My 1st Million At 33 – yes, you can do it too

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  • Archive for November, 2007

    Study of MACD indicator on HUI & OIH

    Posted by Frugal on 30th November 2007

    I am testing MACD and RSI technical indicators by back-testing its utility of these technical trading signals. It is still a work in progress. But I already have some interesting results.

    Since I’m most interested in precious metal and energy sectors, I used them for my back-testing. I’m going to write about MACD (Moving Average Convergence/Divergence) first, which is indeed a much more “reliable” technical signal than RSI. With some of my custom tweaks, I was able to generate a 2.67X return better than buy-and-hold approach in HUI index. However, there are many caveats that can make this technique not so useful.

    First of all, the killing point is that a single day of delay in the MACD information will reduce the 2.67X return down to 1.18X return. This single day delay comes from that if I use the previous closing MACD information to make decisions for the next day, the price that I get for the next day at the closing price is overall much worse than if I “try” to use the same day MACD value, and obtains the closing price for that day. This almost means that you should probably try your best in predicting the closing price near the end of trading session and trade accordingly.

    Secondly, due to the frequent buy/sell signals that are generated, overall there are only net of 10% of the signals that actually give you a better re-entry price. However, it’s these 10% that give you the out-sized return.

    Thirdly, MACD is quite “reliable” in the sense that when I tried to use quite different averaging schemes instead of (26,12,9) default settings, the final decisions are quite close to each other. In constrast to RSI, RSI fails miserably on this point. Instead of reliable, I prefer to call it less sensitive or perturbable.

    Fourthly, the performance of MACD on OIH and HUI behaves quite differently. I haven’t tuned enough on OIH. But it appears that the trading thresholds around the crossing need to be different for a more optimal result.

    At last, without some amount of tuning, most settings of MACD-based trading will actually give you a negative performance versus buy-and-hold. This is also true with RSI-based. I don’t know whether this has anything to do with the bullish trends in both HUI & OIH. But it appears that trading in and out tends to let you out-of-market sufficiently enough such that your final performance actually deteriorates versus buy-and-hold approach.

    Currently, I generate buy/sell signals whenever there is a crossing between slow & fast MACD curves. I am trying to figure out some ways to reduce the number of signals generated, but still retain the performance. The current trading frequency that I get is one for about every 15 trading sessions. That seems to be too much for me, although may not be too much for a swing trader. I hope to tune my trading algorithm so that I can generate more reliable and less frequent signals.

    I hope that eventually I can put these algorithm development platform on my website, so that anyone can back-test their own strategies on any selected stock.

    Also, I would like to enhance the trading algorithm with non-binary decisions by trading only a portion, instead of everything. This is to attempt to reduce the overall volatility of all or nothing trading approach. The other enhancement that I want to add is to do some adaptive tuning in the parameters, based upon recent history.

    I should know enough math, signal processing, computer algorithms, and software programming to take this mini-project to a very advanced stage. Unfortunately, I usually don’t have the time to do it. Instead, I simply rely on my native analog neural networks (my brain) to process stock market prices, news, and signals to generate decisions. And certainly these decisions are greatly affected by my limbic system (that is my emotion).

    Hopefully, I can bring something useful for all of you from this when it’s more mature.

    Posted in Investing | 2 Comments »

    Xmas Rally Kicked Off

    Posted by Frugal on 28th November 2007

    The stocks are running up now. This is in conjunction with $US rising (which means gold is falling). I don’t know how long this rally will last, but I think this rally should be sold. The exact timing is hard to pinpoint, but I’m guessing probably mid-January to late February.

    I moved some 10% of my idle cash in my 401K account into stocks right near the bottom. I was going to add more, but I got hit by a 50% loss on my NG position, and has been pondering my next step on that instead.

