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Wednesday, April 26, 2017

Q1 2017 Performance Review

Recap
First Quarter of 2017 was very eventful. It started with an overbought market, which continued to gyrate with new president coming into the office and confusing Executive Orders. While all of this happened in January, earnings started coming in better than expected and propelled the market to new highs in February.


After topping on March 1, within IPM turn window, market declined for rest of March. Many reasons were given for this decline including overbought market, high valuations, sentiment, potential for unfulfilled presidential promises and geo-political turmoil. Sadly, this wasn't something new. These kind of events happen all the time, making investing an arduous task.


Now the question is how can someone properly and profitably navigate through such tumultuous markets, while maintaining one's composure. That's why we created strategies that don't depend on market news, rather take into account underlying market currents to make investment decisions. This reduces transaction cost, dampens volatility and increases consistent results.


We are currently running two strategies. Goal of both portfolio is to generate absolute, uncorrelated returns for long-term growth. These are:
  • Conservative: Suitable for retirement accounts and risk-averse investors
  • Aggressive: Suitable for risk taking investors, with longer-term invest goals
Although both strategies performed amazingly well in Q1'2017, we will review their performance individually.


Conservative - Enhanced PSB (Green )
Conservative strategy went live in 2016. It returned 6.8% (excluding fees) against 6.1% return of SP500 total returns including dividends.

Following chart shows the cumulative performance of Conservative portfolio since inception. Strategy returned 19.8% (excluding fees) vs SP500 total return of 19.8%. In 2016, conservative strategy outperformed SP500 12.2% vs 12%.




Aggressive Strategy - Aggressive Enhanced PSB (Orange)
Aggressive strategy went live in 2017. It returned 15.6% (excluding fees)  against 6.1% return of SP500 total returns including dividends.

Since this strategy went live in 2017, Q1'2017 performance of 15.6% also shows the since inception performance of the Aggressive Strategy.


Although past performance doesn't guarantee future results, Q2'2017 performance remains very robust for both strategies.


The best aspect of these strategies is that they enables the investor to concentrate on the work that is more important in life than losing sleep on investments while looking at news all the day because we do the research and invest using proprietary algorithms and valuation models.


These strategies are open for investment. Please feel free to contact via subscription.ust@gmail.com for details. These strategies can be implemented via managed account setup through a Registered Investment Advisor. Please contact us for details. You can also sign-up for free email updates below: 
 

Tuesday, April 4, 2017

Gold Rally Can Pause!

We started investing in Gold in 2016 April, after 4 years of being out of the Gold market. We again increased Gold exposure at the start of 2017, in our proprietary strategies (Jan / Feb
2017 Investment Strategies' Performance)Overall, Gold remains in an uptrend but recent development has made us wary of immediate upside of Gold. 

In this post, we have analyzed Gold's short-term prospects using multiple analysis techniques to showcase the rationale behind our caution:

Technical
After experiences a sharp decline in early March, Gold has rebounded nicely. It is now testing significant trend-lines (show below). These trend lines could act as resistance in the near-term and force Gold to consolidate.


Sentiment
While Gold could experience a pause, it will be a very constructive development. But what is not constructive is the fact that news media has recently turned bullish on the yellow metal. Following are some of the recent bullish Gold headlines:



Furthermore, other sentiment indicators also suggest that Gold and Silver are in for some turbulence. Following chart shows Silver positioning among large and small traders. Current positioning is at levels that have resulted in Silver going down or sideways.

One cannot believe the financial news media because they get behind a trend, once everyone is on board. A detailed analysis of 2016 news and market action is presented here. Therefore, investors need to remain objective in terms of their direction and action plan.
Short-term structure:

With sentiment picture on the optimistic side, its likely that the trend will experience some pause before really asserting itself in the next few days. Above chart shows a potential inverted head and shoulders pattern being formed in Gold. However, the right shoulders doesn't look complete. Some back and forth action will be ideal to complete this structure.  

Gold Influence
Gold is significantly influenced by USD and Euro. Strong dollar pressures the commodities complex. It looks like Dollar has completed a long-term correction since the start of 2017, and could rally for few weeks. Start of 2017 is the same time when Gold start rallying. Once US Dollar rallies, it would be negative for Gold and Silver markets.
Furthermore, Euro long positions are also very extreme, which means that Euro will soon experience correction. Euro decline will also fuel Dollar rise; another reason that could dampen Gold’s ascent.

