Blog

Bounce!

It’s pretty incredible watching the psychology of the markets isn’t it?

Two weeks ago, on September 9th, the S&P 500 dropped two and a half percent in a day. The Dow was down nearly 400 points on that day. Everyone thought the sky was falling.

The markets continued to test the lows of that drop for the following week. On September 16, when I had to publish my weekly Friday market observations, I wrote Halloween is coming … but not yet … and I said that we’re more likely to see a bounce than a crash.

I was very nervous about publishing that article. Today, a week later, we’re back near all-time highs … and I think that we’re very likely to get them.

In fact, there have been several strong bounces across the markets and sectors that I follow. Let’s take a look at a few of them.

When I wrote to you last week, the S&P 500 was sitting right on top of its volume-at-price (VAP) support as well as strong SSI Trend support. That’s what lead me to forecast a bounce in the markets … in spite of my emotional fears of impending doom.

As of yesterday’s close, support has prevailed and my emotional concerns have once again been proven to be premature. Here’s the updated VAP chart:

Editorial_Sept23_01.png

The rising SSI Trend also provided strong support for the bounce this week. The chart below shows the current state of the SSI system on the S&P 500 along with an extra indicator showing that the number of open contracts in the futures is steadily increasing.

Increasing open interest means that there is more participation and engagement in the S&P 500 markets … which is generally a bullish sign.

Editorial_Sept23_02.png

We’ve also seen a strong bounce this week in GDX, the ETF that tracks the larger precious metals miners. Prior to this week’s bounce, the gold miners had fallen about 20%. That seems like a lot … until you remember that the VQ on GDX is 36.7%.

GDX didn’t even make it into the SSI Yellow / Low Risk zone before bouncing off of strong SSI Trend and VAP support this week.

Editorial_Sept23_03.png

Here’s the VAP chart for GDX. The current support around $24.50 has held and GDX has moved higher.

Editorial_Sept23_04.png

Out of all the stocks in GDX, there were 4 that corrected as far as their Low Risk Zones and made strong moves back into the SSI Green Zone this week – ABX, AU, GG and KGC. Here’s the chart for ABX:

Editorial_Sept23_05.png

If you’re looking for good entry points on some individual gold stocks, these 4 candidates are worth a look.

Finally, we have China.

My good friend (and trusted analyst) Dr. Steve Sjuggerud has been pounding the table about some unique opportunities he has uncovered in China. Just last month I alerted my Lifetime members about recent strength in FXI, the iShares China Large-Cap fund.

The latest VAP chart on FXI shows the continued strength and upside follow through in FXI after breaking out of its VAP congestion area around $35.

Editorial_Sept23_06.png

The SSI chart on FXI shows the recent strength and strong support as well. If FXI breaks out above $39, there’s not much keeping it from testing its 2015 highs in the $50 range.

Editorial_Sept23_07.png

Opportunities abound. Follow the indicators … and manage your fears by limiting your risk.

Make more. Risk less,

Richard_Signature
Richard M. Smith, PhD
CEO & Founder, TradeStops

On the road … and in the mail

Today I’m in Las Vegas at the Stansberry Las Vegas conference. It’s great to be here with so many friends, colleagues and subscribers.

I’ve been on the road a lot this month. I’ve got some highlights to share with you along with a dip into the TradeStops mailbag to answer some subscriber questions.

Let’s get going!

Two weeks ago I was in New York City at the 10th Annual Finovate conference. Here’s how the Finovate group describes their conference: “Finovate conferences showcase cutting-edge banking and financial technology in a unique, short-form, demo-only format.”

TradeStops is financial technology and so I thought I would go and see what all the fuss was about.

It was a very big conference with 1,600 attendees and 70 companies presenting their financial technology. Most all of the companies presenting were pitching their technologies to financial institutions.

I’m glad that I went, but it reminded me that there’s no place like home and that we’re doing just fine without doing business with the big institutions.

TradeStops is about the individual investor. It’s about you, not one-size fits all.

I’m sure that if I focused my efforts on the institutional market, I could generate some interest in TradeStops but that’s not where I want to be or what I want to do. I want to build great tools for individual investors … tools that allow individual investors to finally realize the promise that true investing holds.

Which brings me to Las Vegas … and my kind of people.

