Hi Tf,

Thanks.

I had read somewhere that the best time for someone to buy Put options was when volatility was low. Don't think it is going much from here, however I have been wrong many times in the past.

Regards,

Ray

The Volatility Index (VIX) is presently at 9.78. This is one of the lowest readings I can ever remember. Next to no volatility whatsoever...no fear in the markets at this time. Is anyone buying any Put options as a portfolio hedge? They have to be priced really low with the volatility so low.

Regards,

Ray

Hi Tf,

Thanks. I appreciate it.

Regards,

Ray

Need some info.

Several years ago we discussed holding off on any purchases until one moving average crossed over another moving average. I seem to recall that it was called MACRO AIM; but it could have been called something else altogether. I believe Ocroft is doing something similar with MACD.

My question is does anyone remember what moving averages were being used in our conversations? As I get older my memory gets less and less reliable.

Presently I don't have any positions anywhere near a purchase, but I thought I would make some notes and save them for whenever we get a meaningful correction. Using crossover moving averages or MACD seems like a good idea to use with AIM.

Best regards to everyone.

Ray

Hi Tf,

If I were you what I would do is look at some history of the VIX Fear Index to make my decision, since XIV does not have as much history as the VIX index and XIV sort of inversely tracks the VIX index.

The VIX index currently has a reading of 11.68, which shows a lot of complacency among investors today.

About 10 years ago, in 2006, the VIX index got as low as 9.5, which is approximately 20% lower than it now is.

On the other hand, as you say, the VIX index can really drop a long way if fear comes back into this market. In 2008 the VIX fear index had a reading almost up to 89. That would be a really long, long drop in value from here.....a lot of fear in the market at that time, as we all can well remember. I can personally remember running out of cash long before the market quit falling.

Another volatility index, The Fear and Greed Index, has a current reading of 80, which is Extreme Greed. At the bottom of this website is a chart of the Index going back around 2 years.

http://money.cnn.com/data/fear-and-greed/?iid=EL

Don't know if any of this helps you in your decision or not.

Best regards,

Ray

The Fear & Greed Index is now very clearly in the "Extreme Greed" category at 82.

http://money.cnn.com/data/fear-and-greed/?iid=EL

If you look down at the bottom of the page you will see a 3 year chart of the index. It appears that, except for one brief period in 2014, a reading of around 80 has acted as overhead resistance and the index would pull back when it got up to 80. If you have some sells to move out of your warehouses then this might be an opportune time to do so.

Best regards to all,

Ray

Hi Toofuzzy,

That is very true. That is why I began the program with only one Sell. Left myself a lot of wiggle room to purchase additional Sells as it goes lower, which I figure it will until this volatility settles down. Next week should be pretty interesting with respect to volatility.

By the way, heard on TV that the bookies in England were way off on this one. They had the odds at 80% the UK would stay in the EU.

Best regards,

Ray

Hi Toofuzzy....I began a new LD-AIM program this morning in XIV. It is almost at a 3 month low as I type this. It is also at the bottom band of a 50 day 2 ATR Keltner Channel.

Best regards,

Ray

Hi Tom,

Patience in investing is something I had to learn and I still fail to exercise it sometimes to my detriment. Don't know if I could stay in a position for two years without making a Sell. Congratulations on your patience.

My favorite pure investing book was written back in 1923...it is titled "Reminiscences of a Stock Operator". It is a thinly disguised autobiography of Jesse Livermore...probably the largest momentum investor of his time. Though momentum investing and the money management methods of AIM are polar opposites there are some things in the book that I have found useful.

He said the most profitable thing it took him many years to learn is patience. He said he made his most profitable trades by "sitting on his hands". He said he was too impatient many times to pull the trigger. Said he went broke several times because he was "too early" in the trades. Said that though he ultimately was correct in his overall assessment of the economy and market, his timing was bad. He said he had to learn to sit on the sidelines until the trend, up or down, was clearly established before getting into stocks (said he did not care if the trend was up or down....just that there was a very clear and established trend).

This sort of reminds me of Ocroft's method of waiting to buy until the trend has turned up and then making the purchases which have accumulated.

