Paul V. Azzopardi's Instablog Paul V. Azzopardi is an investment counsel and manages a private fund. A believer that individuals should take an active interest in their investments, he provides a free blog to investors wishing to manage their own ETF portfolio at ETFinvestmentsNewsletter.com (http://etfinvestmentsnewsletter.com/). (Please see further details under My Blog.) Paul initially trained and worked as a professional accountant and then obtained an MBA from the University of British Columbia. He has worked in the securities industry for the last twenty years as a manager of private client accounts. Paul has just finished writing a book on behavioural finance which is due to be published by Harriman House in the UK. His first book, "Investment and Finance - A Common Sense Approach", an investment primer, was published in 2004 by Progress Press. He lives in Ontario, Canada, and can be contacted at email@paulvazzopardi.com (mailto:email@paulvazzopardi.com). Paul V. Azzopardi http://seekingalpha.com S&P 500 Signal -- NEW ! http://seekingalpha.com/instablog/82242-paul-v-azzopardi/39500-s-p-500-signal-new?source=feed 39500
This week I have started posting a Signal on the S&P 500.

It is available free to visitors at:  etfinvestmentsnewsletter.com

The Signal is posted every Friday before market close and can be either Long, Short, or Neutral.

On the website I provide its backtesting history (2001-2008), its history for 2009 (when it went live), and the first published Signal.

Average hypothetical returns over 8.8 years at 16.9 % per year.

Thanks for visiting. 





Disclosure: Long SPY]]> Fri, 11 Dec 2009 15:06:25 -0500
This week I have started posting a Signal on the S&P 500.

It is available free to visitors at:  etfinvestmentsnewsletter.com

The Signal is posted every Friday before market close and can be either Long, Short, or Neutral.

On the website I provide its backtesting history (2001-2008), its history for 2009 (when it went live), and the first published Signal.

Average hypothetical returns over 8.8 years at 16.9 % per year.

Thanks for visiting. 





Disclosure: Long SPY]]> spx S P 500 Signal Lehman as Antidote to Moral Hazard http://seekingalpha.com/instablog/82242-paul-v-azzopardi/27624-lehman-as-antidote-to-moral-hazard?source=feed 27624
The regulators did not have all the tools they wished they had to impose order on the financial market place and when Lehman went down it meant two things: (1) that not all would necessarily be saved, and (2) if you were a player, you had better play ball when the regulator winked.

]]> Tue, 15 Sep 2009 18:37:22 -0400
The regulators did not have all the tools they wished they had to impose order on the financial market place and when Lehman went down it meant two things: (1) that not all would necessarily be saved, and (2) if you were a player, you had better play ball when the regulator winked.

]]> leh Gold and the Dollar http://seekingalpha.com/instablog/82242-paul-v-azzopardi/25727-gold-and-the-dollar?source=feed 25727
Recently, they see-sawed : severe bouts of risk aversion usually meant investors going for the US dollar and Treasuries, abandoning equities and commodities, including the precious metals.

Today's uneasiness with equities led to both the dollar and gold finishing higher !  (The yen and silver were up as well.)

What does this mean?

-- Is it a fluke?

-- is the market implying a higher risk of a financial crisis, thus the increase in the gold price?

-- is it the fear of inflation?

-- are gold and silver up on the rumored inventory deficit?

What else could it be?

]]> Tue, 01 Sep 2009 17:51:55 -0400
Recently, they see-sawed : severe bouts of risk aversion usually meant investors going for the US dollar and Treasuries, abandoning equities and commodities, including the precious metals.

Today's uneasiness with equities led to both the dollar and gold finishing higher !  (The yen and silver were up as well.)

What does this mean?

-- Is it a fluke?

-- is the market implying a higher risk of a financial crisis, thus the increase in the gold price?

-- is it the fear of inflation?

-- are gold and silver up on the rumored inventory deficit?

What else could it be?