It’s fantastic to be here with so many individuals that are serious about managing their own money and who are looking to make the most of the investment research that they subscribe to from outstanding publishers like Stansberry Research.

While I’m here I’m even going to be interviewing a dozen or so individual investors who were brave enough to send me their investment histories and let me analyze their past performance and see how the TradeStops strategies might have helped. I’m really looking forward to that.

Like I said, TradeStops is for individuals … for you. I’ll be sharing some of the investor stories that come up here in Las Vegas in the coming days and weeks. For today’s stories, I’m dipping into the TradeStops mailbag.

TradeStops subscriber Tom C. recently asked, “OK, what gives with the metals?”
I’ve gotten a lot of questions from readers recently about my views on gold and other precious metals. I’ve been calling for caution for the past couple of months. I continue to feel strongly that caution is warranted.

Here’s the most recent TradeStops SSI chart on gold:

Editorial_Sept20_01.png

As you can see, gold has been on an absolute tear in 2016. The SSI Entry signal in cash gold was triggered back in April and we haven’t even seen a pullback into the Low Risk Zone for gold yet.

I’m expecting one soon.

Gold needs a breather. A correction will be a healthy thing for the long term gold rally. A correction down into the $1,200 – $1,250 range would be just what the doctor ordered. We may see one more burst higher but we’ll see gold correct 7% to 10% in the next month or two.

One of the strongest reader responses we’ve ever had was in response to my recent article on how to Triple the S&P 500 with just 9 ETFs. In that article I showed how an investor could use the 9 Select SPDR ETFs (basically 9 sectors of the S&P 500) along with the TradeStops SSI system and Risk Rebalancer, to triple the performance of the S&P 500.

The unique twist to this particular strategy is that it requires that 7 out of the 9 Select Sector SPDR ETFs have active SSI signals in order for the system to be fully invested. Here’s the chart summarizing the performance results:

Editorial_Sept20_02.png

TradeStops subscriber Leland H. asks, “If the number of ETFs with an active SSI Entry signal drops below 7, do I sell all of the ETFs?”
Great question Leland. The answer is no. If fewer than 7 of these ETFs are stopped out in the SSI system, then you don’t do any new buying or rebalancing until you get the broad market re-entry signal of 7 or more of these critical ETFs being SSI buys. As you get stopped out of the ETFs you just go to cash.

Interesting isn’t it? You can see in the chart above how this critical component of the strategy kept this system (the green line above) out of the market in 2001 – 2003 and missed the worst of the 2008 downturn.

I love it when I can get the upside that the market has to offer and miss the downside. That’s exactly what this system achieved.

In fact, the response to this article was so great that we created a more detailed article showing the exact rules. You can read it all here.

Thanks to all of our subscribers that send in their questions and comments. We love to hear from you and will be sharing more of the feedback we get in the coming weeks and months.

For the individual investor,

Richard_Signature
Richard M. Smith, PhD
CEO & Founder, TradeStops

The Biggest Mistake You’re Making with Your Portfolio

You’ve done all the research. You made sure that your portfolio is well diversified by sector and industry. You used the Risk Rebalancer so you know you’re taking the right amount of risk for each position. The SSI Alerts are in place. Time to head to the golf course, right?

Hold on. What are you doing to monitor the change in risk in your investments?

What? Change in risk? But you said I should only rebalance my portfolio on a yearly basis. What do you mean?

Before we go further, here’s a little background. We received an email from a new TradeStops member who wondered why he needed TradeStops.

He is overweight Asia because he thinks those stocks are undervalued. He has positions in very conservative income portfolios that have Volatility Quotients of 5%, the minimum VQ% in TradeStops. And he also has some other stocks that are a little riskier.

His Portfolio VQ% is below 6%. After using the Risk Rebalancer, the PVQ% was slightly lower, but it required that he make some major changes to his portfolio that he didn’t want to make. He said he didn’t want to make the changes as his portfolio is invested exactly as he wants it to be.

So why does he need TradeStops?

This well-intentioned investor is making a potentially catastrophic mistake! How?

He has spent so much time constructing his portfolio for today’s market conditions that he has completely forgotten that risk changes constantly!

The risk his portfolio is subject to today will be different next year. And the low risk positions could be the ones that cause him the most damage.