Best regards,

Ray

Hi Allen,

Just one thing more about corporate debt defaults which you mention. A couple of months ago I read somewhere that since interest rates were so low that investors were looking anywhere and everywhere to try to get a better return. So, the article said, more below investment grade (junk) bonds had been issued since 2009 than any other time in history. I wish I could find that article but I don't remember where I read it.

I don't really know much about junk bonds, but if the rate of defaults are rising I do know this can't be good for anyone (unless someone who might be shorting this market).

Best regards,

Ray

Hi Tom,

Not surprised at your recent sells. As some of you may know, my favorite composite sentiment indicator of general market conditions is the Fear and Greed Index. It has been steadily moving higher for the past couple of months and has been in 'Extreme Greed' territory now for over a week.

http://money.cnn.com/data/fear-and-greed/?iid=EL

At the bottom of that web page is a chart showing the index movement over the past two years. The index currently has a reading of close to 80 which seems to be the top range for most up swings, except for a higher reading back in 2014. We may be able to get more Sells out of individual stocks if we have chosen wisely, but if recent history is any guide, I don't know how many more Sells we will get out of mutual funds on this current uptrend swing leg.

Best regards,

Ray

I think you have hit on why AIM is sometimes difficult to follow for most people. It goes against the "herd mentality" which is the most comfortable method of investing. In following the herd mentality you do not have to think for yourself....just do what other people are doing. Most people are fearful of investing as the market falls and stocks go on sale. AIM requires investors who are independent thinkers. Believe I read somewhere that stocks are the only things people do not like to buy when they become a bargain.

Best regards,

Ray

Thanks Tom,

That should help me in the future.

Best regards,

Ray

We used to have a quick link to a calculator which computed the Minimum Trade amount as a percentage of the Portfolio Control instead of the Stock Value. I can't seem to find that link anywhere. Does anyone have it?

Regards,

Ray

Hi Allen,

Just sent you an email. Hope it helps.

Regards,

Ray

Hello Allen,

Don and I were in constant communication until his passing around Thanksgiving, 2012. We frequently bounced ideas off each other, sometimes on a daily basis. He had a very inquisitive, inventive mind and was always looking on how to improve existing ideas.

I was just looking in some of my old files and saw that I still have an old spreadsheet of his along with his accompanying explanation.

I use his EZM or Ladder method with very volatile ETFs which tend to bounce around in a Trading Range. One example is XIV, the inverse ETN of the short-term Volatility Index. I use my own version of his method in conjunction with Keltner Channels trading indicators.

If you let me know your email address I can send them to you.

Best regards,

Ray

Re: Fear and Greed Index

It appears we are now out of the woods and there is nothing but blue skies ahead (famous last words). Last week the index was in Extreme Fear territory, but finished this week with a Neutral reading.

http://money.cnn.com/data/fear-and-greed/?iid=EL

Best to all,

Ray

Hi Adam,

I agree.

On the Philly Housing Index chart it appears that it went from almost 300 in 2005 during the housing bubble down to around 50 in 2009. That is one large decline. Of course, housing bubbles usually don't occur with any frequency. I am 74 and I am aware of only one national and global bubble in my lifetime. Usually housing bubbles are more of a local thing than a national or global thing.

Then again, the index also went from around 50 in 2009 to around 250 last year. Guess, as they say, "timing is everything". Maybe someone who loaded up on housing stocks at the peak in 2005 did okay if they followed a method like Ocroft uses, or a moving average crossover, or something similar to make their indicated purchases on market declines.

This is why I like AIM since I don't have to have perfect market timing to have some success in making AIM indicated purchases.

Best regards,

Ray

Re: Housing Stocks:

Don't know how many of you have much exposure to housing stocks. If you do then you might find this article and chart interesting and informative:

http://www.mcoscillator.com/learning_center/weekly_chart/housing_stocks_falling_on_schedule/

Ray

Hi Tf,

It appears that your XIV purchase was timely according to this article. Of course, like most financial writers, he put some caveats about identifying what kind of trend this applies to near the end of the article.

http://www.mcoscillator.com/learning_center/weekly_chart/vix_above_all_of_its_futures_contracts/

Best regards,

Ray

Hi Tf,

I initially bought it with 3 Sells. I have been using 10% AIM-HI settings. Originally it represented only 4% of my stock positions. Initially I had two sells before making a purchase.