]]> usd gld gold US dollar inflation Book Review: "High Probability ETF Trading" by Larry Connors and Cesar Alvarez http://seekingalpha.com/instablog/82242-paul-v-azzopardi/13914-book-review-high-probability-etf-trading-by-larry-connors-and-cesar-alvarez?source=feed 13914  

Connors and Alvarez’s book, published by The Connors Group, is addressed to investors who want to trade their own ETF portfolio. It is sub-titled “7 Professional Strategies to Improve Your ETF Trading”.
 
The book consists of ten chapters and a glossary plus details as to how one can use the support services offered by The Connors Group via the website named after the book. In fact, the book functions as a sort of basic manual for the ETF trading services available, which include software, seminars, and trading courses. However, the book is stand-alone and can be put to use immediately. How the book is used, and whether one seeks other services, of course depends on how expert the reader is in trading – assistance is there if one needs it.
 
After the introductory chapter, the reader finds one chapter dedicated to each of the seven strategies. Chapter Nine then deals with how best to learn and practice the strategies suggested. Chapter Ten puts all the pieces together.
 
I have been asked to review the book by the publishers and after going through it I can say that I like the book, think it would be useful, but have some reservations.
 
I like various aspects. First, the book goes straight to the point, no waffle. There’s no theoretical talk, no splitting of nebulous concepts ad infinitum. All the strategies are explained thoroughly in just 130 pages of rather big type and tables.
 
Second, the strategies are reduced to clear-cut rules which can be tested.  
 
Third, each of the strategies can go either long or short and each side of each strategy was tested on 20 of the most popular ETFs from inception of the respective ETF to the end of 2008. Summary results of the tests can be found in the book, as well as examples of each strategy. The authors apply the tests to normal ETFs and stay away from leveraged and inverse ETFs. The strategies are not meant to be applied to stocks.
 
I did not re-test the strategies so I cannot express an opinion on the test results or whether the different strategies actually work. I suggest that readers re-test and evaluate the strategies mentioned before implementing them.
 
Each strategy uses one main metric and this means that each strategy is relatively simple to execute and can be backtested without complicated programming. This is another thing I like about the book.
 
One reservation I have is the fact that all the seven strategies rely on mean-reversion, that is, entering on pullbacks, not breakouts. In strongly trending markets the strategies are likely to suffer, or not do as well.   
 
Some assets have a greater tendency to trend than others but all asset prices go through periods of mean-reversion and trending.
 
A second reservation is that stops are not used in any of the strategies because, according to the authors, “stops tend to hurt the overall performance of most strategies. They tend to whip traders around, stopping out positions that often reverse and turn profitable. They also do nothing to protect you from overnight risk.”
 
The authors instead suggest the use of position sizing and options hedging which they do not explain further in the book but do in the courses. 
 
In all the strategies, exits from positions depend on dynamic indicators, such as moving averages. 
 
A lot has been written elsewhere about stops – whether or not to use them, and what is the appropriate level. I personally always use notional stop loss levels (not automatic ones) combined with position sizing in my trading. 
 
Although I did not backtest, I did study the price graph structures of different ETFs filtered for each strategy set-up.  In many instances, prices revert and trigger an exit at an advantageous price. According to the statistics presented in the book, on average, the reversions are profitable and there are more winning trades than losing ones.
 
One can also devise some simple yet dynamic stop loss mechanisms and apply them to the Connors /Alvarez strategies. This would mean, of course, that the testing statistics in the book would not apply because while some losses would be smaller with the stops than without them, some profits are also likely to be lost. One would have to re-test again.
 
Overall, I think this is a book worth reading and testing. For the novice, wanting to manage his or her own portfolio, the book and the associated services are likely to be a good starting point. As for professional traders, they are always looking for a new angle and this book provides some useful ideas.
]]> Thu, 16 Jul 2009 12:36:09 -0400  

Connors and Alvarez’s book, published by The Connors Group, is addressed to investors who want to trade their own ETF portfolio. It is sub-titled “7 Professional Strategies to Improve Your ETF Trading”.
 
