This Blog Has a New Home

I had planned to do this later but I think sooner is better. I am moving to http://www.etf2x.com and using WordPress.

Comparing Proshares QLD/Cash Model Against TimingCube

The folks at TimingCube have a button on the left side of their homepage which indicates that they are ranked #1 over one year by the nice people at TimerTrac. For the fun of it, I thought I would compare one of my Proshares QLD models against TimingCube. To be fair, I'll use my QLD/Cash model for the comparison.

TimingCube's signal returns are here. If you followed the TimingCube Nasdaq 100 model starting on August 01, 2006, by August 18, 2008 you would be up by 2.4% less commissions. My Proshares models start on August 02, 2006 so if you invested following the QLD/Cash model starting on that day you would be up by 96.9% less commissions by August 18, 2008. Of course, this isn't quite an apples versus apples comparison given that my model uses a double exposure ETF and would therefore likely carry higher risk. I'll leave it to my readers/subscribers to determine if the difference in return (96.9% vs 2.4% over two years) is warranted by the increased risk.

 

Test Post

Just testing to see if my posts appear at Covestor after I changed the name of my blog.

ETF Timer Model Update. 9/19/08

I have renamed my blog to ETF2X to more accurately reflect the content - namely an emphasis on my models which use proprietary timers and apply them to the US and Canadian stock markets.  Hopefully I haven't screwed up the RSS feed for my subscribers!

As seen in the table below, my preferred models which are highlighted in blue continue to outperform their respective markets year-to-date by a wide margin.  Not only do the models outperform as measured by percentage gain, they also have lower ulcer indexes and lower maximum drawdowns than a buy-and-hold-the-market strategy.  As I have stated before, past performance doesn't guarantee future performance!

As a Canadian, most of my investments following the HXU/XSB model.  Despite the incredible 7.5% rally in the Canadian market today, the S&P/TSX 60 would have to tack on another 12.6% just to get to where it was on June 12 when my model signalled that it was time to go to a money market ETF (CMR) or a short term bond fund (XSB).  These models won't make correct calls all the time (such a model doesn't exist) but I am hopeful that following the ones highlighted in blue will keep me ahead of a buy-and-hold strategy.  A nice facet of these models is the very low maintenance inherent in them.  I never have to research a stock, emotions are held in check, and very little time is required each week.  Of course, the proof is in the pudding and there isn't much pudding yet (i.e. the time period for which the models have been tested is short).

 

 

 

 

 

QLD and HXU Timer Updates

With the stock market volatility this week and increasing traffic to my site, I thought I should post a mid-week update.

Domain Names ETF2X Are Mine

As this blog is now primarily focused on the application of my Canadian and US timers to double exposure (2X) ETF's (namely QLD, QID and HXU), I decided to buy the etf2x.com and etf2x.ca domains today. At some point in time, I plan to develop etf2x.com and etf2x.ca into professional sites but I have to establish my credibility first.

Comparing My QLD Market Timing Model With a Commercial Timer

Out of curiosity, I decided to compare the performance of my QLD market timing models with the performance of the QLD/QID model presented on Stock Traders Daily's web site.  Based on the returns posted on their site, their Investment Rate Model achieved a one year return as of 05/05/08 of 42.1% (dividends not included).  In comparison, the one year return as of 05/05/08 for my QLD/QID model is 63.5% and the one year return for my QLD/TIP model (which more suits my risk tolerance) is 43.1%.

The cost for a "Platinum Subscription" to Stock Traders Daily Service is $199/mo.  This subscription offers more than market timing but I'll  leave it up to my subscribers to decide where they get the best value.

Weekly Model Update. 09/12/08

  Both my US and Canadian timers remain in money market/bond ETF's.

 

 

 

 

 

Claymore Premium Money Market ETF

Effective today I will incorporate the Claymore Premium Money Market ETF (CMR) into a Canadian model (i.e. I will introduce a HXU/CMR model tonight).  You can read about CMR on Claymore's site here.   Here's how Claymore describes the ETF:

 

The fund invests primarily in high-quality, short-term (generally 90 days or less) debt securities, including treasury bills and promissory notes issued or guaranteed by Canadian governments or their agencies, bankers acceptances and commercial paper (excluding asset-backed commercial paper) issued by Canadian Chartered banks, loan companies, trust companies and corporations.