    Anyway. Things appear to be temporarily bright for stocks, due to the upcoming Fed rate cuts. I fully expect that Fed will be cutting interest rates sooner and faster than in 2000/2001. Cash will be earning next to nothing again, while inflation is going to eat away the savers’ nest eggs. To combat that, one must buy into stocks I believe after a serious fall yet to come.

    When everyone expects that housing is going to wreck the stock markets, instead, I believe, a semi hyper-inflationary scenario will be in store for stock markets. However, my assessment must be qualified by a higher than usual probability of a big deflationary fall (coupled with this higher than usual probability of the hyper-inflationary rise). Anyone knows how to bet on volatility without buying options, but rather selling options on products such as inverse ETF?

    Posted in Investing | Comments Off

    Lost the chance to double my net worth.

    Posted by Frugal on 27th November 2007

    Did anybody who read my blog got into this world-record breaking hedge fund which returned 10X in 1 year? I got the performance number from Minyanville’s article on 1000% Subprime contained. Boy, I only wish I had more cash/money to be brave enough to take a piece of that action. If I did, I would have almost doubled my net worth (since minimum investment was $100K). Unfortunately, I didn’t. But did you?

    Certainly, somebody inquired him from reading my blog. Because I was asked by the fund manager Andrew Lahde to removed the proprietary PDF file, even though I had every good intention of promoting his business.

    Well, I’m sure he and his clients made out like a bandit. 10X return in one year. That’s probably good enough for the next 10 year.

    Were you that lucky? I guess rich does get richer, and I just needed to be a little richer to be in the league to participate and play.

    Posted in Mortgage, Real Estate | 5 Comments »

    Cleaned up my blogroll

    Posted by Frugal on 26th November 2007

    I have cleaned up my blogroll. Those that don’t meet my criterion of posting twice a week were taken off. I tried to be generous in my pruning, so some are left there even though they didn’t strictly meet my criterion. Some were left there because they were guest contributors to the site. I have always wanted to help the new bloggers to get started, when I have time. Unfortunately, I have been extremely busy to work on anything related to blogroll.

    Sometime next year I will try to make my time available to accept blogroll link again for a period of two weeks. Anyone who has been taken off, or anyone new is welcomed to exchange blogroll links with me via email (please don’t email me now, because I don’t have time to read them.)

    I always wish I have more time for everyone around me, whether I know them personally or not. But I just have 24 hours a day.

    I still keep all those removed blogroll links but only mark them invisible. I hope that there is no hard feeling. I just needed to make it more fair to any other bloggers who work hard.

    Of course, my site is not one of the very top PF blog site. But again, anything that I can do to help, I truly wish to do them and help you out.

    Regards,

    Posted in Announcement | 1 Comment »

    Dow Theory Had a Sell Signal

    Posted by Frugal on 26th November 2007

    Monday’s opening will be interesting, assuming that half-day trading on Friday doesn’t count much.

    On Wednesday, the venerable Dow Theory generated a sell signal, closing below August 16th’s closing level. The weird thing is that on August 16th, the intraday level is actually lower than the intraday level on last Wednesday. Although I give importance to closing prices, I give even more importance to the intraday prices. In any case, the Dow Theorist Richard Russell had declared that the primary bear market is or will be upon us. And I had declared a bear market back on August 13th.

    In any case, I’m expecting a brief stock market rally. And I believe it should be a perfect chance to lighten up.

    However, I’m expecting precious metals to rally further. The more I looked at the charts of HUI, the more I believe that the brief correction is over. I have took back all of my past sales of PM stocks back. I have not decided that whether I should continue to put my cash for use.

    What Frank Barbera said on financialsense is literally scaring me. He expects a wipe out in the general stock market in the next year or two. That is a serious deflation. I’m not sure if I agree with him.

    In any case, I’m less pre-occupied with the general market. The more important thing is about my PM positions. I’ve thought thru this many times. My conclusion is that the “best way” for Mr.Market to minimize the wealth of all participants is by making the gold & gold stocks to break new highs until all the people who are out-of-the market or who have sold to be continued to be out-of-market. PM action is more like climbing up the wall of worry, rather than slipping down the rope of home currently.

