10 69
PG 17.38% 101 -2.4% 43 -0.14 29
STR 26.67% 80 6.7% 84 0.27 83
RAVN 59.29% 3 3.8% 70 0.08 65
RLI 31.23% 60 27.4% 101 0.96 102
RPM 40.83% 27 3.7% 69 0.09 67
SHW 26.85% 79 9.3% 93 0.35 90
SIAL 34.68% 47 -7.8% 21 -0.22 21
SJW 37.51% 40 0.0% 55 -0.01 52
SON 29.93% 68 -3.0% 36 -0.12 34
SWK 47.37% 15 -4.0% 31 -0.08 40
SCL 43.81% 20 6.3% 80 0.16 75
SYY 20.00% 93 -6.0% 25 -0.29 15
TGT 25.47% 84 0.2% 56 -0.01 53
TDS 46.75% 16 -21.3% 3 -0.53 2
TNC 55.57% 6 1.3% 58 0.03 57
TMP 40.54% 28 -1.7% 45 -0.05 44
TR 32.21% 54 -14.0% 7 -0.48 4
UBSI 51.45% 8 4.0% 71 0.06 60
UVV 31.93% 58 10.9% 95 0.34 89
VAL 38.64% 37 5.3% 74 0.15 74
VVC 26.02% 83 4.1% 72 0.18 77
VFC 33.35% 51 34.8% 102 1.01 103
GWW 31.99% 56 24.5% 100 0.82 101
WAG 30.80% 61 -11.8% 11 -0.41 8
WMT 19.02% 97 6.5% 81 0.37 92
WRE 38.90% 35 -15.0% 6 -0.41 9
WEYS 42.38% 25 -4.3% 30 -0.11 35
WGL 30.23% 64 6.7% 83 0.25 81

The top 10 stocks based on risk-adjust returns are below:

Symbol Average of 63-126-252 Day Volatility 63-126-252 Day Volatility Rank 3-6-12 Month Returns 3-6-12 Month Returns Rank Average 3-6-12 Risk Adjusted Return: Risk Adjusted Return Ranks
VFC 33.35% 51 34.8% 102 1.01 103
RLI 31.23% 60 27.4% 101 0.96 102
GWW 31.99% 56 24.5% 100 0.82 101
HGIC 104.91% 1 93.4% 103 0.70 100
MCD 17.88% 100 12.1% 97 0.68 99
ED 18.48% 99 11.0% 96 0.68 98
LANC 29.78% 69 15.0% 99 0.52 97
KMB 16.12% 103 7.6% 87 0.51 96
MO 16.68% 102 7.9% 89 0.49 95
ABT 19.52% 95 7.9% 90 0.44 94

The ten Dividend Champions with the lowest volatility are below:

Symbol Average of 63-126-252 Day Volatility 3-6-12 Month Returns 3-6-12 Month Returns Rank (higher #=higher returns) Average 3-6-12 Risk Adjusted Return: Risk Adjusted Return Ranks (higher #=higher returns)
KMB 16.12% 7.6% 87 0.51 96
MO 16.68% 7.9% 89 0.49 95
PG 17.38% -2.4% 43 -0.14 29
MCD 17.88% 12.1% 97 0.68 99
ED 18.48% 11.0% 96 0.68 98
JNJ 18.67% -2.1% 44 -0.10 36
WMT 19.02% 6.5% 81 0.37 92
T 19.40% -3.0% 37 -0.14 28
ABT 19.52% 7.9% 90 0.44 94
PEP 19.87% -3.4% 34 -0.17 25

Less volatile stocks tend to outperform their higher volatility counter parts in bear markets, while the high volatility stocks tend to outperform in bull markets.  For investors who want to maintain equity exposure but are concerned about overall equity market volatility, less volatile dividend stocks may offer an attractive alternative.

Disclaimer: No current positions in stocks mentioned. Please note that Scott’s Investments and its author is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott’s Investments.