The Claymore Premium Money Market ETF will have one of the lowest expense ratios of any money market mutual fund in Canada. By providing a lower Management Fee, the fund can reduce risk in the underlying holdings, while generating attractive short-term income rate.

 

My rationale behind using a money market ETF is that there is no point in parking cash in a non-interest bearing account as is currently the case with the HXU/Cash model.  Oddly enough, the money market ETF is available in Canada but there is no liquid equivalent in the US yet.  Therefore my US models will continue to include a QLD/Cash entry.

The average volume of CMR traded daily is around 12,300 ($615,000).  The Claymore Premium Money Market ETF is less than one year old (incepted on 02/19/08) so there are no performance results on Claymore's site yet. The management fee for this ETF is 0.25% and the current distribution rate is 2.67%.

Another Terrible Day

The S&P/TSX composite index fell another 3.86% today but I'm not worried.  For my Canadian investments, I am following my HXU/XSB model and therefore have over 80% of my Canadian holdings in XSB units.  The chart below illustrates how this model has performed since inception on 9/12/07.  Whether such performance continues is of course unpredictable.  As I have pointed out before, it is possible that this model is optimized to the market over the past year and may not work near as well in the future.  Time will tell but I am sleeping better at night now than I would had I not moved out of most stocks and into XSB.

 

 

As for the US markets, the Nasdaq fell 2.64% today.  My QLD/IEF model is one that I am comfortable with even though it has a lower CAGR than the QLD/QID model (43% vs 55%).  The unsettling characteristic of the QLD/QID model is its maximum drawdown of 36% as compared to a maximum drawdown of 16% for the QLD/IEF model.

 

Profile in The Globe and Mail

There is a brief profile of yours truly in today's edition of The Globe and Mail. Click here to see it.

US Mutual Fund Performance

In case you haven't already seen the article here, "Out of almost 2,100 diversified retail U.S. stock mutual funds that are open to new investors, just 17 have positive returns for both the past 12 months and year-to-date, according to investment researcher Morningstar Inc.". Wonderful.

Trading Plan

I have been considering the formulation of my own trading plan lately to apply to my ETF model portfolios.  In the little research that I have conducted thus far, the best trading plan template that I have found is on the Trade2Win web site and was posted by Tim Wilcox.  You can download Tim's template by clicking here and then scrolling down the page until you see the Trading Plan Template link.

I plan to refer to two books that will assist in my trading plan development: Come Into My Trading Room by Dr. Alexander Elder and Trading In The Zone: Master The Market With Confidence, Discipline and a Winning Attitude by Mark Douglas.

Model Portfolio Returns. 08/22/08

Both my Canadian and US timers remain short/cash.

 

 

 

Test Post With Wikinvest Charts

This is a test post to determine the usefulness of charts created at the wikinvest site. The annotation function leaves much to be desired but I like the ability to change the time frame on a blog.

View the QLD WikiChart on Wikinvest

View the TIP WikiChart on Wikinvest

Ulcer Index

I use the Ulcer Index rather than Sharpe Ratio or Sortino Ratio as a means of measuring the risk associated with my models. Information on the Ulcer Index is available at Peter Martin's site. Mr. Martin is the creator of the Ulcer Index and on his site he briefly discusses what he considers to be shortcomings with other measures of investment risk.

Model Portfolios Versus Top Rated Funds

Just for the fun of it, I thought I would compare the performance of my model portfolios against 5-star mutual funds.  For me, the results aren't surprising - the models beat the mutual funds hands down.  If I could only get someone to pay me a fund manager's salary to run my models!

 

 

My Canadian models started on 09/05/07 so a 1 year return isn't possible.  Also, neither GlobeInvestor.com nor Morningstar.ca provide a YTD return in the table that is generated for the performance of 5-star funds.

Model Portfolio Returns. 08/15/08

The recent slide in the price of gold has damaged the returns of the QLD/IAU model to the point that it is down 3.6% year-to-date.

 

 

Below is the equity curve for the HXU/XSB model.  Fortunately, the model has been out of the stock market since June 23.  Although the CAGR isn't near as high as it is for the QLD/TIP model, the HXU/XSB model is the best performing this year with a year-to-date return of 13.4%.