    Anyway, on Friday, gold is only some $20 to $30 away from the all time high. My current guess is that $850 will be broken before end of year or end of next January. We shall see.

    Posted in Investing | Comments Off

    I’m out shopping on Black Friday

    Posted by Frugal on 23rd November 2007

    This is a long weekend. Hope you all had fun.

    I’m buying Canon SD1000 for $150, and Panasonic Palmcorder SDR-H18 Hard Disk/SD Card Camcorder for $350, both from circuitcity.com. I’ve shopped at many places, that seems to be the best deals around, better than Costco and BestBuy, or even Fry’s electronics. You can get better prices online, but not much better.

    Posted in Frugal Ways, Market Pulses | 3 Comments »

    Liberty Dollars Seized!

    Posted by Frugal on 21st November 2007

    FBI has confiscated all assets including all gold & silver plus all computer records from www.libertydollar.org!

    Here is from libertydollar.org:

    Friday, November 16, 2007: Make no mistake, the FBI and Secret Service raid on the Liberty Dollar at 8:00 AM on Wednesday, was a direct assault against the US Constitution and your right to own and use gold and silver in any way you chose.

    When I first heard about this news, I was stunned. Feels like the USA government is on the move of “terminating its opponents” by force. After some more studies about the Liberty Dollars, I retracted my original thoughts. I think Bernard von NotHaus who is at LibertyDollar.org is going a little bit too far.

    What is Liberty Dollar? It’s actually a pseudo-currency issued by LibertyDollar, intended to replace the US dollar circulation. It is a “currency” (if you think it is) backed by real silvers. Of course, with every monetary scam (and you may or may not include US Fed), the paper money is issued at a premium over the hard assets. The liberty dollar was issued at about 50% premium over the spot silver, about $10 for every $7 (1 ounce) of silver. And there are actually real merchants and consumers willing to take these pseudo-currency.

    I would not have any problems if they were simply minting a different silver dollar like the silver eagles. But issuing a different paper currency is going too far. Certainly US or any other government would not allow such things to go on for too long, or else it will undermine their monetary monopoly.

    In any case, back in my mind, I am a little worried about all the US gold/silver coins that I have (well, actually it’s too little amount to be worried). I would prefer holding Canadian coins than US coins at this point, as long as the Amero talked about by Puplava does not materialized (Amero is a new currency supposedly in plan, for the American continent, merging Canadians, Mexican Pesos, and US dollars). I don’t know whether USA government would one day claim that all the US minted coins are the properties of US, and/or claiming that all the silver dollars are worth simply “One Dollar” as printed on the coin. Don’t think such things would happen, and hope not, but just in case, I would get gold & silver dollars from other countries. They are a little cheaper anyway, and possibly this premium will be reversed in the future over the US coins.

    Maybe in the distant future, the government currencies will be back by real hard assets. In the meantime, I suggest holding some hard assets yourself. And I certainly don’t think you should buy any Liberty Dollars. Why trust anyone else when you can trust the coins in your own hands?

    P.S. By the way, customers at goldmoney.com have been cut off check-writing privileges from the bank used by goldmoney.com for no reason. Just another data point to think about.

    Posted in Gold/Silver | 2 Comments »

    Helene Meisler’s timing is not perfect

    Posted by Frugal on 20th November 2007

    At the thestreet.com, Helene Meisler is one of my most respected technicians. I currently don’t have an active subscription to her publication. But occasionally I watch for her words. Unfortunately, listening to her words this time around cost me a small fortune.