Let’s take a look at a low volatility ETF…

LQD is the ETF for investment grade corporate bonds. It is considered a very safe investment with little risk. The Volatility Quotient is only 5% which is the lowest VQ% in TradeStops. And the VQ has been at 5% for 3 years.

Educational_09-19-16_01.png

So this is a risk-free investment, right?

No, it’s not.

Let’s look back at the beginning of the 2008 bear market. The VQ of LQD was 5% back then as well. And then the volatility shot up 40% in a matter of months.

Educational_09-19-16_02.png

And the price of LQD dropped 20%.

Educational_09-19-16_03.png

And this volatility is from supposedly safe investment grade bonds!

Do you think that this type of volatility increase can occur in the future? Of course.

Are interest rates going to stay low forever? No, of course not.

So how is this investor supposed to use TradeStops?

One of the most powerful features of TradeStops is the Risk Rebalancer. Yes, we don’t recommend that you actually rebalance your portfolios often. But the Risk Rebalancer is more than just a tool to be used once a year.

The Risk Rebalancer is also the best tool to track the change in your portfolios’ risk over time. It allows you to see which stocks are getting riskier and which are becoming less risky. Here’s an example.

We did a webinar for our friends in the UK a couple of weeks ago. During the webinar, we created a simple portfolio of three different stocks. We used the Risk Rebalancer to equalize the dollar risk in each position. Here is that portfolio.

Educational_09-19-16_04.png

We ran the Risk Rebalancer on this portfolio just one week later and here are the results.

Educational_09-19-16_05.png

As you can see, the Risk Rebalancer is showing that the portfolio has changed a small amount already. Over time, you can use this to see which stocks are doing better and which stocks are doing worse and their effect on the volatility of your portfolio.

One wouldn’t expect much change in a week and there wasn’t much change. But in 3 month or 6 months, you can see what is happening in your portfolio from a risk perspective. We’ll keep this portfolio and track the changes in a few months’ time.

Risk is always changing. You have to be aware how these changes are affecting your portfolios. The Risk Rebalancer is a great tool to help you understand these changes.

Tom Meyer,
Member Services, TradeStops

Halloween is coming … but not yet

As the apocryphal “Chinese curse” says, “May you live in interesting times.” We live in interesting times indeed.

The past couple of weeks have most definitely seen new instabilities and arrhythmias in the markets. While the end may be nigh … I don’t think that we’re quite there yet.

One of the interesting developments this past week was a very sharp drop in the smart-money sentiment of the NASDAQ Composite. Here’s a chart showing the sentiment in the bottom pane.

Editorial_Sept16_01.png

You can see that the commercial hedgers in the NASDAQ futures market went from being pretty darn bullish to extremely bearish all in the course of one week.

If that chart looks familiar to you, it may be because I wrote about the exact same kind of move in the S&P 500 back in April of this year. Here was the chart I published at that time:

Editorial_Sept16_02.png

At the time I wrote the following:

So … we’ve just experienced an extreme move in S&P commercial trader sentiment. 7 out of the 8 times such moves occurred in the past, the markets have disappointed the neo-bears by continuing to march higher.

Here’s where things stand today nearly 6 months later.

Editorial_Sept16_03.png

Could we be about to see a similar burst of bullishness in the NASDAQ Composite? I wouldn’t be surprised.

The single biggest threat to our success

In nearly 20 years of first hand market experience and a dozen years of helping tens of thousands of individual investors, I’ve learned that there is one thing that threatens our investment success more than anything.

I’m going to illustrate it for you with a personal story.

A couple of months ago I wrote to you about my trade in McDonalds (NYSE: MCD). I had purchased MCD in August of 2014 when it dipped into the Low Risk Zone and some of my other indicators suggested it had room to run.

Indeed, I did enjoy a nice run, finally getting stopped out on June 28, 2016 … during the volatility following the Brexit vote. (Yes, I did actually sell the next day.) My stop literally got tripped by 8 cents and MCD shot right back up by $4 in the next 4 days.

Editorial_Sept12_01.png

That’s about where things stood the first time I wrote about MCD. At the time I wrote about not regretting my decision to sell even though my stop was barely hit and the stock popped right back up. The market gods decided to test my resolve even more.

Over the next three weeks, MCD rose 10.3% from $115 to $127 with hardly a single down day the whole time.

