Weekend Market Commentary ($SPY, $VEU, $TLT, $IYR) – 12/19/14

Big Picture:

Does anybody else have whiplash?  Early in the week U.S. Equities were heading lower and then sharply reversed and muscled their way back to the top performing assets on the week.  Additionally, $SPY went ex-dividend on Friday so the close price below under-represents the full return.  All of the International Equities ETF’s I follow, $VEU, $EEM, and $EFA , were higher this week while Gold and Commodities headed lower.  Looking out at the 13 week (3 month) performance, we’re continuing to see strength in the long term treasury ($TLT) and real estate ($VNQ).  Stocks are cooling off slightly, but are still strong in the rankings.

The ETF Rotation System positions ($SPY, $IYR, $SCHH, and $TLO) were helped significantly this week both by the increase in price and the $SPY dividend.  At the end of the month, I’m going to be allocating more of my retirement money to the systems.  I’ve spent a good amount of time backtesting rotation systems using ETFReplay and I’m ready to drink the Kool-Aid.

The Weekly Stats:

Market Stats

Open Trades:

$IWM December 2014 Put Butterfly Update:

The position was closed this week and I’d like to get a full write up out at some point.  After going through the math on the trade, I found that I pulled a small amount of money out after commissions.  The amount of work required for that small amount of money has caused me to seriously reconsider trading non-directional spreads going forward.

$IWM January 2015 Put Butterfly

An image of the January position is shown below.  Aside from $IWM rocketing higher this week, not much has changed.
IWM Put Butterfly

ETF Rotation Systems:

The Schwab Rotation System is currently long $TLO (Long Bond) and $SCHH (Real Estate).  The Basic ETF Rotation System is long $SPY and $IYR (Real Estate).

Both rotation systems had a good week, but the Schwab system is still outperforming this month due to the $TLO vs $SPY position.  The rotation systems will be the foundation of what I’m doing in 2015.

As a reminder, I put up some new pages to track the ETF Rotation systems.  I’m in the process of putting together a trading plan for 2015 and I’m hoping to have some information out about that soon.  The 2014 equity allocation is no longer accurate, but I’m not ready to disclose the 2015 allocation just yet.  Check out the following pages if you haven’t already:

2015 Capital Allocation

Schwab Commission Free ETF Rotation System Results

Market Momentum Newsletter

Forex Breakout System:

All of the Forex trades continue to go smoothly.  The trailing stops are getting close to the market price in some cases and I wouldn’t be surprised to see the trades get stopped out soon.  In the EUR/USD trade below, you can see that price started trading higher and looked like it might hit the stop.  Before making it to that level, the market reversed and the Euro made new lows.  I’m short from around 1.35 and the market just traded below 1.23, which is over 1,000 pips lower.  The beauty of the Donchian Channel system is that when it wins, it wins big.

EURUSD Donchian Breakout

Trades This Week:

GLD – Bought to close the February 2015 101 Put for a .42 debit

IWM – Sold to Close the December Butterfly position

Option Inventory:

IWM – Jan 2014 111/116/121 Put Butterfly (bought for 1.22)

ETF & Forex Inventory:

SPY – Long 12 Shares from 207.38

IYR – Long 32 Shares from 76.7699

EUR/USD – Short 5,000 notional units from 1.35028

USD/CHF – Long 6,000 notional units from .9037

USD/JPY – Long 2,000 notional units from 110.084

NZD/JPY – Long 2,000 notional units from 89.036

Looking ahead:

Right now I’m making plans for 2015 and trying to decide where we’re headed.  I’ve opened a discussion with Covestor and am looking at setting up an account for them to track in 2015.  That account would trade an ETF Rotation System.  Unfortunately, the account would not be publicly visible for about a year, but it seems like a good platform for building a public track record.  If you have any thoughts or feedback on going to Covestor, I’d love to hear them either in the comments below or via email.  Have a good weekend.

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