 

An Equity Curve I Can Live With

As time progresses, I am getting more and more comfortable with the QLD/TIP model portfolio for my US holdings and the HXU/XSB model for my Canadian holdings.  Both models require very little effort, have Ulcer Indexes (UI) that I can tolerate and provide better-than-market performance.  There are only about five signals per year so there is little trading and therefore miniscule commission costs per year.  I'll provide a weekly update on all the models tomorrow night but the CAGR for the QLD/TIP model is currently 40.2%.

 

Model Portfolio Returns. 08/08/08

Year-To-Date Review of Model Portfolios

I am pleased to say that up to the end of July, every one of my model portfolios beat their respective benchmarks thus far this year.

 

 

As for my timers, they are both in cash or short.

Improved Portfolio Performance

I have moved my US portfolio away from stocks and towards the ETF models that I discuss here in my blog.  The net result has been improved performance and my first Covestor star (achieved when a portfolio beats its index for three consecutive months).

 

Bond ETF Commentary

Model Portfolio Monthly Report. 07/31/08

I have updated my US model portfolio spreadsheets to include dividends and naturally that has increased the CAGR's for all the models. Whether or not these models capture returns in the future as they have since the beginning of the test period (08/02/06) is anyone's guess but I would be surprised if they did perform as well. Given the performance of the QLD / TIP model and its associated UI and maximum drawdown, my US account is currently fully invested in TIP.

 

 

Jason Zweig on Financials

If you are wondering whether Benjamin Graham would buy financials right now, watch the interview with Jason Zweig to get his opinion.

Comprehensive Summary of Model Portfolios. 07/27/08

In the tables below I have included the Maximum Drawdown and the Worst Signal-to-Signal Performance for each portfolio.  In the Canadian table, I have changed the benchmark from the XIU ETF to the index itself (i.e. S&P/TSX 60).

 

 

For most people, the Maximum Drawdown numbers are going to jump out as too high to stomach.  However, bear in mind that the most money lost is that presented in the Worst Signal-To-Signal column.  For example, had you invested as per the QLD/TIP model starting on 08/02/06, the most money you would have lost from the time you purchased QID or TIPS to when you sold the ETF is 5%.  However, QLD, being a double exposure ETF, can shoot up in price exponentially and then come back down.  The Maximum Drawdown is a measure of the decline in portfolio value from a peak to the next trough.  So if you buy $100,000 of QLD and it increases in value to $150,000 but then drops back to $110,000, the portfolio would have incurred a 26.7% drawdown (i.e. the drop from $150,000 to $100,000) even though it is up 10% from the initial purchase.

As they say, an equity curve is worth a thousand words!  Below are the equity curves for all the model portfolios.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For anyone considering following these models please bear in mind that you have to be mentally prepared for the high fluctuations in the price of double exposure ETF's (in this case QID, QLD and HXU). The wild price swings can be difficult to live with and therefore these models are certainly not for all investors.

As always, past performance is no guarantee of future performance!

Updated Tables

I have been wondering how well my model portfolios would work if they went into bond ETF's when the timers indicate that stocks should no longer be held. I have therefore added a line to each of my tables to include a double exposure ETF when my timer is long and a bond ETF when it isn't. For the US market I chose TIP (iShares Lehman TIPS Fund) and for the Canadian market I chose XSB (iShares Canadian Short Bond Index Fund).



I'll include the Ulcer Index with the next weekly update.

Timer and ETF Strategy Update. 07/25/08

And so ends another volatile week. My timers are still cash/short. I have attempted to improve on my performance by jumping ahead of the timers. On the US side, I bought QLD on 07/21/08 and now have a miniscule 1% gain. On the Canadian side, I bought HXU on 07/14/08 and now have a 6% loss.

Timer and ETF Strategy Update. 07/18/08

My Canadian and US timers remain short/cash. I am expecting at least a short rally in both markets. On the Canadian side, I have take a small position in HXU and I'll take a position in QLD when I think the US rally has started.

Timer and ETF Strategy Update. 07/11/08

Both my Canadian and US timers remain short/cash. The US strategies maintained their improvement in CAGR versus buy-and-hold on average. The Canadian strategy improved its outperformance over a buy-and-hold strategy.

