Jan 10 – Sardinia + Market update

We had a sea day yesterday and spent a lot of time laying in bed reading and watching the news on the Paris attacks.

The markets started off higher in the am with a positive job report but then lost a lot back closing at 204.19. Is the bounce over? Are we heading to test 197 (Dec lows)? Or is this going to continue up? Who knows. We just need to be positioned appropriately for any event. The volatility collapse and stability of TLT really put our spy/TLT pair trade in the profit zone. All is going well RIGHT NOW in this volatile environment.  However, I do have concerns if we start heading down again as then I fear that this will be an actual correction. The bearish reversal bar on Friday is not a great bar to see. (Bearish reversal = open higher, falls, and closes red). We just went down hit 199, it bounced, bulls feel relieved, but if pressure mounts again, we’ll have a lot of towels being thrown in as this marks a turn in the general momentum of the market, the end of the V rebounds. There will be less defence and more fear and it’ll likely go down to test the Dec lows. That’s a failed rebound and the march to the Dec lows would affect our SPY/TLT trade. If we start going down again on Monday, I might add more TLT to the spreads. We’re up about 7% on that trade so far. Aiming for 20-25% but are at risk if a significant downtrend occurs.  We’re up a lot on the momentum portion and down a bit on the protector due to the whipsaw experienced.

With the momentum portion of our portfolio, we look at 15 ETFs that include bonds, small caps, large caps, REITs, treasuries, foreign treasuries and equities and some commodities. We take the the top performing three from the previous month so long as they are above their moving average.  We rotate once a month. In weaker periods we end up in treasuries and bonds and in stronger periods, we naturally end up in equities.  This rotation system provides a 15% return with max drawdown of about 10% measured from 1972 to present. Quite good numbers. We miss all of the big draw down periods. Our momentum portfolio is a nice addition to our protector portfolios, bond rotation and SPY/TLT pair trades.

Sardinia was OK, the segway tour was awesome but the city of Cagliari was so-so. Not a whole lot of interest besides this 13th century tower (the building that looks like its a new building under construction :))  This was used as a prison and also as a place to hang the severed heads from the executed.