I like your idea of rebalancing between XIV and SPY.

Best regards,

Ray

Hi Clive,

You are correct about the volatility of the VIX. I have an LD-AIM position in XIV which I took several months ago after a post by Toofuzzy. It has an upward bias, for the most part, because of its contango properties, so it is a good stock substitute.

Lately it has been a wild ride with XIV. XIV closed yesterday at $28.66 and its 50 day Average True Range (ATR) is $2.411, or 8.41%. Yesterday SPY closed at $194.46 and its 50 day ATR is $2.612, or 1.34%. Quite a bit of difference in the daily volatility of XIV and SPY. Usually there is a 4-5 times volatility difference between those two.

So far, I have been very pleased with the performance of XIV. It has been acting the way I thought it would when I began the LD-AIM program.

Best regards,

Ray

Hi Tf,

That is a very interesting concept....re-balancing between leveraged and non-leveraged.

Gives me something to ponder about these next few days and weeks.

Best regards,

Ray

Hi Allen,

For what it is worth:

I went over to PerfCharts to see how the leveraged ETFs performed compared to non-leveraged ETFs. At PerfCharts the ETFs I compared allowed me to go back to August 4, 2008. I believe that the majority of the last bear market meltdown was included in these results:

+130.27% SPY (non-leveraged)

+303.36% SSO (2X leveraged)

+451.25% SPXL (3X leveraged)

Now then, if I move the slider over to March 10, 2009, which I believe was near the bottom of the last bear market, it shows the following results:

+230.22% SPY (non-leveraged)

+745.02% SSO (2X leveraged)

+1,751.81% SPXL (3X leveraged)

I am no mathematician, but to me it shows that the compounding done in leveraged investments compared to non-leveraged is dramatic, both on the way down as well as the way up.

I have begun to have a fondness for using leveraged ETFs in LD-AIM programs. Personally I don't want to tie up a lot of my meager capital using leveraged ETFs in regular AIM programs. Don't know if I will have the same fondness if we happen to go back into a major bear market as we did in 2008-2009.

Best regards,

Ray

Re: Oil prices might possibly be headed higher:

For those of you who believe that oil prices might be headed higher this article will probably confirm your beliefs.

http://www.mcoscillator.com/learning_center/weekly_chart/pesos_message_for_crude_oil/

Personally I very recently began a new LD-AIM position in ERX.

Best regards,

Ray

Also looking at GDX....the Gold Miners. At the market close today its 50 day Average True Range is $0.532. With a closing price of $13.78 this gives it a daily volatility range of 3.86%.

With any of these, because of the volality involved, I would not want to personally commit much money initially, so I would begin LD-AIM programs instead of btb AIM programs.

Best regards,

Ray

Thanks Tf,

RGLD has enough volatility to make a good LD-AIM candidate. Their current 50 day Average True Range is $1.740. Based on a closing price of $56.85 that works out to a little over 3% a day. The current 50 day Average True Range for SPY is a little less than 1% a day.

Somewhere in Mr. Lichello's last edition I seem to recall him making a statement about how one should get a stock to AIM which has good "juice". Looks like RGLD has both the "juice" and good volume which should make for a good market and a low Bid/Ask spread.

I will definitely put them on my Watch List.

Best regards,

Ray

Hi Tf,

According to this week's newsletter from Tom McClellan gold could be making a bottom (McClellan's father created the McClellan Oscillator).

http://www.mcoscillator.com/learning_center/weekly_chart/gold_priced_in_euros_has_gone_quiet/

He says looking the Gold's 13.5 month cycle this would happen around the middle of August...give or take a month.

He does some hedging when he says "Eventually gold is going to leave the area of €1050/oz and go somewhere".

Anyway I have put Gold and the Gold Miners on my radar.