Conclusion
Gold could experience some resistance around these levels because of technical, sentiment and influence from other areas. However, that doesn’t mean that Gold will not spring back or it has entered a down trend. In financial analysis, one needs to remain objective.

How are we positioning?
We have reduced our long exposure but maintain long positions because Gold remains in an uptrend, as per proprietary Market Classification Model. Details will be shared with subscribers by April 9th. Our conservative proprietary strategy has out-performed the market in 2016 and in Q1-2017 through objective risk-management and a combination of strategic & tactical allocation. Detailed performance analysis will be shared in next 2 weeks.

Want to Invest
You can invest in these strategies through “Managed Account” offering or by subscribing to some of the services like Market classification Model (subscription page). MCM serves as the backbone for our model and can help you develop an understanding of the markets.  If interested in investing, you can register below and we will send an update. 
 

Tuesday, March 28, 2017

Financial Media and Stock Market

Over the last week, Financial News media is talking about how Trump will not be able to keep his promises given current political situation. Hence, continuation of the "Trump Rally," as it has come to be known, is in jeopardy. However, this is not correct and this is my problem with the media. News media needs a story and reports on everything after the fact because that is what majority of their readers can relate to.

They have done the same thing over and over again. Three big examples from 2016 include Brexit, US Elections and Oil crash of early 2016. In case of Brexit and US Elections, media did not have clue of what will happen in the actual vote. Everyone was complacent about status-quo remaining intact and no changes taking place. For example, UK staying in EU, while Hilary winning the White House.


Once both of these predictions turned out to be wrong, they focused on how negative will this development be for the overall stock market because of nationalistic policies, lack of growth and other issues. However, the market proved them wrong every time. And then they cam up with rational behind Trump rally or Post-Brexit stock market rally. These reasons range from additional liquidity by central bankers or business friendly presidency.

Brexit
US Elections
However, if you think about it for a minute, what would have happened had we seen the opposite results in Brexit Vote or US elections?
  • Brexit Vote: A vote to stay as part of EU would have also triggered a stock market rally but the rationale would be - it's a relief rally!
  • US Elections: A vote for Hilary Clinton would have also triggered a market rally with a rational of policy continuation and lack of uncertainty  
In either case we would have experienced higher prices but different rational. Therefore, financial news media had no idea regarding the cause of the rally and didn't know that the market would rally. They just react to market performance and come-up with justifications. If one had been following the financial media and acting accordingly, they would have lost a lot of money or at least had not participated in the market rally.

And right now, media is so focused on negative aspects of Trump administration that it is missing several opportunities. We discussed some of these opportunities, as part of our 2017 investment themes in February (link).

In order to mitigate this news driven emotional roller-coaster, we developed proprietary portfolios, where investors can invest for longer-term consistent gains without involving emotions due to financial news media. For example, we exited the stock market in Sept 2015 and then entered the market again in July 2016, and have maintained long positions since then.

Following is an overview of the performance. Detailed performance will be shared after end of Q1:
  • Conservative: ~7.5%
  • Aggressive: ~18.5%

Want to Invest?

At Understand, Survive and Thrive, our goal is to produce consistent, uncorrelated returns using unique analysis techniques, that will enable your portfolio to beat the market over any economic cycle and provide peace of mind. We don't believe in beating SP500 every single month. And therefore, if someone wants to try our strategies just for the short-term, we will suggest that they will be disappointed at some point.

If you are interested in investing, you can register below and we will send an update. Some of the key outputs from the data models used in this strategy are also available through subscription.

Sunday, March 19, 2017

Bitcoin Analysis and Future Roadmap


Image result for BitcoinBitcoin is a digital currency - one of many. However, it is the first digital currency of its kind with a market cap of ~$18 B, with a finite supply. This means that there will be a time when no new bitcoins will be created, which is very important for any thing of value. Bitcoin does not have any central bank or country controlling it. Hence, it is the true currency for a society without borders. Bitcoin price has sky rocketed since its launch in 2009. For details on Bitcoin basics, please go here

Bitcoin today serves multitude of functions ranging from a store of value to medium of purchasing goods. Its underlying technology, known as "Blockchain," has found many uses other than pure currency usage. In fact, many financial and other institutions are exploring the use of Blockchain in their industries. This technology promises instantaneous registration of financial transactions e.g. purchases or trade settlements. Some of the prominent Bitcoin accepting merchants include:


Recent Developments

Recently, Bitcoin has come under significant selling pressure - declining from ~1300 to ~950 in few days. This selling is coming primarily from speculators who bought the currency in the hopes of SEC approval of a Bitcoin ETF (link), which did not happen, and discussion of a new parallel currency - Bitcoin Unlimited. We have seen similar periods of Bitcoin despair in the past, especially towards at the beginning of 2016 when many Bitcoin enthusiasts proclaimed that the currency is dead and was a good experiment (link). At that time, Bitcoin price was $400 and today it is $1000.

