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Stephen Castellano
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J. Stephen Castellano founded the investment research and strategy consulting firm Ascendere Associates in 2009, building upon a diversified 15-year career in sell side and buy side equity research. His roles included coverage of the steel industry at PaineWebber and telecom services at Warburg... More
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Ascendere Associates LLC
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  • Still in Cash 1 comment
    Jun 6, 2010 10:10 PM | about stocks: SPY
    Prior to the market open on May 6 we noted the model portfolios were going net short. And prior to to the market open on May 7 we suggested people go to cash or go all-in net short by closing out all long positions, due to sharply rising volatility. The models were rehedged with long positions on May 18.  

    We are still 100% cash in an IRA portfolio, and it will continue to stay that way until a technical long signal is generated by our models. Hopefully the trades of this IRA will be able to be mirrored by an auto trading service soon, perhaps as early as tomorrow.  We continue tracking the model portfolios, and are working on a way to distribute free and premium versions in a newsletter format.

    Meanwhile, we see no rush to go out and put money to work on the long side or short side.  There is simply too much volatility out there to make any good call longer than a day trade, so at this particular moment we suspect that the IRA portfolio will probably be in cash for quite a while longer.    


    Disclosure: none
    Themes: Long/Short Stocks: SPY
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    Author’s reply » The IRA account, which is still in cash, has been linked to the auto-trading service. It should be opened up to the public once there is about a month of real-time results collected. This IRA account will be based in part on the strategies we've been writing about.

     

    Meanwhile, we been busy making a few improvements:

     

    The model portfolio backtests have been manually cleaned line by line to omit ADRs that trade on pink sheets and non-U.S. exchange traded stocks -- the original intention. While doing so has made the strategies more manageable and realistic, it has reduced the returns of the market neutral strategy by about half of the first backtest. This makes intuitive sense as international stocks generate better returns for U.S. investors when the dollar is weakening. It seems that Interactive Brokers can trade all major international exchanges, so updating the strategy so that it's truly global in nature could be a realistic and high-potential secondary project.

     

    Another project is to take some factors from another quant firm and use them to refine our backtest. In a worst case scenario, the new factors will add some randomness to the strategy and increase the volatility as the number of stocks decrease. In a best case, it may actually improves average returns despite higher volatility, and will lower commission costs. Recent results tracked in real-time, which can only be viewed as anecdotal for now, seem promising -- promising enough that we are going incorporate the factors into the IRA portfolio even though it has not been thoroughly backtested yet.

     

    The biggest improvement was a tweak of the long/short weighted indicators -- now the short strategy only turns on only when there is heavy volatility. This is a key insight that has improved the paper returns of the backtest to absurdly high levels. If we can match half of the paper returns in this real IRA account, it will be an impressive feat.

     

    The key to any strategy is to constantly question, test and update it. While it will always be based on operating momentum and relative value, we will always be looking to enhance and evolve the strategy in real time as we absorb new information and put into practice any additional insights.
    9 Jun 2010, 09:55 PM Reply Like
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