Welcome to my January update for my Green Dot Portfolio, a small self-managed retirement portfolio created in a Roth IRA trading account.
January was the third month of my second year of my portfolio, and it was overall my most profitable, not only for year two but also since portfolio inception.
At the end of the first year of my portfolio in October, I reported that I had surpassed my initial goal to achieve a total realized annual return of at least +8% in cash income. I use high-yield dividend investments, including closed end funds, REITs, and dividend growth stocks, as well as swing trading of stocks, ETFs, and option premiums. For my first year, I was fortunate to realize total cash income of +12.76%. My goal for this second year is +10% in total cash income. My first challenge for this second year has been to profit from the bear market pullback that started in October.
1. Market Action and Pattern for January 2019
Readers of my previous updates know that I try to translate and synthesize information from technical analysts and Elliotticians (those who apply Elliott Wave theory) in order to understand the market pattern and to inform my investing/trading. I use the largest broad-market traders' index, the SPDR S&P 500 Trust ETF (SPY), to determine changes in the trend of the markets.
January was a rebound month for the bear market that lasted for most of the last three months of 2018. Looking at a daily chart of the SPY for the past six months (below), the SPY declined -20.47% from the high on September 20. Using a Fibonacci retracement (parallel horizontal black lines), the SPY ended January at just below the .618 retrace of the decline. That level also just pierced a trend line (gold line) that connects the October 3 high and the December 3 high, a line that would provide resistance for the rebound. And finally, resistance would be expected at the 100 day moving average (red line) and the 200 day moving average (magenta line), both of which were just overhead at the close of the month. In my weekly blogs for the past two weeks, I've written that a breakout and new bull market should be confirmed if the SPY rises above the SPY 270-271 area. The bull is now knocking on the door. However, I still consider that a drop below SPY 252 will re-activate the bear direction.
(Source: Chart created by author from the TD Ameritrade 'thinkorswim' platform.)
For some time now, I have presented the analysis of Caldaro (Objective Elliott Wave), who expected that the pullback since October would be a zig-zag (down-up-down) bear market. The details of his pattern count changed several times, however, throughout this downtrend, which has made trading it a bit tricky. Recently Caldaro has used a set of five criteria to resolve the pattern, and this week he has moved the probability of a new bull market to 80%, from 60% last week. So while there is still a chance of a reversal and re-test of the December low, that now seems far more improbable, and I am inclined to now accept this determination.
Looking at the larger picture, Caldaro's "objective" (quantitative) approach to Elliott Wave mostly uses traditional 5-wave impulsive uptrends and 3-wave corrective downtrends. These waves are structured in a series of 8 potential fractal or nested levels of waves within Super Cycles. I say potential because not all waves exhibit subdivision to the same extent. The most recently completed SC (2) was the great recession that ended in March 2009 at SPX 667. From the largest wave to the smallest, the levels in Caldaro's system are Primary, Major, Intermediate, Minor, Minute, Micro, Nano, and Pico. It is important to recognize that the magnitude of waves does not have to be greater for larger degree waves (more on that shortly).
This weekend Caldaro presents his final evidence that the current pattern is part of Primary III (up), following the P I bull market from spring 2009 to mid-2015, and a P II bear market from mid-2015 to early 2016. Within P III, the SPY completed a Major 1 bull in October 2018 and a Major 2 bear in December 2019. A new Major 3 bull market is underway. Here is Caldaro's chart of the larger pattern for the current SC through Major 2 of P III:
(Source: StockCharts.com - Note: See Caldaro's site for specific links; charts on the website may be updated throughout the week.)
With the general trend now more probably up, I can assume that this will last for some time, and that I can generally go long with my trades unless a particular stock or ETF seems to not be following the general market pattern. Major 1 and Major 3 of P I each exceeded two years, as did Major 1 of P III. And I should therefore assume that this Major 3 of P III will also last for a few years. So the real question is the risk or degree of any sub-Major wave downtrends. And with that, what is my level of tolerance for staying long at various levels of pullbacks.