Another apprehension is slower processing of Bitcoin transactions. However, its something that can be resolved and should be resolved. Now the interesting thing from this recent Bitcoin pessimism is that this might be setting-up a great buying opportunity for long-term investors, who want to diversify their portfolio.

Future projections

Bitcoin trend remains up. We started buying Bitcoin after our proprietary Market Classification Model (link) showed a trend change in late 2015. The trend remains up and recent surge in pessimism along with decline in Bitcoin price could provide the fuel needed to start the next rally phase.

From an Elliott Wave perspective, Bitcoin potentially completed a longer-term 1st and 2nd waves in 2015. Since then it went up in a minor degree first wave. Either recent decline is 2nd wave of minor degree or we are experiencing a sequence of 1s and 2s. In either case, once recent correction is complete, we should see a continuation of the uptrend and with substantial force.

Following chart shows the discussed wave structure:


From a sentiment perspective, recent declines in enthusiasm and rejection from SEC supports this interpretation of the wave structure. An approval of the Bitcoin ETF from SEC would have suggested a major top in Bitcoin because of mainstream approval.

Other Developments

Along with technical reasons, there are a multiple geo-political and policy reasons that could really support Bitcoin prices, including:

  1. Elections in Europe, especially France
  2. Impact of US policies on the world e.g. protectionism 
  3. Potential inflation scare
  4. Downturn in U.S. economy. U.S. economy has been rising for the past 8 years. A bear market/recession is overdue.

Where can it go? 

If Bitcoin starts rallying, it could touch $3K, followed by $5K in 1-2 years. Longer-term, there are projection for $13K. But we will see the market action one day at a time. We will continue to evaluate our indicators to decide when to add and keep an eye on the Market Classification Model to identify exit point, if Bitcoin enters a bear market.

In today's investment environment where Bonds and Stocks are very expensive, Bitcoins provide an alternative for investors to not only diversify their portfolio but also potentially grow it at a fast pace. Its like an options strategy, in case you need to protect yourself with diversification but with one big advantage - there is no expiry date!

Our services

At Understand, Survive and Thrive, our goal is to produce consistent, uncorrelated returns using unique analysis techniques, that will enable your portfolio to beat the market over any economic cycle and provide you the peace of mind to stay with the strategy. We don't believe in beating SP500 every single month. And therefore, if someone wants to try our strategies just for the short-term, we will suggest that they will be disappointed at some point. Like one can use Bitcoin for investment and for diversification, one can diversify their investments without Bitcoin and that's our goal.

If you are interested in investing, you can register below and we will send an update when the strategy is available for investments. Some of the key outputs from the data models used in this strategy are also available through subscription.

Thursday, March 16, 2017

Next IPM Model Turn Window

After briefly topping at the last turn date of Feb 28, 2017 (link), market rallied yesterday on Federal Reserve's announcement. 

Market Condition

  • During the correction since Feb 28, market did not generate any sell signals. In fact, it generated several buy readings from oversold perspective. 
  • At the same time, Sentiment as subsided in the past few weeks, which will provide fuel for this rally to continue. 
  • From a government perspective, they are busy with controversies and will not be able to influence the market. 
  • Furthermore, Dutch election results were positive for the overall geo-political situation

Hence there are no significant headwinds in front of the stocks right now.

We remain long the stock market because Market Classification Model remains bullish, which turned bullish on stocks in July 2016 and has remained bullish ever since (2017 Investment Performance). However, it is critical to understand potential future turn dates.

According to latest Inflection Point Model re-run, stocks will likely experience turbulence in the first week of April. Following chart shows the IPM model output.
IPM Model turn date is scheduled for April 5 (+/- 4 days). Most likely, this will turn out to be another intermediate top, which will last till majority of companies start reporting their earnings in mid April. However, it will be sufficient enough to make bears out of many longs. 