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Disclaimer: Stock Loon LLC, Scott's Investments and its author is not a financial adviser. Stock Loon LLC, Scott's Investments and its author does not offer recommendations or personal investment advice to any specific person for any particular purpose. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of www.scottsinvestments.com

Thanksgiving Day Investment Articles

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Below are some investments readings for Turkey Day:

What caused the financial crisis? The Big Lie goes viral and Examining the big lie: How the facts of the economic crisis stack up – Barry Ritholtz

High dividend payers the place to be - Prieur du Plessis

For Adam Hewison’s free daily market updates, click on the video below:

Richard Russell: “Debt balloon moving closer to its fate – a pin” - courtesy Prieur du Plessis

Slipping Toward Recession in Europe – Macro Tides via The Big Picture

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Bond/Stock Relationship Echoing 2008? Michael A. Gayed

To the Eurozone: advance or risk ruin – Martin Wolf (FT registration required)

November/December Economic Report (pdf) – Simon Hunt via John Mauldin

Disclaimer: No current positions in stocks mentioned. Please note that Scott’s Investments and its author is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott’s Investments.

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Disclaimer: Stock Loon LLC, Scott's Investments and its author is not a financial adviser. Stock Loon LLC, Scott's Investments and its author does not offer recommendations or personal investment advice to any specific person for any particular purpose. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of www.scottsinvestments.com

How to Trade Using Market Sentiment & the Holiday Season

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Chris Vermeulen of The Gold and Oil Guy published an article yesterday on how to trade using market sentiment and what to expect in the equity market.  The beginning of the article is below, for the full free article click here:

The months of November and December are the second strongest back to back months for the financial markets. Many traders and investors use this time of the year to reap big gains as they close the year out. The fact that most traders and investors are sitting in cash and underweight stocks in their portfolio’s leaves me to believe a Santa Clause rally is just around the corner. Reason being is everyone has cash on hand to buy stocks because they are selling their positions in this pullback we are in right now. I know traders well enough, they will buy back into the market trying to catch the holiday rally in the coming weeks. 

Subscribers and myself have been short the SP500 for a couple weeks after watching the broad market become overbought and sentiment levels became overly bullish with greedy pigs thinking they could buy stocks after a massive month long rally that had not pullback. Once the selling started you would either get you head handed to you or you were going to make a killing buying leveraged inverse ETFs. 

Those who arrived late to the rally are the ones selling out of their positions this week. The interesting thing about this week’s market condition is that I have not seeing any real panic selling in stocks, and I’m not seeing the volatility index spike in value yet. 

What does this mean? Well it means we could actually see another big dip in the market which should last 1-2 days and then we get a sharp reversal to the upside.

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Disclaimer: No current positions in stocks mentioned. Please note that Scott’s Investments and its author is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott’s Investments.

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Disclaimer: Stock Loon LLC, Scott's Investments and its author is not a financial adviser. Stock Loon LLC, Scott's Investments and its author does not offer recommendations or personal investment advice to any specific person for any particular purpose. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of www.scottsinvestments.com

Comparing Two Portfolios

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A reader requested I compare a trend strategy using the Decision Moose portfolio of nine ETFs and the 25 ETFs I track each month in my ETFReplay.com Portfolio.   Please keep in mind that the Decision Moose portfolio I detailed yesterday is my interpretation of the original portfolio available at Decision Moose. For example, TLT and SHY are not funds in the Decision Moose portfolio.  I use them as close substitutes for BTTRX and 3 month Treasuries, both used in the original Decision Moose portfolio. In addition, the relative strength strategy I detail in this post is not an attempt to replicate the strategy at Decision Moose.  I am simply taking the 9 funds (or close substitutes) Decision Moose uses and applying a relative strength strategy to them.

Here are the parameters I used for comparing historical results of the two portfolios: 1) Each portfolio was tested using a combination of the 6 month return, 3 month return, and 3 month volatility (a parameter I frequently refer to as “6/3/3″).  The highest rated ETF(s) as ranked by the combination of their 6 month return, 3 month return, and 3 month volatility were purchased. 2) Each portfolio was updated monthly at the beginning of the month and commission costs and taxes were excluded in the results.  Results are from 2003-present.

A significant caveat is warranted: GLD,  an eligible fund in the Decision Moose portfolio and my ETFReplay.com Portfolio, did not begin trading until 2005.  Only eight of the current 25 ETFs in my ETFReplay.com Portfolio were trading at the start of 2003.  The full 25 were not available until 2008.  This makes comparisons and historical testing very difficult.

