Golden Rules

1) Every bear market is followed by a bull.

2) Bear market is rarer than bulls.

3) To get a true bear market, there must be a negative fundamental event that will take the market by surprise.Thai is , not price in.

4) One must develop self-control, both to refrain from attempting to profit by the monthly fluctuations, which 95% of the people endeavor to follow, and to act quickly and take advantage of the major movements, which 95% of the people fail to profit by, either because they are infatuated with prosperity or scared by panic or depression.

5) One must develop patience, and remember that it takes years to build up a fortune in this way, and that is an especially slow process as first...

6) Market is about relative expectation, not absolute result.Look for reality that different with what market has priced in.


Thursday, September 17, 2009

Get Creative With Alternative Weighting ETFs

Alternative #1:
Equal Weighting

This approach is strikingly simple: Just divide the money between all the stocks in an index equally. If your index consists of 50 stocks, each one gets 2 percent.

Equal weighting treats all stocks the same.
Equal weighting treats all stocks the same.

Equal weighting was pioneered by Rydex, which offers a series of ETFs using this methodology. Rydex S&P Equal Weight ETF (RSP) owns the same stocks as the S&P 500 but with equal-weighting rather than cap-weighting.

Comparing SPY vs. RSP reveals how big the difference in returns can be ...

In the first eight months of 2009, SPY (including dividends) was up 15 percent. RSP gained 29 percent during the same period.

How does this happen?

The smaller-cap stocks get a bigger weighting in RSP than they do in SPY. And those stocks have done generally better this year than most of the mega-cap issues. This isn't always the case. But equal weighting clearly had a huge positive impact so far this year.

In addition to RSP, here are some other equal-weighted ETFs you might want to consider:

  • SPDR S&P Biotech ETF (XBI)

  • First Trust Nasdaq-100 Equal Weighted Fund (QQEW)

  • SPDR S&P Semiconductor ETF (XSD)

Alternative #2 and #3:
Dividend and Earnings Weighting

If you love income, then you'll probably want to tilt your portfolio toward the stocks with a record of growing their dividends. So take a look at the ETFs offered by WisdomTree.
 

WisdomTree argues that, by design, cap-weighted ETFs are forced to buy high and sell low. Here's why that's true:

The higher a stock's market capitalization (shares outstanding multiplied by the share price), the more shares a cap-weighted ETF buys. If those share prices decline, the market capitalization of the stock declines as well. Consequently, they are replaced with higher-cap stocks when the ETF rebalances its portfolio.

WisdomTree's solution is a set of indexes that use fundamental factors like dividends and earnings to allocate among stocks. They think this will lead to better long-term results, and they have a lot of research to support their point.

Fundamental factors are more objective than stock prices.
Fundamental factors are more objective than stock prices.

One advantage of this approach is that dividends and earnings are much more objective than stock prices as a way of measuring a company's success. We've all seen stocks launched into orbit by irrational investors chasing surging stock prices, only to come crashing back down.

Dividends aren't so easily manipulated. And screening for companies with consistent earnings can help weed out the money-losing and speculative ones.

WisdomTree has a whole family of ETFs that follow variations on this theme. Some of the most popular are:

  • WisdomTree Dividend excluding Financials (DTN)

  • WisdomTree India Earnings Fund (EPI)

  • WisdomTree Emerging Markets SmallCap Dividend (DGS)

Alternative #4:
Revenue Weighting

Another methodology is offered by a company called RevenueShares. The name gives away their strategy: Stocks in their ETFs are weighted by revenue.

Revenue is even more resistant to manipulation than earnings. In accounting lingo, it's the "top line" of money coming in. Public companies are required to disclose it in their SEC filings, so the information is readily available.

Revenue is what makes companies grow.
Revenue is what makes companies grow.

