Week 8: Was this a "Head Fake"?
Most trends saw a significant deterioration this past week. The "fundamental" explanation revolves around the concerns associated with the problems in oil-rich Lybia. A significant amount of the oil production coming from the area was shut down, resulting in a spike in oil prices. This tends to concern most investors as any significant increase in energy costs is expected to drive up costs for most industries; this concern translates into lower stock prices (simplification at its best). The market did come back on Friday, so the question lingers... was this the beginning of "The Correction," or just the typical geopolitical event with its typical market effects? Time will tell.
So... Does trend following work with ETF's?
Many of you have read the great white paper titled "
Does Trendfollowing Work on Stocks" published by Blackstar Funds. Their paper of course concluded that trend following does work with stocks, with a very telling chart (see below) showing how most trades result in "little losses" suffered early on in the investment, with a few longer-term "big winners" making up for the little losses and more.
Two months into the year, the Fund's chart is beginning to take on a similar look (see below). So does trend following work with ETF's? It's way too early... Time will tell.
Current Positions
I completed the following transactions this week:
- Reduced my positions in the Materials sector (XLB), Broker-Dealers Index (IAI), Midcaps (MWJ), Nasdaq (TQQQ), S&P 500 (UPRO), Industrials (XLI), Water (PHO) and Consumer Discretionary (XLY).
- I also shorted Chile (ECH) through a deep in the money option put.
The spike at the end of the week resulted in several buy signals and I bought single blocks in the following:
- Bank Index (KBE), Grains (JJG), Copper (JJC), Media (PBS), Timber (CUT), Nuclear Energy (NLR) and Aerospace and Defense (ITA).
Current positions listed in more details
here.
Current performance
The "head fake" was hard on trends this week, especially on leveraged positions. The Fund declined by 4.89% during the week. Most holdings declined in value, with the exception of the Energy sector, which continues to shine. Chart with some relevant benchmarks below:
Current sector allocations below:
Questions and comments always welcomed and often answered...
Boston