    I was big-shorting through naked calls into November expiration. However, last week, she put out words saying that the a bottom is likely in. Because of the big financial rallies, it scared me out of my big positions and I trim my gain/losses. Then the next day, she came out and said that because of so many bottom callers (and she is one of them), the bottoms are likely not in yet. And then she said that there may be a Thanksgiving rally coming next week. And so I covered my Dec call positions again. And this Monday, she said that Thanksgiving rallies won’t be as strong as the previous counter-rallies. Of course, Monday stocks went down again.

    Oh well, thanks but no thanks. So many flip-flops are not very helpful. And it goes to show you how uncertain the times are, even for a good market technician.

    I’m still planning to open short positions if the market has a short-term rally. However, I’m going to hold onto my increasingly worthless $US for a little bit longer. Don’t plan to go into markets just yet. But maybe the bottom could be quite close, although the rally could be quite short too.

    Frank Barbera came out and said that gold may be in for a big rally soon, bottoming right here with a 9-day RSI value of 40. Jack Chan’s MACD indicator however has turned bearish on gold and gold stocks. I’m going to be erring on the conservative side, and sit tight.

    Sometimes, the hardest thing about investing is doing just nothing.

    Posted in Market Pulses | 3 Comments »

    Check Before You Buy Electronics From Costco

    Posted by Frugal on 19th November 2007

    I’ve compared the prices on electronics many times. Costco quite often disappoints me. I really expect better pricing from Costco.

    Here are some examples:
    1. JVC GZ-MG155US HDD 30GB camcorder at my local Costco is selling for $489.99, but the cheapest price from the internet is $329. That is $170 price difference, or some 35% of the total.
    2. Sony DCR-SR82 HDD 60GB camcorder at my local Costco is selling for $599.99, but the cheapest price from the internet is $295. That is about $300 price difference, or some 50% of the total.

    This is not to mention all those SD memory cards, DVD-R/+R media which are constantly over-priced by a tremendous amount. It’s really hard to imagine who are buying those over-priced products, but I guess there are simply people with more money or less time to price-shop than I do.

    Certainly Costco has a very good return policy. But for such a steep price difference, I really need to think twice. There is probably a very good reason why the stock price of Costco is near its all time high at $66.80. Don’t you think that it could be due to all the shoppers paying for Costco’s bottomline?

    Most people probably expect a deal when walking into Costco. I’m afraid that maybe the reverse is true.

    Posted in Frugal Ways | 5 Comments »

    A Gold Bull In the Making

    Posted by Frugal on 16th November 2007

    I’ve observed this a couple of times. Yes, gold goes down, and/or go down hard. But then other currencies versus $US go down harder. In the flushing process, the price of gold in foreign currencies increase. Or the gold rises in US currency, but then foreign currencies versus $US rises less. And then gold goes up in foreign currencies again.

    It is like a rotating bull fight. And almost always the gold wins against the weakest currency first, which is $US. So the new high of gold in $US comes first. Then it drops, making everyone thinks that the bull market is over. But then gold makes new highs in one currency after another, until the last strongest currency is conquered.

    So we recently had a new high in $US. And now it’s very close to new high in other currencies as shown below. One of my bigger problems with the following charts is that it seems to be a double top forming. If gold doesn’t break the double top, then at best, the bull market in gold is really a bear market in $US in disguise.

    One should keep an eye on the charts below, and see whether gold can push above. My guess is that there probably will be a minor pullback first before it launches higher. The strongest currency right now seems to be Brazilian Real, Canadian Dollar, Indian Rupee, Turkish Lira, Thai Baht, Iceland Krona, New Zealand Dollar. It appears that the new high will need some work.

    Last time when gold zoomed up crazily, it was right after gold finally breaks new high in euro in summer to fall of 2005. I don’t know whether such things will repeat again, but one should watch $GOLD:$CDW for similar signal. Charts for Indian Rupee can be obtained from this link at economist.com.

    gold_in_us.png

    gold_in_yen.png

    gold_in_swiss.png

    gold_in_zar.png

    gold_in_aud.png

    gold_in_cad.png

    Posted in Gold/Silver | 3 Comments »