Editorial_Sept12_02.png

Did I regret getting stopped out? Did this cause me to question the SSI Stop signal? Not at all! I didn’t give it a second thought.

Longtime TradeStops members know that I have spent years studying investors’ behavior and emotions … and there is one emotion that stands out above all others as the single biggest threat to our investment success – the fear of regret.

Notice that I didn’t say “regret.” I said, “the fear of regret.”

It’s the fear of regret that prompts us to not sell when our stop is hit or to jump into a stock when the media is working up its audience into a lather over the next hot ticket.

What happened with my MCD trade is every stop-loss believer’s worst nightmare. Your stop is triggered by pennies. Then, the stock rips right back up by 10% without a breather and leaves you looking a fool. Right?

Wrong.

My MCD trade was a good trade, I made money in the trade. I stayed in the trade for nearly 2 years … nearly twice as long as the average investor stays in a position these days. I made over 26%, including dividends. Because MCD is a low-volatility stock, I gave it a larger position in my portfolio.

What’s to regret? I was happy to stop out of the trade because that’s my goal with every trade.

I want to hold onto a position until it hits its stop.
I’ve learned over the years, often times the hard way, that this is the best way for me to make money in the markets.

My TradeStops SSI Stop signal has been tested extensively. When the SSI Stop signal is triggered, more often than not, it means the long-term uptrend in a stock has been broken.

Did I leave some money on the table? Possibly, but it really didn’t matter.

What really matters the most is that I have a system for making investment decisions without the fear of regret. I am confident that my system puts the odds in my favor … and I execute on it.

The fear of regret is the single biggest obstacle to our investment success.
Overcoming it is our single biggest opportunity to improve our outcomes as investors.

My confidence in the TradeStops system was eventually vindicated in MCD as well. In spite of the 10.3% rally in MCD, it never triggered a new SSI entry signal, it put in a lower high and now a new lower low as well.

Editorial_Sept12_03.png

The tools of TradeStops are there for you to put the fear of regret behind you and become the confident and successful investor you know you can be.

No (fear of) regrets,

Richard_Signature
Richard M. Smith, PhD
CEO & Founder, TradeStops

Monitoring Covered Call Trades in TradeStops

One of the more successful investment strategies utilized by TradeStops members is a simple option strategy known as a covered call. Many of the newsletter editors we follow use this strategy to increase income for their subscribers.

The strategy involves buying a stock and selling a call against the stock. It is simple to execute and understand. An advantage of this strategy is that you know everything that can possibly happen during the time you own this trade – the potential gain, the potential loss, and the break-even point.

And TradeStops is here to help you set up and monitor these covered call trades in your portfolios.

For this example, there is a trade in SLW we’ve been following since late March.

We originally set up a Watch portfolio that contains the top holdings of the GDX ETF.

Educational_09-08-16_01.png

As you can see, all of these stocks have active SSI Entry signals in place. SLW triggered an SSI Entry signal on 3/28/16. It has had a strong move up in the 5+ months that the SSI Entry signal was initiated.

Educational_09-08-16_06.png

The stock has moved from a little over $17 to as high as almost $31. That’s an almost 80% gain in just 5 months. But look at the move that SLW made in two weeks’ time. It was down $5.50 a share, a loss of almost 18% in just two weeks.

We still like SLW and believe that it could have more upside, but maybe a bit of caution is warranted. Let’s look at selling a covered call against our position.

We determined that there was good value right now in selling the October 32 calls. The option premium is $0.84 per share. That’s a return of about 3% for only six weeks’ worth of time and the strike price is 10% above the current price of SLW.

Educational_09-08-16_02.png

This is how the trade shows up in the TradeStops portfolio.

The first thing you probably notice is that the option itself does not have an SSI signal. It is impossible to develop SSI signals or Volatility Quotients for options.

The vast majority of options expire less than one year after they are created. So we set up our alert on this trade using the VQ% of the underlying stock, in this case, SLW.

Educational_09-08-16_03.png

In this case, SLW has a VQ of 34.7%. We used the closing price of when we entered the option trade as our basis for this trade. Here is the Alert Description as it shows up in the “Alerts” tab.

Educational_09-08-16_04.png

And this is the current Alert State.