Starting with this post, I am including the Ulcer Index. Given the high UI of the QLD/QID strategy, I don't see much reason to use it unless you believe that the inverse relationship between the US stock market (as far as swing trading is concerned) and gold isn't going to continue. If you are comfortable with the idea that the price of gold will move inversely in relationship to the S&P500, then the QLD/IAU strategy may provide excellent returns with less volatility. I am more comfortable with the QLD/RWM strategy and for that reason my current US holdings are 87% RWM and 13% IAU.

As with all model portfolios, bear in mind that past performance is absolutely no guarantee of future performance!

Timer and ETF Strategy Update. 07/04/08

As both the Canadian and US markets fell this week while both my timers were short/cash, the ETF strategies improved their performance relative to a buy-and-hold- the-market strategy.

Timer and ETF Strategy Update. 06/27/08

Both my US and Canadian timers remain short/cash. It was a good week for my US ETF strategies as three of the four had higher CAGR's than at the end of the previous week.



There has been no change in my US holdings since last week.

Canadian Timer Update

My Canadian timer is getting whipsawed in this very choppy market. The timer has gone back to cash as of this evening.

My US timer, on the other hand, remains in cash or short, depending on the strategy.

Canadian Timer Update

My Canadian timer is getting whipsawed in this very choppy market. The timer has gone back to cash as of this evening.

My US timer, on the other hand, remains in cash or short, depending on the strategy.

US Timer and ETF's

My US timer remains in cash or short depending on the strategy.  I have four ETF strategies that I am following for the US market based on my timer:

• Long QLD and QID
• Long QLD and cash
• Long QLD and RWM
• Long QLD and IAU

The CAGR's for the above strategies are 40.6%, 35.4%, 34.8% and 43.9% respectively. The CAGR for the Nasdaq over the same time period is 8.1%

 

QID is the Proshares Double Inverse Nasdaq, RWM is the Proshares Inverse Russell 2000 and IAU is the iShares Comex Gold.

 

Following are the compound annual growth (CAGR) tables for the four strategies as of today.

 

 

 

 

My US holdings currently are RWM (87%) and IAU (13%).

Canadian Timer Update.

My Canadian timer has swung back to long after a very short period in cash. My US timer is still generating a cash signal. As I have a gut feeling that the US market will head lower over the short term, I have purchased the Proshares Short Russell 2000 (RWM).

QLD Equity Curve

Below is the equity curve produced using my US timer and QLD. As can be seen from the draw downs, this strategy may not be for the faint of heart.

Double Exposure ETF Update. 06/13/08

Both my Canadian and US timers are in cash.

Canadian Timer Update

My Canadian stock timer has now gone to cash.

US Timer Goes to Cash

My US timer has generated a cash signal and I have accordingly sold my US stocks and ETF's.

Double Exposure ETF Update

Both my Canadian and US timers remain long. With the decline in the Nasdaq this past week, the CAGR for my QLD strategy has slipped to 40.0%. In contrast, the CAGR for my HXU strategy improved to 31.5%

Timer Update 05/30/08

 

Both my Canadian and US timers remain long.  The tables below provide the compound annual growth rates (CAGR) that would have been achieved by applying my timers to 2X ETF's (HXU for the Canadian market and QLD for the Nasdaq).

 

 

Timer	Signal	HXU	Gain / Loss	Value
Date
				100,000
9/05/07	Long	29.34	0.7%	100,716
11/09/07	Cash	29.55		100,716
2/13/08	Long	27.49	1.4%	102,108
3/11/08	Cash	27.87		102,108
4/04/08	Long	29.50	16.9%	119,414
5/30/08		34.50
		CAGR=	27.4%

 

 

 

Timer	Signal	QLD	Gain / Loss	Value
Date
				100,000
8/02/06	Long	63.55	24.4%	124,359
3/01/07	Cash	79.03		124,359
3/21/07	Long	84.10	18.2%	146,953
7/26/07	Cash	99.38		146,953
9/05/07	Long	99.57	15.8%	170,169
11/07/07	Cash	115.30		170,169
2/25/08	Long	70.59	-3.1%	164,841
3/04/08	Cash	68.38		164,841
4/01/08	Long	76.28	18.6%	195,549
5/30/08		90.49
		CAGR=	44.4%

RiskGrade Review Update

I run my US stock and ETF screens every weekend and record the stocks and ETF's that pass as well as the RiskGrades.  It is much too early to make strong conclusions but thus far it appears that the best stocks are those having a Riskgrade between 250 and 400 and the best ETF's are those having a RiskGrade between 125 and 175.  At first I didn't recognize the importance of requiring stocks and ETF's to have a minimum RiskGrade but in hindsight it makes sense.  Why buy an ultra-safe stock or ETF (i.e. an investment with a very low RiskGrade)?