The book consists of ten chapters and a glossary plus details as to how one can use the support services offered by The Connors Group via the website named after the book. In fact, the book functions as a sort of basic manual for the ETF trading services available, which include software, seminars, and trading courses. However, the book is stand-alone and can be put to use immediately. How the book is used, and whether one seeks other services, of course depends on how expert the reader is in trading – assistance is there if one needs it.
 
After the introductory chapter, the reader finds one chapter dedicated to each of the seven strategies. Chapter Nine then deals with how best to learn and practice the strategies suggested. Chapter Ten puts all the pieces together.
 
I have been asked to review the book by the publishers and after going through it I can say that I like the book, think it would be useful, but have some reservations.
 
I like various aspects. First, the book goes straight to the point, no waffle. There’s no theoretical talk, no splitting of nebulous concepts ad infinitum. All the strategies are explained thoroughly in just 130 pages of rather big type and tables.
 
Second, the strategies are reduced to clear-cut rules which can be tested.  
 
Third, each of the strategies can go either long or short and each side of each strategy was tested on 20 of the most popular ETFs from inception of the respective ETF to the end of 2008. Summary results of the tests can be found in the book, as well as examples of each strategy. The authors apply the tests to normal ETFs and stay away from leveraged and inverse ETFs. The strategies are not meant to be applied to stocks.
 
I did not re-test the strategies so I cannot express an opinion on the test results or whether the different strategies actually work. I suggest that readers re-test and evaluate the strategies mentioned before implementing them.
 
Each strategy uses one main metric and this means that each strategy is relatively simple to execute and can be backtested without complicated programming. This is another thing I like about the book.
 
One reservation I have is the fact that all the seven strategies rely on mean-reversion, that is, entering on pullbacks, not breakouts. In strongly trending markets the strategies are likely to suffer, or not do as well.   
 
Some assets have a greater tendency to trend than others but all asset prices go through periods of mean-reversion and trending.
 
A second reservation is that stops are not used in any of the strategies because, according to the authors, “stops tend to hurt the overall performance of most strategies. They tend to whip traders around, stopping out positions that often reverse and turn profitable. They also do nothing to protect you from overnight risk.”
 
The authors instead suggest the use of position sizing and options hedging which they do not explain further in the book but do in the courses. 
 
In all the strategies, exits from positions depend on dynamic indicators, such as moving averages. 
 
A lot has been written elsewhere about stops – whether or not to use them, and what is the appropriate level. I personally always use notional stop loss levels (not automatic ones) combined with position sizing in my trading. 
 
Although I did not backtest, I did study the price graph structures of different ETFs filtered for each strategy set-up.  In many instances, prices revert and trigger an exit at an advantageous price. According to the statistics presented in the book, on average, the reversions are profitable and there are more winning trades than losing ones.
 
One can also devise some simple yet dynamic stop loss mechanisms and apply them to the Connors /Alvarez strategies. This would mean, of course, that the testing statistics in the book would not apply because while some losses would be smaller with the stops than without them, some profits are also likely to be lost. One would have to re-test again.
 
Overall, I think this is a book worth reading and testing. For the novice, wanting to manage his or her own portfolio, the book and the associated services are likely to be a good starting point. As for professional traders, they are always looking for a new angle and this book provides some useful ideas.
]]> Book Review ETFs Trading Investment Banks and Old Partnerships http://seekingalpha.com/instablog/82242-paul-v-azzopardi/10904-investment-banks-and-old-partnerships?source=feed 10904 In the old days, there were tightly controlled banks which were allowed to take people's deposits and whose operations where limited to particular geographical areas. They were allowed to lend for the short-term.

Then there were investment banks which were allowed to do many other things but they were general partnerships - all the partners had most of their wealth tied up in the bank and at risk, withdrawals were frowned upon, and all partners worked out of the Partners' Room, from one big desk.  This last Dickenish arrangements ensured that partners could keep an eye on one another and any partner who took too much risk on behalf of the firm was instantly discovered.

Investment banks were eventually allowed to take on limited liability and go public, using OPM.

I was wondering whether a researcher would be able to highlight the main changes in behavior between partnership and corporate investment banks.

To what extent did firms' capital structures influence the degree of risk which investment banks took on?