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When purchasing the top 1 ETF each month in each below the portfolios performed as follows:


 Total Return Volatility CAGR Sharpe Ratio SPY Correlation Drawdown
Decision Moose Top 1 469.40% 20.90% 21.60% 1.03 0.31 -17.20%
ETFReplay.com Portfolio Top 1 339.20% 17.80% 18.10% 0.96 0.26 -21.70%
SPY 60.00% 21.40% 5.4%           0.23
          -50.8%

When purchasing the top 1 ETF in the Decision Moose portfolio and the top 2 in my ETFReplay.com Portfolio, the portfolios performed as follows:


 Total Return Volatility CAGR Sharpe Ratio SPY Correlation Drawdown
Decision Moose Top 1 469.40% 20.90% 21.60% 1.03 0.31 -17.20%
ETFReplay.com Portfolio Top 2 322.10% 15.40% 17.60% 1.13 0.35 -10.70%
SPY 60.00% 21.40% 5.40% 0.23
-50.80%

When purchasing the top 2 ETFs in the Decision Moose portfolio and the top 4 in my ETFReplay.com Portfolio, the results are below:


 Total Return Volatility CAGR Sharpe Ratio SPY Correlation Drawdown
Decision Moose Top 2 715.80% 17.90% 26.60% 1.45 0.34 -10.20%
ETFReplay.com Portfolio Top 4 305.90% 13.30% 17.10% 1.19 0.38 -11.20%
SPY 60.00% 21.40% 5.40% 0.23
-50.80%

Test results courtesy of ETFReplay.com

The top 2 Decision Moose portfolio results are especially impressive.  Historical results are no guarantee of future returns but a top 2 strategy in the “Moose” has had minimal drawdown and reasonable volatility relative to returns.  The current holdings if one were to rebalance this portfolio today? SHY (1-3 Year Treasury Bond ETF) and TLT (20+ Treasury Bond ETF) which differs from the portfolio at the beginning of the month which was TLT and GLD (Gold ETF).

Happy Trading!

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Disclaimer: No current positions in stocks mentioned. Please note that Scott’s Investments and its author is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott’s Investments.

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Disclaimer: Stock Loon LLC, Scott's Investments and its author is not a financial adviser. Stock Loon LLC, Scott's Investments and its author does not offer recommendations or personal investment advice to any specific person for any particular purpose. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of www.scottsinvestments.com

Testing Decision Moose Asset Allocation Strategies

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Decision Moose is a proprietary asset allocation and market timing signal provided to internet users for free.  The model has historical trades dating to August 1996.  The site has also been independently reviewed by CXO and the historical returns for Decision Moose is impressive.   Perhaps the most impressive aspect of Decision Moose besides its historical results are the low turnover – the model is updated/checked weekly, but trades in 2010 totaled 7 and this year there have only been 3 trades.

The model makes its investment decisions based on asset class momentum, monetary policy, and overall market indicators.  The model is long-only and invests 100% of its capital to one fund at a time.  It evaluates nine index funds to determine which one to invest in, with the nine funds listed below:

Cash or Money Market Fund (3 month Treasury) 
Long-term zero-coupon Treasury bonds (BTTRX) 
Large cap US stocks (SPY) 
Small cap US stocks (IWM) 
Gold Bullion (GLD) 
Europe 350 stocks (IEV) 
Latin America 40 stocks (ILF) 
Japan stocks (EWJ) 
Pacific ex-Japan stocks (EPP)

The current holding as of 11/18/11 is Long Treasury Bonds (BTTRX).

How To Trade Market Sentiment

I decided to to look at this portfolio using just relative strength.  This is not an attempt to unveil or decode Decision Moose’s proprietary model since I am making no consideration for monetary conditions or other market indicators.   Rather, I wanted to see how a strictly momentum based model of the Moose portfolio performed historically.

ETF Replay was used to test the portfolio in a variety of manners. I had to make two adjustments to the portfolio in order to backtest the portfolio – TLT was substituted for BTTRX and SHY was substituted for 3 month treasuries.  Another limitation to this test is GLD did not begin trading until 2004 – Decision Moose used a closed-end fund, ASA, for gold prior to GLD’s inception. ASA is not in ETF Replay’s historical database.

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First, I tested the portfolio to 2003 using the 6 month relative performance to determine a single holding and rebalanced monthly.  The results are below:

The current holding using 6 month relative strength is TLT.