My observations are based on buying and holding the stocks and ETF's for two months.

My Canadian Stock Timer Applied to Horizons BetaPro 60 Bull Fund

As with my US stock timer, signals from my Canadian stock timer will be either long or cash henceforth.  Horizon BetaPro Funds are intended to capture double the exposure to a given market even though that doesn't always happen.  However, it is the only double exposure ETF available as it relates to the broad Canadian market.  These funds have been available only for a short period of time and therefore my table below is of limited use.

 

Buying or selling HXU at the open on September 06, 2007 and then selling and repurchasing as per my timer times provides a CAGR of 28.1%.  In comparison, buying and holding XIU would have produced a CAGR of 14.8% (dividends not included) whereas buying and holding XIC would have produced a 10.1% CAGR (dividends not included).

 

 

Timer Date	Signal	HXU	Gain/Loss
09/05/2007	Long	29.34	0.7%	100,716
11/9/2007	Cash	29.55		100,716
2/13/2008	Long	27.49	1.4%	102,108
3/11/2008	Cash	27.87		102,108
4/4/2008	Long	29.50	16.9%	119,345
5/23/2008		34.48
		CAGR=	28.1%

My US Stock Timer Applied to Proshares Ultra QQQ

I publish the signals for my timer here on this blog.  Some of the commercial timers that are available provide three signals: long, short and cash. At times I have issued a short signal but after reviewing the timer's performance, it appears that my timer should only provide two signals - long and cash.  The timer does not use input from the value of the Nasdaq and therefore is not optimized or curve fit to the Nasdaq.  It just turns out that when applied to the S&P500, the DOW, the Russell 2000 and the Nasdaq, my timer works best for the Nasdaq.  I therefore prepared the following table by applying the long/cash signals to the Proshares Ultra QQQ to achieve maximum performance.  For simplicity, I have not included commissions nor interest earned while in cash.  Since August 02, 2006, this strategy has earned a CAGR of 39% versus roughly a 9.4% CAGR for the Nasdaq. That is, had I bought $100,000 of a Nasdaq ETF on August 02, 2006, that ETF holding would be worth roughly $117,600 today.  However, as seen in the table below, had I purchased $100,000 of QLD on August 02, 2006 and then sold and repurchased as per my US timer, the value of my QLD holdings today would be roughly $181,568.

 

Of course there are caveats.  This timer could fail to perform as well in the future as it has in the past.  Past performance may be a statistical fluke.  As well, holding QLD can be gut wrenching given the wild price swings.

 

Timer Date	Signal	QLD	Gain/Loss	Value
8/2/2006	Long	63.55	24.4%	124,359
3/1/2007	Cash	79.03		124,359
3/21/2007	Long	84.10	18.2%	146,953
7/26/2007	Cash	99.38		146,953
9/5/2007	Long	99.57	15.8%	170,169
11/7/2007	Cash	115.30		170,169
2/25/2008	Long	70.59	-3.1%	164,841
2/25/2008	Long	70.59	-3.1%	164,841
3/4/2008	Cash	68.38		164,841
4/1/2008	Long	76.28	10.1%	181,568
5/23/2008		84.02
		CAGR=	39.1%

 

The QLD prices are the opening prices the next morning after a signal is generated by my timer.

Abandoning Ship

I bought TBSI on April 10 at $33.60 and Dry Ships on April 18 at $75.59.  The stellar performance of both stocks has pushed me to take my chips off the table.  On Friday, I sold TBSI at $58.53 for a 74% gain and Dry Ships at $108.15 for a 43% gain.  Whether the stocks continue upward or soon sink like a stone is of no concern to me.  I made exceptional profits in a short period and am happy to cash in.