Best regards,

Ray

Hi Tf,

For me the use of the ATR is a discretionary judgment call. When used it is an absolute number that is shown in dollars and cents. I just eyeball it get a sense of the volatility for the stock or ETF.

There is an overlay you can put on a chart which uses the ATR bands much like the Bollinger Bands overlay which uses the Standard Deviation. That overlay is called the Keltner Channel.

http://stockcharts.com/school/doku.php?st=keltner+channels&id=chart_school:technical_indicators:keltner_channels

The default for the Keltner Channels bands are a 20 day moving average, 2 ATRs above and below the 20 day moving average, and the 10 day ATR absolute value. These can be adjusted however one pleases. I usually stay with the default settings.

I have used the Keltner Channels in the past in the following manner. Whenever I see something with which I want to begin a new LD-AIM program, and that stock or ETF has recently been in a downward trend I will begin tracking it using the Keltner Channels. If the stock or ETF is presently below the lower channel band I wait until a reversal occurs and the stock begins an upward movement above the lower band. Then I buy.

With respect to using the ATR for options, personally I don't feel it has as much utility value as using an Option's Implied Volatility (IV) and comparing the IV with the Historical Volatility (HV). As you know, there are several factors which need to be considered for buying or selling options such as the Delta, Vega, Theta and whether the option strike is in the money or out of the money, expiration dates, etc. In my opinion, the ATR doesn't give nearly as much value to the investor for options as the Implied Volatility does when compared to the Historical Volatility.

The one thing the ATR shows me with your example on the S&P 500 is that the more recent ATR is more volatile than it has been over the entire past year.

One example I can give is that I am presently considering a new LD-AIM program with DRN. It is currently flirting with the lower band of the Keltner Channel. Its current 50 day ATR is $3.43. With a current price of $73.59 this means a daily volatility movement of around 4.7%. Using a strictly judgment call I would probably use LD-AIM settings of a 10% SAFE with a 10% Minimum Transaction on the Buy side. Would probably use a 0% SAFE with a 10% Minimum Transaction on the Sell side. I usually use a 10% Minimum Transaction amount for my LD-AIM programs to make the trades more meaningful.... and only adjust the SAFE amount for the initial purchase and larger SAFE adjustments for consecutive purchases.

Using your example of the S&P 500 Index, if I were to enter a new LD-AIM program for SPY I would probably use a smaller SAFE than if I did a new program in DRN. The current price for SPY is $210.02. Its 50 day ATR is $2.106 or $2.11. This has been an approximately 1% daily movement for the last 50 days....not much volatility. In order to generate some trades for SPY I would probably use a much lower SAFE than I would with DRN, which has a daily volatility movement of almost 5% a day. If I did use a SAFE with SPY I would not begin with one any higher than a 5% Buy SAFE. It is going to be difficult to generate many trades with settings higher than that.

I apologize for not giving you a more definitive answer. I guess the reason is that for me using the ATR for AIM settings is more or less a judgment call, much like using ZigZag overlays.

To sum up....for me the Keltner Channels can be used to help determine the point of entry, and the 50 day ATR can be used to help me determine the SAFE settings I use for the LD-AIM program after I make my purchase.

As I said, for me the ATR is much less useful for Options than is the Implied Volatility when compared to the Historical Volatility. That is because a lot more Option factors have to be used when making decisions for which Strike price to use and which Expiration Date. The ATR just doesn't help me there. It only helps me in setting up new LD-AIM programs.

Sorry I couldn't be of more help.

Best regards,

Ray

Hi Allen and Adam,

One thing that might help you decide on what size triggers to use for transactions, in addition to ZigZag overlays on a chart, is to also add the Average True Range (ATR) technical indicator to the chart. It is a measure of the Volatility of the stock or ETF. Here is the StockChart definition and explanation:

http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators:average_true_range_atr

The daily price ranges ATR can vary anywhere from about one-half of 1 percent for mutual funds up to several percent a day for a leveraged ETF or individual stock.