As I suggested above, waves of lesser degrees can be larger than waves at higher degrees. Notice on the chart above that Caldaro labels that the P II decline was -15.2%, whereas Major 2 of P I (a lesser degree) was -21.6%, and the recent Major 2 of P III was -20.1%. On the other hand, Major 4 of P I was rather shallow. Looking again at the chart above, I look for sub-Major level pullbacks and calculate that Intermediate iv of Major 1 in spring 2018 was -11.8% and that Minor 2 of Major 3 of P I in Q2 of 2012 was -10.9%. Those still seem to be fairly steep declines.
Caldaro also presents a near term chart of the current structure of Major 3 (below). Minute ii (green) in late December and early January declined -3.02%, and Pico 4 (red) later in January declined -2.32%. These levels are more tolerable and seem to last a week or so.
I will continue to study Caldaro's pattern count for Major 3 but, based on the trend of the SPX for the past 10 years, I know that the Minor and Intermediate level pullbacks - and possibly Minute - are likely to inflict moderate damage (about 10%) that I would want to avoid if possible. I can more tolerably ride out any Pico, Nano and possibly Micro level pullbacks in the 2-4% range. As waves of larger degrees complete, the probability generally rises for larger pullbacks. Based on the current count described below, the next pullbacks should be a Micro wave and then a Minute wave, followed by a Minor wave.
As I did a number of years ago, I've started constructing a wave count chart based on Caldaro's current labeling of the SPX chart (below). I omitted the details prior to the recent Major 2 of Primary III, and I'm not planning to detail below the Minute wave level. If this serves me well to keep the magnitude and duration of various wave levels front and center for my swing trading, I plan to update this as appropriate, and I will share as I do.
Finally, Caldaro summarizes the progress for the remainder of Minor 1 of Major 3 and the expected pullbacks:
"Thus far it looks like we have completed Minute waves i and ii, Micro waves 1 and 2, and Nano waves i, ii, iii and iv, with v underway. When Nano wave v (gray) concludes, it will also end Micro wave 3 (orange). Then we should see a sizeable pullback for Micro 4 before the SPX rallies to a higher high to complete Micro 5 and Minute iii (green). After that we should see even a larger pullback for Minute iv before the uptrend ends at higher highs to complete Minor wave 1." (bold added).
In the past 13 months, we have seen two large pullbacks of almost -12% and -20%. The good news, if Caldaro is correct, is that another correction in the -20% range should not occur until completion of Intermediate i, which will occur after Minor 2, 3, 4, and 5 complete, likely after 2019.
2. Portfolio Strategy and Asset Allocation for January
In January, I continued to close swing trades as the market rebounded from the late December low. I did not add many new swing positions, however, as I was still uncertain about the market direction. The traditional zig-zag pullback in late fall did not play out as I expected, and there was still some debate about whether the January uptrend was a new bull market or the middle of a continuing correction.
Highlights of changes to my portfolio in January are as follows:
- The total investment cost of my portfolio at the end of January was a good bit lower due to closing 12 swing trades. Total investment at the end of January was $131,400 compared to $155,571 at the end of December. I have a larger cash balance now than in previous months.
- The number of holdings decreased from 48 in December to 39 at the end of January.
- The total number of shares also decreased, from 8,518 in December to 7,789 in January.
- The overall unweighted average dividend/distribution yield of my REITs, CEFs, and income and dividend growth stocks was little changed, from 7.42% for 32 holdings in December to 7.34% for the 27 non-swing trade holdings in January. The current unweighted yield of the 20 CEFs, REITs, and preferreds is 8.47%.
- The average investment for the non-option holdings in the portfolio increased slightly, from $3,295 in December to $3,766 in January. The average cost for my 11 remaining non-swing trade holdings is $2,636.
Portfolio Adjustments in January
I made only two portfolio adjustments in January.
- On 1/3, I added 52 shares of KKR Income Opportunities Fund (KIO) at $14.42/share. This brought my holding in this CEF to 252 shares and reduced my average unit cost to $15.34/share. KIO is a stable, high-yield fund that was trading at a great discount at the time (-10.9%) even if more than $1 above the late December low. A chart of the distributions since inception in late 2013 is presented below. The fund is still a bargain, even as the price is now above $15.
- On 1/31, I sold my entire position, 450 shares, in the Flaherty and Crumrine Dynamic Preferred and Income Fund (DFP) at $22.86/share. My average unit cost was $22.646/share, and I had a gain of $96.09, but I do not count capital proceeds from my income positions as profits for my portfolio. I did, however, also collect $400.59 in dividends. So for the overall "trade" itself, the net gain after costs was +4.87%.