How were profits shared, before and after?

Did the change in investment banks' capitialisation structure increase or decrease the market's systemic risk?

 

]]> Wed, 01 Jul 2009 17:01:21 -0400 In the old days, there were tightly controlled banks which were allowed to take people's deposits and whose operations where limited to particular geographical areas. They were allowed to lend for the short-term.

Then there were investment banks which were allowed to do many other things but they were general partnerships - all the partners had most of their wealth tied up in the bank and at risk, withdrawals were frowned upon, and all partners worked out of the Partners' Room, from one big desk.  This last Dickenish arrangements ensured that partners could keep an eye on one another and any partner who took too much risk on behalf of the firm was instantly discovered.

Investment banks were eventually allowed to take on limited liability and go public, using OPM.

I was wondering whether a researcher would be able to highlight the main changes in behavior between partnership and corporate investment banks.

To what extent did firms' capital structures influence the degree of risk which investment banks took on?

How were profits shared, before and after?

Did the change in investment banks' capitialisation structure increase or decrease the market's systemic risk?

 

]]> Corporate Structure Systemic Risk A Pause or the Start of a Slide? http://seekingalpha.com/instablog/82242-paul-v-azzopardi/8613-a-pause-or-the-start-of-a-slide?source=feed 8613 June 1st might have marked a turning point for international equities.  Are they starting to slide back down or are they merely taking a rest and consolidating before they move further up?  Either way, interesting times.

Many continue to see “green shoots” sprouting everywhere but the big difficulty is trying to distinguish what is driving them from underground – the massive liquidity being created, the perception (mistaken or not) that markets have overshot on the downside, or good economics.  I rather suspect the first two.

This is the position in equities.  I am plotting here three ETFs: SPY (for the US market in general, the S&P500), EEM (MSCI Emerging Markets), and EFA (Europe, Asia, Far East).  This shows the big picture:

 So, we can see how SPY flattened and the other two, both better performers than SPY, have started trending down or, at least, failing to exceed their June 1st high.

 Now, to focus on the main emerging markets.  Is the situation similar in all the major emerging countries:  The following graph shows FXI (China), INP (India), RSX (Russia), and EWZ (Brazil ), the recently materialized index BRIC:

The BRIC don’t seem to be all equal – Russia is in decline, India is quite okay, while China and Brazil are trying hard to keep on the incline. 

A niche market, which so far has been behaving very nicely, is Chile (ECH), but it too seems to have suffered these last few days:

Note how the trend line has been broken.  So, if this is happening to such a strong market, it may portent some unpleasantness.

Why are investors having second thoughts on equities?  Maybe it is because they feel inflation is on the way.  Empirically, equities suffer when there is inflation, especially if run-away or unanticipated.

So, how is the inflation picture? 

Below we can see commodities (DBC), base metals (DBB), and precious metals (DBP):

An interesting picture emerges:  Precious metals, gold and silver, represented by DBP, seem to be behaving much like equities.  Commodities and base metals kept up except for the sharp fall starting Friday 12th. 

 It does not seem that equities are fearing inflation.  Rather, with equities, commodities and precious metals falling, it seems that the market is growing more and more suspects of the fabled green shoots.  It might have all been a false alarm, after all.

What about the US Dollar?  The US Dollar index shows the value of the dollar against major currencies and is shown here:

This is nearly a mirror image of how equities and precious metals’ are behaving !  I have also superimposed the 20-year plus US government bonds ETF (TLT).  It is too early to tell, but there is some indication that investors are once more seeking the security of the US dollar and government bonds (similar to what happened at the depth of the crisis).

 Points to ponder:

→ As far as the major developed markets are concerned, are investors expecting a second leg to the financial crisis and no longer putting faith in green shoots?  Are they expecting the recession to worsen?

→ As to the emerging markets, especially with BRIC’s recent efforts to distance themselves from the US dollar (while still paying lip service to it, so they can unload), are investors thinking that decoupling is taking place, thus the superior performance of India, China and Brazil?