For the past several years I have only done LD-AIM programs because I like to have a lot of programs over a wide variety of different sectors, countries, etc. For the most part most of my LD-AIM programs are now with leveraged ETFs. My personal preference is not to use a leveraged ETF for a "By the Book" AIM program because of the "time decay" built into holding these leveraged products over a long period of time. However, with LD-AIM programs you can sell out and go to zero balance holdings depending on how many "Sells" with which you begin the program.....sometimes very quickly.

The default time period for the Average True Range (ATR) at StockCharts is 14 days. I personally like to use 21 to 50 days (depending) to get a smoothing of the volatility over a longer period. The more volatile the holding, the longer time period I use. It just gives me a better handle on what settings I should use for the LD-AIM program.

Best regards,

Ray

Thanks Alton,

I appreciate your insights.

Best regards,

Ray

Looking for some thoughts about Gold….

When I look at some longer term charts or even Point and Figure charts on GLD it appears that at a superficial first glance it might be time to do some bottom feeding and maybe set up a new LD-AIM program on GLD. Or even a leveraged gold miners ETF like NUGT. NUGT has a 14 day Average True Range (ATR) of $.947….with a closing share price of $10.96 that means it has a daily volatility of over 8% a day. Should be able to generate a number of trades with that kind of volatility.

On the other hand, Gold marches to its own drummer and has been in the doldrums since 2012. I really don’t have a handle on Gold or what makes it move other than it is supposed to be an inflation hedge of some sort. I am sure that most of you know a lot more about it than I do. So, I would appreciate your thoughts.

Best regards,

Ray

Hi Ray,

Though this does not answer your question directly, there is one website screening page which I have used for several years. You will find loads of performance information for ETFs and ETNs over the past month, 3 months, 6 months, 1 year and 3 years. It is on Morningstar's website:

http://news.morningstar.com/etf/Lists/ETFReturns.html

It includes a "Stylebox" symbol for each ETF or ETN showing its current "style"....whether it is predominately large-cap, mid-cap or small-cap. Also, at the current time whether it is predominately a value, blended, or growth style fund. One column gives the Trading Volume for the previous trading day....which can be valuable in letting one anticipate whether there will be a large or small bid/ask spread or slippage when you buy and also when you sell.

Regards,

From another Ray

Hi Tf,

I have a friend who makes consistent income selling Calls and Puts. He seems to know what he is doing. He tried to explain it all to me...measuring volatility....Delta, Gamma, Theta, Vega, etc., but it all went over my head. One thing he says is to "buy low volatility and sell high volatility". I have a hard time grasping what he is talking about. You probably know all about that sort of thing.

I once sold some Covered Calls, but I was nervous the whole time up to the expiration date. Don't think I am cut out for this type of investing.

Best regards,

Ray

Hi Tom,

I checked out its holdings at Morningstar:

http://portfolios.morningstar.com/fund/holdings?t=SPFF®ion=usa&culture=en-US

Appears that it invests mainly in the preferred stock of some stable companies. Appears to be a well managed etf.

Best regards,

Ray

Hi Allen,

Thanks. Just pulled up a couple of charts on SPFF. This appears to be like something I had in mind when I wrote this post. Again, thanks.

Best regards,

Ray

Thanks, Tom...

I appreciate it.

Best regards,

Ray

Just curious....

Was wondering if some of you use invest in something other than cash for your cash accounts? Cash is really earning nothing for all intents and purposes and hasn't earned anything to speak of for several years. Have been thinking for some time of investing in some sort of short-term bond fund as a cash equivalent, however I have been holding off since the prospect of rising interest rates now seems to be better than it has in recent years. Would hate to loss capital due to rising interest rates.

Would appreciate your thoughts on this subject.....especially if the timing of doing this isn't very good at this time.

Best regards,

Ray

Hi Allen,

You are correct that the Constant Dollar money management method and Praveen's method are very, very similar. I read his book a few years ago and could find little difference between the two. The Constant Dollar method has been around for many decades. People just tweak it here and there for their own personal preference.

Best regards,

Ray

Hi Tf,

You might be on to something. Let me ponder this for awhile. Might figure out a good way to do this.

Best regards,

Ray