We will continue to evaluate the market conditions for any sell signals, as we approach this turn date. In the mean time, it seems like this rally could continue for another ~2 weeks.

If your interested in free e-mail list or in paid services like Market Classification Model, please fill-out the form below.

Monday, March 13, 2017

2017 Investment Strategies' Performance

We started tracking investment performance in real-time investment fund last year. Last year we launched conservative strategy and it yielded 12.2% returns versus SP500 returns of 12%.

Strategy Overview

Our goal has been to develop market neutral strategies that would enable investors to invest in any market environment with the goal of beating the market over the long-term, while ensuring consistent investment and reduced panic reactions.

We reached this goal by developing a proprietary index that has long-term Beta of -0.08 and has a R2 (correlation factor) of 0.1. In other words, both of these measures suggest that the benchmark is uncorrelated with the market (SP500).

We leveraged this proprietary benchmark and clubbed that with additional analytical techniques to develop following two investment strategies:
  1. Enhanced Conservative
  2. Aggressive
Furthermore, two more strategies are in Beta testing phase, which will be rolled-out in 2018. 

January 2017 Performance

Following chart shows performance of the SP500 with dividends in January alongside performance of the proprietary Benchmark, and the two investment strategies, available to investors.
Context: January was a time when market uncertainty was very high. Investors were concerned how the market will react after the new president takes the office, especially after such a nice run in the equity markets in November/December 2016. Lastly, there were some executive orders that took the world by surprise and caused a lot of confusion even for the investing world.

February 2017 Performance

Following chart shows performance of the SP500 with dividends in February alongside performance of the proprietary Benchmark, and the two investment strategies, available to investors.

Context: In February, Trump rally resumed while the investors started pulling from stocks in easy February after EO related confusion. It was a time when our proprietary strategies did not perform as well. And the reason is that we stay market neutral with focus on consistent returns through undervalued assets. Since February turned out to be a month where expensive assets became even more expensive, our investment strategies didn't result in amazing returns.

Conclusion

Our goal is to produce consistent, uncorrelated returns using unique analysis techniques, that will enable your portfolio to beat the market over any economic cycle and provide you the peace of mind to stay with the strategy. We don't believe in beating SP500 every single month. And therefore, if someone wants to try this strategies just for the short-term, we will suggest that they will be disappointed at some point in the near future. 

Will start running these strategies in Q2'2017. If you are interested in investing, you can register below and we will send an update when the strategy is available for investments. Some of the key outputs from the data models used in this strategy are also available through subscription

Thursday, February 23, 2017

Market Behavior and Impact on Gold


Market Overview

Markets have rallied very significantly. First burst of the rally was after election till mid-December and the second burst has been from end of January till today. Impressively, our proprietary Market Classification Model remained long stocks during this entire period. Model turned bullish soon after Brexit and has remained bullish since July’16.

Although in the hindsight one can easily say that the market rallied and it was prudent to remain long throughout this time, most of the market participants did not stay long. In fact, there have been significant bursts of pessimism during this rally. For example:

  • Brexit induced anxiety
  • Election related stress
  • Post-election disbelief
  • Post Executive orders convolution

However, these kind of market panics are the very reason why this market has been able to rally this far – Market likes to climb a wall of worry.

Now that stocks have rallied sharply over the last two weeks, we are approaching a period of consolidation. Consolidation doesn’t mean a sharp decline rather a period of sideways action like we saw in January, to digest recent gains. A potential scenario is market topping towards the end of February, according to Inflection Point Model and then consolidating till next earnings reports to justify high prices.

Once this consolidation phase arrives, other assets like Gold are likely to outperform.

Gold

Gold has been consolidating for some time. And this consolidation is supported by a series of higher highs and higher lows, which means that the next stage rally could be very significant. Gold also remains in a Bull market and would be an ideal candidate for a continued rally.

Following chart shows Gold performance over the past 2 months, where a steady uptrend is clearly visible.

 
Gold stocks are also tracing out higher highs and higher lows. In fact, following chart shows a potential head and shoulders pattern being crafted out by the Gold stocks. Once this pattern is completed, Gold miners can easily make a run for the summer 2016 highs.


 Latest MCM report included details about Gold’s uptrend and where the trend is with respect to the overall bull market.

Upside potential is further amplified by the fact that Gold performs very well in an inflationary environment and with rising interest rates, we are likely entering an inflationary environment.

If your interested in free e-mail list or in Market Classification Model, please fill-out the form below.