I first purchased DFP in October 2017 and added to the position seven times up to November 2018. The reason that I decided to move out of this CEF was a reduction in the distribution in January. One distribution cut might be tolerable, but this was the 2nd cut since I owned it and the 3rd since December 2017. When I first purchased DFP, it paid $0.155/share/month, which had been reduced from a very steady, multi-year payout of $0.16 previously. But the distribution was cut again in February 2018 to $0.148/share, and now again in January to $0.143/share. The three cuts totaled -10.6%. The chart below from CEF Connect shows the reduction in distributions of this once-reliable fund.
If I were to consider DFP again, I would expect a lower purchase price given the reduced distribution yield and uncertainty about its stability going forward. Meanwhile, there are other funds paying a full percent or more above this fund's 7.5%, and trading at deeper discount.
At the end of December, my portfolio consisted of 1 preferred stock, 2 REITs, 18 closed-end funds, 10 income and dividend growth stocks, and 17 swing trade positions. The latter included 1 option premium swing trade, 8 stocks, and 8 ETFs (6 leveraged).
At the end of January, I held 1 preferred stock, 2 REITs, 17 CEFs, 7 income and dividend growth stocks, and 12 swing trades including 1 option premium swing. The pie chart below shows the percentage of the portfolio investment allocated to these assets at the close of January.
(Source: Chart created by author from portfolio data as of January 31.)
Looking at the investment cost for only the 27 non-swing trade holdings, about 70% are domestic holdings, as presented in the pie chart below, and 70% are fixed-income holdings. This compares to 74% and 57%, respectively, for December.
(Source: Chart created by author from portfolio data as of January 31.)
3. Dividend Income in January
For the first year of my Green Dot portfolio, I collected $6,190 in dividends, mostly from high-yield REITs, closed-end funds, and preferred stocks. Dividends contributed almost half of the total cash income from my portfolio, with swing trade profits comprising the remainder.
For January, I collected $780 in dividends, in addition to $42 in dividends from swing trades, my highest month so far. Dividends from CEFs were 80.4% of total dividends compared to 90% in December. The high December payout occurred, in part, because several CEFs paid the January distribution in December in addition to that month's regular distribution, and in part because of special distributions paid in December. Dividends contributed 42.6% of total cash income for January.
Total monthly income from dividends in January was higher than for December. The trend for this second year is presented in the chart below. The average monthly dividend income (blue line on chart below) is currently $723. Overall, dividends have provided 48.2% of my total cash income so far this second year. For monthly dividend income for the first year of my portfolio, please see the October update article. For my first year, the ending average monthly income from dividends was $541, and the highest month was October ($727).
(Source: Chart created by author from portfolio data as of January 31.)
My Favorite CEFs and CEF Watch List for Income
Readers of my portfolio articles and blogs know that I really like Closed End Funds for their high-yield distributions. But as for stocks, mutual funds, and ETFs, not all CEFs are created equal. The CEFs that I rely on or would want to own include several criteria:
- stable, multi-year income-only distributions (non-destructive Return Of Capital),
- distribution yield at purchase of >7%,
- annualized return on NAV of >7%,
- trading (at purchase) at a generous discount to Net Asset Value (>7%), and
- monthly distributions (preferred).
I also look for 3- and 5-year price and NAV performance that is high, but this is more subjective for me. Less than 4% across the board would tend to make me pass on considering a fund, and performance >7-8%+ would be more attractive. I also like funds that are not on the very small end of the Assets Under Management (AUM) scale, so funds >$400 M AUM are preferred.
I frequently review data on CEF Connect for candidate CEF buys. I already have a good number of CEFs that meet these criteria, but I know that there are others that meet my criteria. I'm always waiting for another pullback to add new CEFs and add to existing positions.