→  Is the threat of heavy regulation, heavy bailouts, and heavy social services chasing investors away from developed to the less regulated emerging markets ?

The charts here are courtesy of StockCharts.com.  This article does not constitute advice, a recommendation or an offer or solicitation to buy or sell the securities mentioned.  This article is for information only and expression of an opinion and the ETFs mentioned are used only to illustrate the movements of the assets discussed.  ETF movements might deviate substantially from spot prices of the asset class and/or the respective index.

DISCLOSURE:  Long position in INP and ECH.  No position in the other ETFs mentioned

]]> Tue, 16 Jun 2009 17:39:13 -0400 June 1st might have marked a turning point for international equities.  Are they starting to slide back down or are they merely taking a rest and consolidating before they move further up?  Either way, interesting times.

Many continue to see “green shoots” sprouting everywhere but the big difficulty is trying to distinguish what is driving them from underground – the massive liquidity being created, the perception (mistaken or not) that markets have overshot on the downside, or good economics.  I rather suspect the first two.

This is the position in equities.  I am plotting here three ETFs: SPY (for the US market in general, the S&P500), EEM (MSCI Emerging Markets), and EFA (Europe, Asia, Far East).  This shows the big picture:

 So, we can see how SPY flattened and the other two, both better performers than SPY, have started trending down or, at least, failing to exceed their June 1st high.

 Now, to focus on the main emerging markets.  Is the situation similar in all the major emerging countries:  The following graph shows FXI (China), INP (India), RSX (Russia), and EWZ (Brazil ), the recently materialized index BRIC:

The BRIC don’t seem to be all equal – Russia is in decline, India is quite okay, while China and Brazil are trying hard to keep on the incline. 

A niche market, which so far has been behaving very nicely, is Chile (ECH), but it too seems to have suffered these last few days:

Note how the trend line has been broken.  So, if this is happening to such a strong market, it may portent some unpleasantness.

Why are investors having second thoughts on equities?  Maybe it is because they feel inflation is on the way.  Empirically, equities suffer when there is inflation, especially if run-away or unanticipated.

So, how is the inflation picture? 

Below we can see commodities (DBC), base metals (DBB), and precious metals (DBP):

An interesting picture emerges:  Precious metals, gold and silver, represented by DBP, seem to be behaving much like equities.  Commodities and base metals kept up except for the sharp fall starting Friday 12th. 

 It does not seem that equities are fearing inflation.  Rather, with equities, commodities and precious metals falling, it seems that the market is growing more and more suspects of the fabled green shoots.  It might have all been a false alarm, after all.

What about the US Dollar?  The US Dollar index shows the value of the dollar against major currencies and is shown here:

This is nearly a mirror image of how equities and precious metals’ are behaving !  I have also superimposed the 20-year plus US government bonds ETF (TLT).  It is too early to tell, but there is some indication that investors are once more seeking the security of the US dollar and government bonds (similar to what happened at the depth of the crisis).

 Points to ponder:

→ As far as the major developed markets are concerned, are investors expecting a second leg to the financial crisis and no longer putting faith in green shoots?  Are they expecting the recession to worsen?

→ As to the emerging markets, especially with BRIC’s recent efforts to distance themselves from the US dollar (while still paying lip service to it, so they can unload), are investors thinking that decoupling is taking place, thus the superior performance of India, China and Brazil?

→  Is the threat of heavy regulation, heavy bailouts, and heavy social services chasing investors away from developed to the less regulated emerging markets ?

The charts here are courtesy of StockCharts.com.  This article does not constitute advice, a recommendation or an offer or solicitation to buy or sell the securities mentioned.  This article is for information only and expression of an opinion and the ETFs mentioned are used only to illustrate the movements of the assets discussed.  ETF movements might deviate substantially from spot prices of the asset class and/or the respective index.

DISCLOSURE:  Long position in INP and ECH.  No position in the other ETFs mentioned

]]> spy eem efa dbc dbb dbp ech tlt fxi inp rsx ewz Global Markets US Dolar Emerging Markets BRIC Precious Metals Inflation