Educational_09-08-16_05.png

The TradeStops program subtracts the premium received from the sale of the option from the price paid for the stock. Even though we actually paid $17.23 for the stock, we want to use the current price as our basis. This way our alert will trigger at a higher price than if we used the actual cost basis.

If the price of SLW continues to move higher and closes above $32 by option expiration, we could sell our shares by having them assigned. Of course, we could always buy back the call and sell another one that expires in a later month.

We also have an SSI Alert set up for SLW itself. The current SSI Stop price is $20.15. Should SLW continue its recent move lower, we can get out of the trade quite easily by buying back the option (which will be almost worthless), and then selling the stock.

TradeStops continues to make monitoring your options trades easy. And our development team is working on further upgrades that we will announce in upcoming months.

Please let us know if there are any topics you would like covered. We appreciate your support.

To much option success,

Tom Meyer,
Member Services, TradeStops

From sector to stock…

Last week we highlighted the surprising recent strength in the financial sector and the recent SSI Entry signal in XLF, the Financial Select Sector SPDR ETF.

Today we’re going to drill down into the biggest component stocks in XLF and see if we can get a deeper picture about what’s going on.

Here’s an updated SSI chart of XLF.

Editorial_Sept09_01.png

XLF held on to its recent gains this week. Since triggering a new SSI Entry signal a couple of months ago, XLF is up another 4%. The S&P 500 is up about 1% over the same period of time.

Let’s drill down now and take a look at what’s going on with the top 10 individual component stocks of XLF. Here’s a table showing these stocks, their current Volatility Quotient (VQ%) and where each stands relative to our Stock State Indicator system (SSI).

Editorial_Sept09_02.png

Half of the top 10 XLF stocks have active SSI Entry signals and most of the others are close to triggering new SSI Entry signals. Let’s look more closely at the top XLF stocks Berkshire Hathaway and JP Morgan Chase.

Berkshire Hathaway (BRK.B) is leading the pack. It triggered a new SSI Entry signal back in May of this year and has moved about 5% higher since then.

Editorial_Sept09_03.png

Berkshire also recently broke through strong overhead resistance as shown on the volume-at-price chart below.

Editorial_Sept09_04.png

It looks like new highs are on the horizon for Berkshire Hathaway.

JP Morgan Chase (JPM), on the other hand, has yet to trigger an SSI Entry signal but looks like it will do so soon. Similar to Berkshire, JPM has recently broken out above its overhead volume resistance but has yet to make new highs.

Editorial_Sept09_05.png

Unlike Berkshire, however, JPM has not yet triggered a new SSI Entry signal. The SSI system is waiting for the SSI Trend to strengthen some more to fully confirm that JPM is likely to continue higher from here.

You can see in the chart below that the SSI Trend has started to turn up and appears to be strengthening. If JPM stays steady or moves higher from here, it will likely trigger a new SSI Entry signal in the next one to two weeks.

Editorial_Sept09_06.png

Part of my investment philosophy is that as individual investors our sweet spot is in individual stocks as opposed to indices and ETFs. It takes a little more work to dig into the details of the individual stocks but I believe it’s worth it.

It’s also more fun to be invested in individual companies as opposed to the less personal ETFs.

One great way to identify individual stocks of interest is to first look at what’s going on at the sector level and then drill down to the individual stocks in the sector to find one or two that are of interest to you.

The tools of TradeStops are at your fingertips to help you do so.

Have a great weekend,

Richard_Signature
Richard M. Smith, PhD
CEO & Founder, TradeStops

The TradeStops Sector ETF Strategy (or How to Triple the Returns of the S&P 500)

Note: Due to the holiday, we’re switching things up a bit. Dr. Smith will resume his regularly scheduled editorial emails this Friday.

Two weeks ago, we showed you how this simple strategy of using just 9 sector ETFs and following a simple set of rules could have tripled the return of the S&P 500.

We have been inundated with emails from TradeStops members wanting more information on how they can do this on their own. Today, we will take you through a step-by-step explanation that shows you how to initiate this strategy. Here are the eye-popping results of the strategy. This study did not take into account any dividends (we will update the results using dividends in a few months).

If you prefer, here’s a video that explains this strategy.