The table below includes many of the CEFs in my portfolio, which currently meet these criteria (or did at the time of purchase), and a few others on my watch list. I also note if the CEF has paid any special distributions in the past few years in addition to the regular monthly payout. Data are as of February 1.
|CEF||Price on 2/1||Current Yield||Monthly Distribution per Share|| |
Current Distr. Paid Since
|Discount to NAV|| |
Annualized Return on NAV
|BGX||14.92||9.41%||$0.117||raised Dec 2018||-6.81%||8.77%||Yes|
- The distribution yield for BGX since January 2017 was previously $0.103.
- The distribution yield for HPS was just reduced slightly to $0.12, or -1.6%.
- The distribution for HYT was raised in July 2018 from $0.07 (since early 2015).
- The distribution yield for PPT was increased to $0.035 in January 2019.
- The distribution yield for AGD has been raised several times since inception in March 2013 ($0.60).
4. Swing Trades in January
For those new to my monthly updates, I provide detailed information, charts, and my trade logs for swing trades in my weekly blogs for followers. In May, I detailed my simple approach to swing trading option premiums in this article.
Closed Option Premium Swing Trades
I did not close any option swing trades in January.
Closed Stock and ETF Swing Trades
In January I sold 12 non-option swing trades as markets rebounded from the steep drop in December. Details about these trades were provided in my weekly blogs for followers. The average cost for these trades was $1,448. They added a total of $1,150 in cash profits including $42 in dividends. Based on total costs and net proceeds, they returned a gain of +6.6%, which was below par due to three trades that were essentially flat.
The table below presents the dates, symbols, names, number of shares, sell prices, percentage gains, and number of days in the trade for these 12 trades.
|Date Sold||Symb.||Security Name||Qty.||Sell Price||% Gain||# Days|
|1/16||FAS||Direxion Daily Financial Bull 3X Shares||30||$52.40||+8.40%||21|
Huntington Bancshares Inc.
|1/16||GE||General Electric Co.||100||$8.9001||+11.10||44|
Goldman Sachs Group Inc.
Lam Research Corp.
Direxion Daily S&P500 Bull 3X Shares
Alternet Systems Inc.
VelocityShares 3x Long Silver ETN
Valero Energy Corp.
The ALYI trade was one swing trade that I did not detail in my weekly blogs as I didn't do a blog for the last week of January. As I explained when I bought this "pink sheet" stock, I heard about a hemp-based, sustainable energy project that Alternet was involved in for motorcycle batteries. I bought 100,000 shares on 1/24, when the stock dipped on volume, at $0.006/share as a small, speculative trade. I read that news on the project was expected early during the week of 1/28, so when the stock rose on 1/28 I decided to sell, at $0.0079/share. Unfortunately for me, the stock rocketed the following three days, to $0.0206 (on volume), so I really missed a home run on this one. Here's a chart of the recent price action of ALYI, with the cursor on the date of my purchase.
(Source: Chart created by author from TD Ameritrade 'thinkorswim' platform.)
Here's my trade log:
I also did not previously provide my trade log for the closed Valero trade:
New Swing Trades
In January, I opened one new swing trade in addition to the ALYI trade described above:
- On 1/22, I bought a first half position, 75 shares, of Direxion Daily S&P 500 Bear 3X Shares (SPXS) at $26.55/share.
I bought this as the SPX hit a key first target for the potential top of this short-term uptrend. The SPX appeared to top on 1/21, and the following day pulled back, causing the SPXS to move up. The chart below shows this 3x leveraged short on the SPX with the cursor on the date and price (off by 1 cent) at purchase. As is now evident, the market traded essentially sideways for the subsequent week before rising again this past week. Even though it is technically out of January, I'll disclose here that I added 75 shares of SPXS on 2/1 at $24.10, bringing my average cost to $25.355/share. The SPXS should reverse to the upside soon with the next pullback in the SPX.
(Source: Chart created by author from TD Ameritrade 'thinkorswim' platform.)
5. Cumulative Swing Trade Results
Non-Option Swing Trades
I use swing trading to add profits and grow my portfolio balance more quickly than through collecting dividends alone. For the first year of my Green Dot portfolio, from November 2017 through October 2018, I was fortunate to close for profit 41 out of 42 non-option swing trades. The total net gain for these mostly small-cost trades was +6.86% for an average of 39 trading days (+44.2% annualized). Details about those swing trades were presented in my October update article.
