Poor Man's Program Trading After 5 Months

Jan. 5.12 | About: SPDR Dow (DIA)

The year 2011 came to close and, in December, my program trading has benefited greatly from the Santa Claus rally. Here is the result as of December 30:

Maximum cash reserve for this strategy

$248,400.00

Number of shares of DIA I own now

100

Net from trading, after commissions

$10,216.73 (from 8/3/2011 to 12/30/2011)

Return on the cash reserve

4.11%

Return on the cash reserve, annualized

10.4% (from 8/3/2011 to 12/30/2011)

Cash on hand

$247,707.78

Breakeven price for the DIA on hand

$6.92

Market value of portfolio

$259,892.78 (at the close of 12/30/2011)

Market value of portfolio over reserve

$11,492.78 (at the close of 12/30/2011)

Click to enlarge

The following is a chart of the history of the annualized return since this program trading started:

(Click charts to expand)

Click to enlarge

The annualized return got back up to 10.4% because of some extra trades I made this month. In this month, I made a total of 8 trades.

However, only 5 of them are from the regular retrace of the market. The other three is from the Santa Claus rally. In late November, in anticipation of the year-end rally, I bought 300 extra shares of DIA at $114.44, which I mentioned in my November report. Santa did come to town. Even though he brought with him only a meager gift, I netted handsomely by selling those shares on December 19, at $118.47. I would have gotten a lot more out of it if I waited until the last trading day before Christmas when DIA closed at $122.63. Still, I am happy that I made money on this deal.

Now, at the end of the year 2011, I am sitting on a pile of cash and I have only 100 shares of DIA on hand. I bought that 100 shares way back on September 30 at $109. If the market goes up further from here and when I cash it in, I would make a bundle.

Click to enlarge

What am I going to do with all that cash? The DIA chart below [from Charles Schwarz’s StreetSmart. You can see what all those lines and curves mean in my preceding article in this series] indicates that the market is not breaking away from the current trading range soon.

Click to enlarge

My planned actions are as follows:

  1. If the market continues to hobble at where it has been recently, I would continue to do the same trading. I may expand the top of the range to DIA=$120 from my past trading range of between $106 and $116. In fact, I have already placed some of the buy orders.
  2. If the market shoots up from here, I will sell off my last 100 shares of DIA and then I will see what to do next. Unless there is a good fundamental and technical reason behind such a movement, I will sit it out. If there is another QE declared by the Fed, I may do some buying at the start but I will sell them out before it officially ends.
  3. If the market goes down significantly from here because of some events in Europe or elsewhere, I would space my purchase of DIA so that I can stretch my cash hoard to as far down as possible.

Disclosure: I am long DIA.