If we perform the same exact test using 3 month relative strength, holding the top fund and re-balancing monthly performed as follows:

The current holding using the 3 month relative strength signal is TLT.

Next, if we test a strategy using the 6 month returns weighted 40%, 3 month returns weighted 30%, and 3 month volatility weighted at 30% (I refer to this as “6/3/3″), the Moose Portfolio performance is below.  For more background on how this “6/3/3″ strategy works, I provide background on my ETFReplay.com Portfolio which I update and track monthly for free on Scott’s Investments:

The volatility is lower in this test and the equity curve shows less peaks and valleys than the first two tests.  TLT is also the current holding in this strategy.

Finally,  if we test a strategy using the 3 month returns weighted 40%, 20 day returns weighted 30%, and 20 day volatility weighted at 30% (“3/20/20″), the Moose Portfolio performs as follows:

The 3/20/20 strategy has stalled somewhat in the past 2 years but still shows impressive returns at lower volatility compared to SPY.  It is evident from all four strategies and Decision Moose that long-term treasuries, at least for the time being, is the asset-class showing favorable risk/return.

The full trade history of the 6/3/3 strategy is below:

Start Date End Date Portfolio Return Bench Return
12/31/02 01/31/03 ILF -4.54% -2.46%
01/31/03 02/28/03 TLT 3.10% -1.35%
02/28/03 03/31/03 TLT -1.36% 0.21%
03/31/03 04/30/03 EPP 4.16% 8.46%
04/30/03 05/30/03 ILF 3.69% 5.48%
05/30/03 06/30/03 ILF 2.78% 1.07%
06/30/03 07/31/03 ILF 3.44% 1.80%
07/31/03 08/29/03 ILF 4.72% 2.06%
08/29/03 09/30/03 EPP 3.84% -1.09%
09/30/03 10/31/03 ILF 6.01% 5.35%
10/31/03 11/28/03 EPP -0.80% 1.09%
11/28/03 12/31/03 ILF 10.86% 5.03%
12/31/03 01/30/04 ILF -0.53% 1.98%
01/30/04 02/27/04 IEV 3.31% 1.36%
02/27/04 03/31/04 EPP -0.32% -1.32%
03/31/04 04/30/04 EWJ -6.71% -1.89%
04/30/04 05/28/04 IEV 1.98% 1.71%
05/28/04 06/30/04 EWJ 6.31% 1.85%
06/30/04 07/30/04 IEV -3.79% -3.22%
07/30/04 08/31/04 TLT 4.16% 0.24%
08/31/04 09/30/04 TLT 0.95% 1.00%
09/30/04 10/29/04 ILF 2.37% 1.29%
10/29/04 11/30/04 EPP 7.29% 4.45%
11/30/04 12/31/04 EPP 4.20% 3.02%
12/31/04 01/31/05 EPP -0.47% -2.24%
01/31/05 02/28/05 EPP 4.22% 2.09%
02/28/05 03/31/05 EPP -3.69% -1.83%
03/31/05 04/29/05 EPP 0.77% -1.87%
04/29/05 05/31/05 TLT 3.14% 3.22%
05/31/05 06/30/05 TLT 2.16% 0.15%
06/30/05 07/29/05 TLT -3.38% 3.83%
07/29/05 08/31/05 SPY -0.94% -0.94%
08/31/05 09/30/05 ILF 15.62% 0.80%
09/30/05 10/31/05 ILF -4.16% -2.37%
10/31/05 11/30/05 EWJ 2.89% 4.40%
