Monday, May 4, 2009

Modification of Trading Rule in Unstable Vix Pattern: Dynamic Asset Allocation/

I had to leave HQ this morning, having other responsibilities today, and I arrived back 15 minutes prior to the close, saw that I could buy the GJT previously sold in the taxable account in the IRA after a slide in price on light volume.  This floating rate security is viewed primarily as an inflation hedge as previously discussed.  I have now successfully transitioned that synthetic floater to a retirement account.   GJT was discussed in prior posts, along with the reasons behind transferring the position from a taxable account to a retirement account.  So now I own just 100 GJT in an IRA . 

For the both the ING and Aegon Preferred issues that I own, I am neither a buyer nor a seller at the current levels.  I am satisfied with my entry points and willing to let it ride now given the dividend yields at my cost. 

For an investor who is long stocks, the VIX is one index that you want to see fall below its 50 day and 200 day moving averages. 
The basic contours of the Vix Asset Allocation Model were formulated in about ten minutes after looking at the chart for the first time in 2007.  It was viewed as obvious, something that just jumped off the page, though I know of no one else talking about it.  It may or may not work in the future.  LB is a practical nerd so he will abandon any model that ceases to work, and can not be modified or adjusted to make it work without violating its core principles.  I do not see now any reason to change the basic rules on the use of this model as an aid to allocation decisions.  The model is working. It would have worked if I had it from 1986 to today for the purpose it was designed to accomplish.  There will always be a lag on the signal for the next bull market due to the preservation of capital requirement inserted by the nerd that requires a 3 month period of the VIX below 20 before stamping it as a Stable Vix Pattern.  There is a change underway, however, in what can be done now after the VIX fell below its 50 day and 200 day moving averages. CBOE VOLATILITY INDEX Index Chart - Yahoo! Finance   Alteration of rules regarding permissible trading has been a work in progress since the model was first formulated and applied in real time in 2007.  This made RB happy until LB said the trading rule change does not impact the amount of the cash allocation, but a reallocation between other asset classes, a process started in February with a reduction in short term bonds by 30 grand and using all of those proceeds to buy stocks.  This is part of what I have repeatedly called Dynamic Asset Allocation. 

For anyone reading this post, and not having a clue about what I am talking about, I will just link one to get you started in the event this is interesting.   VIX Chart from 2007: Alerts and Triggers Major Disruption of Cyclical Stable Bull VIX Pattern

I saw that a couple of lottery tickets are up a lot, and I have not had a close look to determine the cause.  RB just said quite thinking about the small stuff.  One of them was East West Bank (EWBC) that reported earnings and was up 21% today. East West Bancorp Reports First Quarter 2009 Results

My lottery tickets have never done this well and this may be their high water mark.
GJT prospectus:



  I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. I have never worked for a financial institution and never will.  In these posts, I am acting as an unpaid financial journalist and an occasional political commentator.   I am also aggregating financial news stories that I view as important and providing readers of these posts with links to those articles, sort of a filtered, somewhat intelligent, free search engine.  Any discussion made by me of particular securities  is not a recommendation to buy or to sell.  Trade at your own risk.  Consult with your financial advisor prior to making any purchase or sale. I will try to identify my sales too but it may take a few minutes after I implement them to create a post explaining my reasons.  The sale may before or after the post.  Before buying or selling any stock, even one recommended by a trusted financial advisor,  please research it and make up your own mind which is what I always try to do.  Research would include reading reports, reviewing financial records, earnings estimates, sec filings and prior earnings releases and news.  In this post, and all others by me, I am merely describing my reasons for purchasing  or selling securities, and the potential pitfalls that I identified prior to purchase or the reasons for a sale.  The securities mentioned in this and all posts written by me may not be suitable for others based on their unique financial position and risk profile.  By way of example, it is unlikely that I will ever need the funds contained in my retirement accounts. Always read the prospectus before buying a Trust Certificate, bond, preferred stock or other bond or bond like investments.  Information contained in my posts has been obtained from sources believed to be reliable but cannot be guaranteed.  It is always important to follow the investment process. the investment process/links to further information on canadian energy or royalty trustsInvestment Process Part II: Bonds and Bond Like Investments   NOT A RESEARCH SERVICE/Add of PWE Last Week   These posts by me do not constitute investment advice, nor shall they be construed as a guarantee of future results, or as an offer of any transaction in securities.   All content in these posts is provided for informational and entertainment purposes only, and it is a form of entertainment for me.  Anyone interested in a topic may want to review all discussions contained in the blog about it by using a relevant search term in the box at the top. Opinions are subject to change and they certainly evolve over time as information is assessed and analyzed for compatibility with prior opinions, the only process for a serious investor, and a topic of frequent discussion in this post.


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