Educational_09-05-16_01.png

For this strategy, we are using the following SPDR Select Sector ETFs (you can find more information about these ETFs here):

  • Consumer Discretionary (XLY)
  • Consumer Staples (XLP)
  • Energy (XLE)
  • Financials (XLF)
  • Health Care (XLV)
  • Industrials (XLI)
  • Materials (XLB)
  • Technology (XLK)
  • Utilities (XLU)

These ETFs were introduced in December, 1998. The initial date of the SSI signals was March, 2000 so that is the beginning date of the study.

You’ll notice that the first trades didn’t occur until July 1, 2003. The top of the dot-com bubble in the market was in March, 2000 and the markets moved lower for the next 2-1/2 years. Also, there were no new trades from November, 2007 – November, 2009. There were exit trades only in 2008.

During market declines, the strategy requires patience as you can be in cash for an extended period of time.

Here are the rules:

  1. Determine the amount you want to invest in the entire portfolio.
    For this example, we are going to start with $50,000.
  2. Determine the SSI Condition of the 9 sector ETFs.
    We have set up a Watch Portfolio and entered the 9 ETFs. Here is what that looks like (based on market close on 8/31/2016). We have sorted the list according to VQ%.

    Educational_09-05-16_02.png

    You can see that all 9 of the ETFs have an active SSI Entry signal in place. We also have SSI Alerts set up for all of these positions. This is critical in managing the portfolio.
  3. Initiate this strategy only if 7 of the ETFs have an active SSI Entry signal in place.
    Since all 9 ETFs are giving us an active SSI Entry signal, then we will include all 9 of the ETFs in the invested portfolio.
  4. Determine the amount to be invested into each ETF. This is done by using the Risk Rebalancer to equalize the dollar risk in each ETF. New purchases are to be made on the first trading day of the month.

    chart-03b-1.jpg

    We have sorted this by the amount to be invested in each ETF. Our largest holding will be XLP (Consumer Staples) and our smallest holding will be (XLE). We have also saved this as a new portfolio.
  5. At the beginning of the month, determine if any activity has occurred in the portfolio. If there are no ETFs that have triggered either an SSI Entry signal or an SSI stop signal, then no changes are made to the portfolio and no rebalancing is required.
  6. If no changes occur for 12 months, then rebalance the portfolio on the first trading day of the year. For instance, if we initiate the portfolio on the first trading day of September, and no changes occur for a year, the rebalance will occur on the first trading day of the following September.
  7. When an ETF triggers an SSI Stop signal, immediately sell out of the position. Keep the proceeds in cash.
  8. At the beginning of the month, if there are still at least 7 ETFs with active SSI Entry signals, use the Risk Rebalancer to rebalance the ETFs and the cash in the portfolio.
  9. At the beginning of the month, if there are less than 7 ETFs with active SSI Entry signals, do not rebalance and do not reinvest the cash in the portfolio.

    This is an important element of the strategy. During a market downturn, we don’t expect to see the ETFs trigger their SSI Stop signals at the same time. It could happen over the course of several months. So as the ETFs sell off, the amount of cash will increase in the portfolio.

  10. Stay in cash until there are 7 ETFs that give new SSI Entry signals. At that time, initiate positions in the ETFs according to rule #4.

The back tested strategy returned a total of 142% over the 15+ year study compared to only 47% for the S&P 500. And the maximum drawdown was only -17.96%!

This is not a difficult strategy to follow. From the beginning of trading in 2003, there were a total of only 168 trades initiated and most of these were for rebalancing purposes. If you set up the ETF positions using SSI Alerts, you’ll be notified of the changes that need to be made to the portfolio.

Remember, this strategy has been back tested, but no funds were actually traded. There is no guarantee that these results will be the same over the next 15 years.

As Dr. Smith likes to say, “Make More, Risk Less”.

Tom Meyer,
Member Services, TradeStops

Taking it to the bank

This past week the markets have been reacting to the prospect of one or more rate hikes from the U.S. Federal Reserve before the end of this year. Financial stocks are busting out all over the place … and it looks like there is more to come.

XLF, the Financial Select Sector SPDR ETF, triggered a new SSI entry signal about a month ago after quickly recovering from the Brexit-based brouhaha.

Editorial_Sept02_01.png

The volume-at-price chart for XLF also shows reason to be optimistic. XLF has recently broken solidly out of its overhead volume resistance area.