11/30/05 12/30/05 ILF 1.24% -0.19%
12/30/05 01/31/06 EWJ 3.70% 2.40%
01/31/06 02/28/06 ILF -1.07% 0.57%
02/28/06 03/31/06 ILF -1.81% 1.65%
03/31/06 04/28/06 GLD 12.03% 1.26%
04/28/06 05/31/06 GLD -1.32% -3.01%
05/31/06 06/30/06 IEV 0.72% 0.26%
06/30/06 07/31/06 IEV 1.97% 0.45%
07/31/06 08/31/06 SHY 0.75% 2.18%
08/31/06 09/29/06 IEV 0.67% 2.70%
09/29/06 10/31/06 TLT 0.85% 3.15%
10/31/06 11/30/06 SPY 1.99% 1.99%
11/30/06 12/29/06 EPP 4.41% 1.33%
12/29/06 01/31/07 EPP 1.57% 1.50%
01/31/07 02/28/07 EPP 0.63% -1.96%
02/28/07 03/30/07 EPP 4.95% 1.16%
03/30/07 04/30/07 EPP 3.90% 4.43%
04/30/07 05/31/07 EPP 3.09% 3.39%
05/31/07 06/29/07 ILF 1.39% -1.46%
06/29/07 07/31/07 ILF 0.57% -3.13%
07/31/07 08/31/07 SHY 1.05% 1.28%
08/31/07 09/28/07 SHY 0.55% 3.87%
09/28/07 10/31/07 GLD 6.95% 1.36%
10/31/07 11/30/07 GLD -1.65% -3.87%
11/30/07 12/31/07 GLD 6.65% -1.13%
12/31/07 01/31/08 TLT 2.10% -6.05%
01/31/08 02/29/08 GLD 5.23% -2.58%
02/29/08 03/31/08 GLD -6.00% -0.90%
03/31/08 04/30/08 GLD -4.16% 4.77%
04/30/08 05/30/08 ILF 8.70% 1.51%
05/30/08 06/30/08 ILF -7.61% -8.35%
06/30/08 07/31/08 SHY 0.43% -0.90%
07/31/08 08/29/08 SHY 0.47% 1.55%
08/29/08 09/30/08 TLT 1.47% -9.44%
09/30/08 10/31/08 TLT -1.86% -16.52%
10/31/08 11/28/08 SHY 1.10% -6.96%
11/28/08 12/31/08 TLT 13.64% 0.98%
12/31/08 01/30/09 TLT -13.07% -8.21%
01/30/09 02/27/09 TLT -1.54% -10.74%
02/27/09 03/31/09 GLD -2.54% 8.35%
03/31/09 04/30/09 SHY -0.16% 9.93%
04/30/09 05/29/09 EPP 15.48% 5.85%
05/29/09 06/30/09 ILF -2.45% -0.07%
06/30/09 07/31/09 ILF 8.46% 7.46%
07/31/09 08/31/09 EPP 3.53% 3.69%
08/31/09 09/30/09 EPP 9.69% 3.55%
09/30/09 10/30/09 EPP -2.32% -1.92%
10/30/09 11/30/09 GLD 12.79% 6.16%
11/30/09 12/31/09 GLD -7.20% 1.91%
12/31/09 01/29/10 ILF -10.82% -3.63%
01/29/10 02/26/10 GLD 3.27% 3.12%
02/26/10 03/31/10 SPY 6.09% 6.09%
03/31/10 04/30/10 IWM 5.67% 1.55%
04/30/10 05/28/10 IWM -7.54% -7.95%
05/28/10 06/30/10 TLT 5.80% -5.17%
06/30/10 07/30/10 TLT -0.95% 6.83%
07/30/10 08/31/10 TLT 8.40% -4.50%
08/31/10 09/30/10 TLT -2.51% 8.96%
09/30/10 10/29/10 GLD 3.68% 3.82%
10/29/10 11/30/10 GLD 2.11% 0.00%
11/30/10 12/31/10 GLD 2.44% 6.68%
12/31/10 01/31/11 IWM -0.37% 2.33%
01/31/11 02/28/11 IWM 5.54% 3.47%
02/28/11 03/31/11 SPY 0.01% 0.01%
03/31/11 04/29/11 SPY 2.90% 2.90%
04/29/11 05/31/11 GLD -1.79% -1.12%
05/31/11 06/30/11 GLD -2.43% -1.69%
06/30/11 07/29/11 GLD 8.42% -2.00%
07/29/11 08/31/11 GLD 12.27% -5.50%
08/31/11 09/30/11 GLD -11.06% -6.94%
09/30/11 10/31/11 TLT -3.84% 10.91%
10/31/11 11/21/11 TLT 3.86% -4.65%

For those interested in the history of Decision Moose trades, the full history is below:

DATE ACTION  PORTFOLIO
 LATEST  HOLD Long Bonds (BTTRX) $1,053,280  
 09.30.2011  Switch to Long Bonds (BTTRX) $1,063,946  
 09.23.2011  Switch to Cash (3moT)   $1,063,944  
 04.29.2011  Switch to Gold (GLD) $1,014,475  
 12.03.2010  Switch to US Small-cap Equities (IWM) $888,590  
 11.26.2010  Switch to Cash (3moT) $888,568  
 10.15.2010  Switch to Pacific ex-Japan (EPP) $925,500  
 07.02.2010  Switch to Long Bonds (BTTRX) $880,370  
 05.07.2010  Switch to Gold (GLD) $878,736  
 03.05.2010  Switch to US Small-cap Equities (IWM) $895,676  
 01.22.2010  Switch to Cash (3moT) $895,572  
 11.06.2009  Switch to Latin American Equities (ILF) $932,139  
 10.30.2009  Switch to Cash (3moT) $932,131  
 10.16.2009  Switch to Latin American Equities (ILF) $1,013,505  
 07.24.2009  Switch to Pacific ex-Japan (EPP) $817,451  
 04.10.2009  Switch to Cash (3moT) $817,082  
 02.06.2009  Switch to Gold (GLD) $848,133  
 11.28.2008  Switch to Long Bonds (BTTRX) $904,527  
 09.26.2008  Switch to Cash (3moT)  $903,981  
 08.29.2008  Switch to Long Bonds (BTTRX) $902,582  
 03.21.2008  Switch to Cash (3moT) $896,170 
 11.23.2007  Switch to Gold (GLD) $809,853 
 11.09.2007  Switch to Cash (3moT)  $808,852 
 10.05.2007  Switch to Latin American Equities (ILF)  $807,409 
 08.10.2007  Switch to Cash (3moT) $802,658 
 04.13.2007  Switch to Latin American Equities (ILF) $747,629 
 03.09.2007  Switch to Pacific ex-Japan (EPP) $672,465 
 03.02.2007  Switch to Cash (3moT)  $671,826 
 11.03.2006  Switch to Latin American Equities (ILF) $645,352 
 08.18.2006  Switch to European Equities (IEV) $615,174 
 06.09.2006  Switch to Cash (3moT) $609,415 
 04.07.2006  Switch to Gold Bullion (GLD)  $590,664 
 01.27.2006  Switch to Latin American Equities (ILF)  $586,785 
 12.30.2005  Switch to Japan Equity Index (EWJ) $561,056 
 11.05.2005  Switch to Latin American Equities (ILF) $537,307 
 10.07.2005  Switch to Cash (3moT)  $535,744 
 08.26.2005  Switch to Long Bonds (BTTRX)  $552,712 
 08.05.2005  Switch to Cash (3moT)  $551,615 
 06.17.2005  Switch to Latin American Equities (ILF)  $508,790 
 05.20.2005  Switch to Long Bonds (BTTRX) $501,161 
 03.24.2005  Switch to Cash (3moT) $499,023 
 11.12.2004  Switch to Latin American Equities (ILF)  $446,568 
 08.06.2004  Switch to Long Bonds (BTTRX) $423,727 
 03.26.2004  Switch to Cash (3moT)  $421,967  
 01.10.2004  Switch to Long Bonds (BTTRX) $396,007 
 01.03.2004  Switch to Cash (3moT) $395,943 
 07.19.2003  Switch to Asian Equities (SAF)  $270,011  
 02.08.2003  Switch to Long Bonds (BTTRX) $264,386  
 01.04.2003  Switch to Gold Shares (ASA) $278,513  
 06.15.2002  Switch to Long Bonds (BTTRX) $251,855  
 06.01.2002  Switch to Cash (3moT) $251,685  
 11.24.2001  Switch to Gold Shares (ASA)  $129,198  
 07.28.2001  Switch to Long Bonds (BTTRX) $127,541  
 01.27.2001  Switch to Gold Shares (ASA) $117,381  
 05.07.2000  Switch to Long Bonds (BTTRX) $100,000  
 ETFs Replace Mutual Funds
 05.07.2000  Close Invesco Europe  $275,417 
 01.21.2000  Switch to Invesco Europe $266,459 
 07.08.1999  Switch to Invesco Pacific  $214,552 
 04.23.1999  Switch to Invesco Latin America $207,312 
 11.13.1998  Switch to Schwab S&P Index $173,557 
 08.02.1998  Switch to Long Bonds (BTTRX) $167,647 
 03.06.1998  Switch to Invesco Europe $150,516 
 11.07.1997  Switch to Schwab S&P Index $135,842 
 08.15.1997  Switch to Schwab Small Cap Index $126,667 
 07.25.1997  Switch to Schwab S&P Index $131,642 
 02.21.1997  Switch to Invesco Latin America $113,804 
 12.27.1996  Switch to Schwab S&P Index $107,364 
 11.15.1996  Switch to Long Bonds (BTTRX) $108,242 
 10.04.1996  Switch to Schwab S&P Index  $102,881 
 08.30.1996  Buy Invesco Latin America  $100,000 