For the 3 months of my second year, I have closed 21 profitable non-option swing trades for a net gain of $2,063. When including the $42 in dividends on swing trades, this represents an average gain of +7.21% for an average of 25 trading days (+72% annualized). The chart below shows the percentage gains for these non-option swing trades for the second year of my portfolio.
Option Premium Swing Trades
Since I started adding option premium swing trades to my portfolio in April 2018, I closed for profit 24 out of 30 trades through October. For my second year, I have so far closed only 1 option swing trade, in December.
Total Swing Trade Profits
For the first three months of my second year, closed swing trades have added $2,371 in cash to my portfolio. The table below summarizes the contribution by month of cash income from option and non-option swing trades. Swing trades have provided 52% of my total cash income to date.
|Month||Option Swings||Non-Option Swings||Total Swings||% of Income|
6. Realized Total Return
My Green Dot portfolio generates cash income each month through dividends and profits from swing trades. These are realized gains, or cash that is available for additional investment. In October, I raised my portfolio goal for this year to a 10%+ annualized gain (average of 0.83%/month). Total returns increased in January, at +1.47%, for a monthly average for my second year of +1.04%. So, for now, I am on target for my new 10% goal. The cumulative 15-month total cash return is now +15.89%.
The table below shows the cash income returns by source: swing trades, dividends on swing trades, and dividends from non-swing trade holdings (preferred ETFs, REITs, CEFs, and other stocks). Totals may not add due to rounding.
|Month||$ Cost||$ Swing Profits||$ Divs on Swings||$ Other Dividends||$ Total Income||% Return on Investment|
The chart below of the monthly source of realized cash portfolio profits depicts the data graphically. This compares favorably to the first year of my portfolio, for which only 5 of the 12 months had total cash income >$1,000. The monthly average for that period was $1,063 and is now $1,513. Data for the first year are provided in my October monthly update article.
7. Unrealized Gains/Losses
The total current value of all 39 positions in my portfolio at the end of January was -9.6%, an improvement from December (-18.0%). But as the market is only about 62% recovered from the months-long bear market, I know that I just need to be patient for continued rebound. While I wait, I'm receiving decent dividends from most of the portfolio, at an average of 7.34% for the non-swing trades.
8. Current Portfolio
At the close of January, my portfolio consisted of 39 holdings, including a swing trade. The table below lists these holdings, including the current number of shares, average unit cost, dividend/distribution yield, and the percentage that they comprise of the overall portfolio.
|Symbol||Qty||$ Unit Cost||Cls. 1/31||% Div Yield||% of Portfolio|
|Div & Growth Stocks|
|C Mar 15 2019 70 Call||10||0.709||0.25||--||0.5%|
2018 was a losing year for the markets overall, as the SPY paid 1.9% in dividends but dropped -6.7% in price from open to close. I was fortunate to earn +12.76% in cash income with no tax obligations. As roughly half of my income is from swing trading, there is a lot of trading activity - that's what swing trading is all about. Yet every month I get a reader who invariably comments that this is too much work for so little return. With high yield dividend stocks and short-term swing trade profits, I feel confident that I will continue to outperform the markets. So I really don't care that it takes some effort to stay well ahead of the game. This is what I do and others can use their own investing and trading approaches. All's good if it works. It keeps me on my toes, and I enjoy the challenge.
My Green Dot portfolio is one of several that I manage, and represents one of many possible approaches to investing and trading. My costs are relatively low, as I have an active trader discount and often many free trades, and I have no taxes on swing trading profits or dividend income, as this portfolio is in a Roth IRA. What I do here may or may not be appropriate for others, so please perform your own due diligence if you follow any of my ideas or trades. I wish readers well with their own endeavors!
Author's note: I appreciate the comments and questions from readers in the Seeking Alpha community, and I look forward to continuing to share my investing and trading experience and to learn from others.
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Best to your investing/trading!
=Green Dot Investor=
Disclosure: I am/we are long AAPL, AWF, BGX, C, CLNY, D, DSL, EMD, FAX, FDX, FEO, FLC, FRA, FRME, GE, HPS, HYT, JPS, KHC, KIO, LDP, MIC, MO, MSD, NVG, OIH, PFXF, RA, RNP, SKT, SLB, SNV, SPXL, SPXS, SYF, TNA, TQQQ, UCO, UGLD.. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.