Editorial_Sept02_02.png

We haven’t seen new highs in XLF just yet … but I won’t be surprised to see them sooner rather than later. My proprietary time-cycles analysis on XLF suggests further strength to come as well.

Editorial_Sept02_03.png

The simple explanation for the recent strength in financial stocks is that the prospect of Fed-based interest rate hikes is good for banks because it improves their net interest margin (NIM). NIM is the difference in the interest rates that the banks make on their loans versus what they pay on their deposits. The promise of higher interest rates suggests higher earnings for banks.

I’m not so sure that this is the whole story. I’m skeptical that significantly higher interest rates are on the horizon and are sustainable. For one thing, the SSI chart on TLT, the iShares 20+ Year Treasury Bond ETF, is still amazingly strong.

Editorial_Sept02_04.png

Looking at this chart I find it hard to believe that we’re about to see a collapse in bond prices and the start of a long term uptrend in interest rates. I also just don’t believe that the economy is in good enough shape to sustain higher interest rates.

As investors, however, we don’t always have the luxury of understanding why prices move the way they do. What I can tell you today is that financials are showing encouraging signs of strength … and, as Billie Holiday famously put it, “Them that’s got shall have.”

You can take that to the bank,

Richard_Signature
Richard M. Smith, PhD
CEO & Founder, TradeStops

The best … just got better

Late last year I released the most powerful tool I’ve ever developed in TradeStops – the Risk Rebalancer. Today, I’m making it even better.

The inaugural study that launched the Risk Rebalancer covered the investment history of 40 individual investors over a 15-year period. Using the exact same investments, bought and sold at the exact same time these investors could have more than doubled their investment returns by only changing the amount of money invested in each position.

Here is the chart summarizing these results … the chart that started it all:

Editorial_Aug29_01

Remember, the average improvement was a doubling of performance. Some of these investors could have achieved even more dramatic results.

One investor could have done 6 times better – making $136,260 in profits instead of $22,720.

Editorial_Aug29_02

Another investor could have turned a $100,400 loss into a $59,500 gain!

Editorial_Aug29_03

I bring these examples to your attention again to remind us all that there is one killer portfolio mistake that almost every investor makes at one time or another – putting too much money into a really exciting (and volatile) story stock.

The Risk Rebalancer is a tool that I developed so that investors can know exactly the right amount of money to invest in each stock. I call this “right-sizing” your portfolio. It automatically calculates how much money to invest in each stock so that your portfolio is balanced for volatility.

Since we introduced the Risk Rebalancer in 2015, thousands of new investors have signed up as TradeStops Premium members.

Here’s a recent comment from a TradeStops customer about the difference the Risk Rebalancer is already making on the way he invests…

I added some money to my IRA a little while ago. I risk rebalanced only for 3 stocks with it instead of resizing the whole portfolio…. Then, on 7/21, I randomly risk rebalanced the entire portfolio but didn’t make any changes. If I had followed the program and resized (by adding more to some of my risky positions and less to some of the seemingly solid ones) I’d literally be up 24% more in that Portfolio…. I’m blown away by how much this program has already helped me.

-James R., Maine

Today I am pleased to announce that we have just released the first major upgrades to this powerful tool. The best just got better.

If you’re a Premium or Lifetime subscriber to TradeStops, you can login right now to get access to these new improvements. If you’re not yet a Premium subscriber, what are you waiting for?

The latest improvements to the Risk Rebalancer make it even easier for you to easily construct your dream portfolio using the full power of the TradeStops suite of algorithms.

You could always rebalance any existing portfolio with a single click of the mouse using the Risk Rebalancer. Now, you can take any portfolio as your starting point and edit it on the fly. You can:

  • See what adding a new position would do to the portfolio;
  • Freeze a favorite existing position so that its position size doesn’t get rebalanced;
  • Automatically reallocate capital out of all of your stopped out positions into the remaining stocks in your portfolio;
  • Easily see exactly the steps you need to take to achieve the rebalancing;
  • And more.

Seriously, there is nothing like it that I’ve ever come across in my 20 years of investing … and we just put even more distance between ourselves and the (non-existent) competition.

By the way, we’re not done. We continue to work on upgrading the tools within TradeStops and will have more releases in the coming months.

Make more, Risk less,

Richard_Signature
Richard M. Smith, PhD
CEO & Founder, TradeStops