Disclaimer: No current positions in stocks mentioned. Please note that Scott’s Investments and its author is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott’s Investments.

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Disclaimer: Stock Loon LLC, Scott's Investments and its author is not a financial adviser. Stock Loon LLC, Scott's Investments and its author does not offer recommendations or personal investment advice to any specific person for any particular purpose. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of www.scottsinvestments.com

Investment Readings

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Below are some investment article I have recently read:

Precious Metals Charts Point to Higher Prices – Part II Chris Vermeulen

Fannie, Freddie, and the Foreclosure Crisis – Kevin Park via The Big Picture

One to Three Years Left for Gold’s Run – Tom McClellan

Print or Perish (pdf) – John Mauldin

Why the ECB Won’t (and Shouldn’t) Just Print – John Hussman

Now you can follow me on Stocktwits and Twitter!

Sorting Countries by Dividend Yield – Mebane Faber

Ben Bernanke: The Decider PIMCO

Richard Rhodes’ 12 Trading Rules Courtesy of The Big Picture

Disclaimer: No current positions in stocks mentioned. Please note that Scott’s Investments and its author is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott’s Investments

Profitable Options Strategies Report

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Like what you read? Consider a Paypal donation.

Disclaimer: Stock Loon LLC, Scott's Investments and its author is not a financial adviser. Stock Loon LLC, Scott's Investments and its author does not offer recommendations or personal investment advice to any specific person for any particular purpose. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of www.scottsinvestments.com

Four Small Cap Value Stocks With Earnings Growth

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Each month I search for small cap stocks priced reasonably based on price to earnings growth (PEG) and that have a recent history of positive earnings surprises. I use  stockscreen123 as the tool for this particular screen.  The basic premise of the list is that stocks with a history of earnings surprises have the strong probability of positive earnings surprises in the future.  If the stocks are already trading at favorable valuations, then continued earnings surprises could mean that the stocks below are undervalued, perhaps significantly.


Now you can follow me on Stocktwits and Twitter!

Last month’s list performed well, gaining 9.18% versus 0% for SPY over the same period.  The list tends to be high beta and could be more volatile than the overall market.  However, it is not a comprehensive portfolio but rather a starting point for further research and an attempt to uncover some “hidden” gems.  


This month we only have four stocks on the list and three of them are repeats from previous months.  The one new addition is Graham Corporation (GHM) which is in the industrial goods sector.  GHM designs, manufactures and sells vacuum and heat transfer equipment and it also supplies components and raw materials for the nuclear power market.    It has a PEG ratio of .57, a projected current year P/E ratio of 17 and no long-term debt.  


The stock looks to be in a consolidation phase after a swift run-up in October (chart courtesy of Finviz):


Below is the full list of stocks meeting the criteria for this month:

Ticker Name Last Rank MktCap Proj PE Cur FY PEGLT
DTLK Datalink Corporation 7.83 95.18 139.03 9.92 0.5
GHM Graham Corporation 21.73 94.44 215.42 17.01 0.57
LAD Lithia Motors, Inc. 21.88 93.68 567.03 11.2 0.42
SUSS Susser Holdings Corporation 24.91 90.55 423.89 9.64 0.76

Disclaimer: No current positions in stocks mentioned. Please note that Scott’s Investments and its author is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott’s Investments.

Profitable Options Strategies Report

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Like what you read? Consider a Paypal donation.

Disclaimer: Stock Loon LLC, Scott's Investments and its author is not a financial adviser. Stock Loon LLC, Scott's Investments and its author does not offer recommendations or personal investment advice to any specific person for any particular purpose. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of www.scottsinvestments.com