RevenueShares says that weighting stocks by their revenue can deliver attractive returns over time. Though of course it doesn't mean their strategy will work all the time. Here are some of the best-known RevenueShares ETFs:

  • RevenueShares Small Cap (RWJ)

  • RevenueShares Mid Cap (RWK)

  • RevenueShares Large Cap (RWL)

Alternative #5:
Combinations of Fundamental Weightings

Alternatives #2 — #4 discussed above are sometimes referred to as fundamental weighting. Rob Arnott, of Research Affiliates, has created fundamentally weighted indexes using a combination of factors such as sales, book value, dividends, and cash flow. And he has teamed up with FTSE to offer the FTSE-RAFI indexes.

Some of the ETFs using this approach include:

  • PowerShares FTSE-RAFI US 1000 (PRF)

  • PowerShares FTSE-RAFI Emerging Markets (PXH)

  • PowerShares FTSE-RAFI US 1500 Small-Mid (PRFZ)

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Thursday, September 10, 2009

Blogroll


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Saturday, August 15, 2009

Trading Secrets

  • US Presidential Cycle Strategy. 100% track record is to buy a Dow Jones Industrial Average Index on 1Jan of the third year and keep the position until end of the year.
  • 2nd trading strategy is buy the S&P500 index on 1 Oct in the second year and hold then this position open until the end of Dec in the fourth year.
  • 3rd trading strategy is buy S&P 500 index on 1 June and sell on 31 Dec , 13 of the past 14 presidential terms positive return.
  • Buy a S&P 500 index two days before Rosh Hasanah or St Patrick's and close the trade out the day after this holy day.
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Friday, August 14, 2009

US Bear Market Bottoms

  • Trend 1 : The History Books.Uncanny knack of bottoming out in Oct. Second markets simply not end in the fifth year of the decade.Howerver a bear market likely end in second or eighth year of the decade.Since 1932 , the average length of bear market is around 12 months, the average drop in those 12 months is 26%.US market has a habit of bottoming out in the first or second years of the presidential term.
  • Trend 3 : Extreme volatility and negative investor sentiment. VIX Index in range of 40-50.
  • Trend 4 :The 200 MA test. Fall way below 200 MA. If you bought the S&P every time if fell 20% below it 200MA in the past 33 years, than a month later you would have been in the profit of average gain 10%.
  • Trend 5 : Early signs of economic improvement. When copper hit bottom, automotive sales start to rise and inventory levels are low.
  • Trend 6 : Bond Market Rally.Government bonds and corporate bonds rally on average 10 and 4 months before equity markets finally hit their bottom.
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Monday, August 10, 2009

Bull Market Top 15 Leading Indicators

  1. Equity inflows into mutual fund spikes. http://www.trimtabs.com/site/index.php
  2. Volatility index at low between 20 to 10. http://stockcharts.com/h-sc/ui?c=$vix
  3. Advancing/declining stocks. http://stockcharts.com/def/servlet/Favorites.CServlet?obj=msummary&cmd=show&disp=SXA
  4. Coppock indicators. http://www.investorschronicle.co.uk/MarketsAndSectors/Markets/article/20090706/a5f06932-6a33-11de-9d12-0015171400aa/Stable-doors-and-horses.jsp
  5. Economic  cycle and presential cycle. Bull cycle all start between 3 to 8 months before the start of pre-election years.
  6. Bull Market corrections normally 10%.
  7. US recession average 10 months, longest last 16 months. When monetary policy being tighten and oil proce increase, the US has fallen into recession.Inverted yield curve.
  8. Sentiment indicators - put/call ratio. http://stockcharts.com/h-sc/ui?s=$CPC
  9. Sentiment Indicator - financial advisers surveys.http://www.investorsintelligence.com/x/default.html
  10. US consumer confidence. Extremely bullish 115, bearish below 75, Y2008 years low is 38. http://www.conference-board.org/
  11. IPO markets and M&A activity.
  12. Dow Jones Industrial Average/Nasdaq index ratio. Low ration mean investors more aggressive.
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