Villi Grdovich's  Instablog

The first truly bad reversal suffered in a long time with DCO going through the floor and a considerable distance towards China today.

I understand that one operating division did badly and also has a poor outlook, but could we have known? At the quantitative level, I think the answer is no. Are there any signs which we should have noted?

That is more difficult. The estimated daily volatility was fluctuating quite wildly and the money flow indicator was at a high level. Then again, the ride was one way up. I suppose that in an environment where people are skeptical of the market highs, these of themselves might be warning signs.

For the record, GME and IDT do not have similar volatility characteristics, with GME overall the least volatile.

I have had some comment that my posts have been too infrequent of late. While I take this on board, the aim here is to identify performing portfolios with regular rebalancing...to match my investing preferences, rather than present a never ending list of possible target stocks.

So, in respect of the last watchlist suggested, the SPY on 12 April when I entered my data, was 158.8 and today's close was 157.8, so no change really. The watchlist is up a small amount, not worth calculating, but within this, the stocks which have moved in the interval have been DCO, GME,IDT,VZ, and I will be including them in my portfolio tonight. The worst stock has proved to be WCG while the rest are slightly below even.

In respect of indicators etc, TLT has risen to a high level which implies adverse financial conditions at the macro level, and stocks such as CAT and IBM continue to perform poorly also indicating poor business conditions at the macro level (nothing new there). So, I think that concentration of effort in identifying special situations is still the way to go.

My risk/reward based analysis is throwing up some interesting challenges of interpretation. Specifically, I categorized a series of High Beta stocks based upon the several upwards moves experienced since 2009, the idea being that I would be able to draw on this select category of "High Beta" stocks in any rising market (the typical High Beta strategy).

However, in this last New Year rally, the idea didn't quite work out as expected, and as an example, one need only look at Caterpillar (CAT), one of the many star High Beta stocks which has not followed the script. Instead, it became evident that market gains were accruing to stocks such as Terex (TEX) and Brunswick Corp (BC) which looked like outliers or "rogue" stocks on my analysis. I was fortunate enough to identify and profit from this, but they too are no longer contributing to out performance.

The fact is that in the past week or so, my dummy portfolio picks have not provided the consistency which they would if I was on the right track. While I like the idea of investing in strong management and companies exhibiting great financial metrics, the fact is that quite a few of the best performing stocks at the moment are being spawned from recovering businesses with poor earnings history. In addition, many are small caps and many are dividend payers.

My conclusion therefore is that while the indicators suggest staying long in this market, this does not imply that conditions for the classic High Beta strategy are present. In a rising market with latent downside risk and choppy market leadership, I think it prudent to go back to the trusty low volatility ETF, SPLV.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.