Seeking Alpha

Green Dot Portfolio: October 2019 Update - A 15%+ Second Year

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Includes: AMTD, CSQ, RVT, SFM, SIX, SPXL, SPY, THQ, TQQQ, TWTR
by: Green Dot Investor
Green Dot Investor
Active trading, closed-end funds, portfolio strategy
Summary

Total realized cash return on portfolio investment for October from dividends and swing trades was +1.82% and totaled +15.15% for the past 12 months (my goal was +10%).

Dividend income for October was the second highest this year, at >$900, and dividends (ex closed swing trades) totaled >$9,400 this second year.

I closed 5 winning swing trades this month for +14.76%, and 82 of 86 this year for +7.18% (average of 35 days, +51.5% annualized).

After two years, the portfolio realized a total cash return of >$35,800 or +27.9% on monthly investment from dividends and swing trades.

I continued to use Elliott wave patterns for the overall market trend and technical charting for buy and sell decisions.

Welcome to my October update for my Green Dot Portfolio, a small self-managed retirement portfolio created in a Roth IRA trading account. It has now been two full years since I presented my portfolio on Seeking Alpha, and it's time to report not only results for October but also for the second year and since portfolio inception.

My first-year goal was to achieve a total realized annual return of at least +8% in cash income using high-yield dividend investments and swing trading. Last October I raised my goal for the second year to +10%. I was fortunate to out-perform the combined 2-year goal by +55%, realizing a +27.9% cash return on investment. These gains were calculated by adding the realized cash income received each month, for which the total investment cost of the active portfolio changed every month.

Unlike the unrelenting uptrending markets in 2016-2017 wherein everyone likely made great profits, I was fortunate to exceed my goal during a volatile and challenging period, as the fall of 2018 experienced a bear market and the markets took most of 2019 to rebound and surpass the previous high. While the S&P 500 Index (SPX) was not really a benchmark for my portfolio, it serves as a general measure of the progress of the overall markets. From the weekly close on the SPX at 2587.84 for the week of October 30, 2017 to the close on October 31, 2019 at 3037.56, the SPX gained +17.4%. So I was happy to have out-performed the S&P.

1. Market Action And Pattern

Readers of my previous updates know that I use the broad market index, the SPDR S&P 500 Trust ETF (SPY), to represent the overall price pattern and trend of the markets. The chart below is a weekly chart for the SPY for the past 2 years since inception of my portfolio.

On the left, the chart shows the uptrend that was underway in late 2017 as I initiated my portfolio. In late January (point labeled 1), the SPY sold off in an intermediate-level pullback that lasted several months before the SPY regained its footing and climbed to a new high in late September 2018 (point labeled 2). The SPY then experienced a 3-month bear market (-20% decline) that bottomed at the end of December (point labeled 3).

I added a Fibonacci retrace sequence for that bear market (light blue parallel lines) to track the rebound that began in 2019. After stalling at the full retrace level in May, the SPY finally climbed above the pre-bear market high into late July (point labeled 4), only to pull back again and spend the bulk of August below the bear market retrace level. The SPY then moved up again into mid-September, only to stall at resistance at the late July high (heavy red line right of point 4).

For the second half of September, the SPY again dipped, piercing but holding at a support level from the early June and August lows (thin black uptrending line). The SPY then moved up again above the bear market retrace level and gapped up the last week of October above the highs from late July and mid-August (heavy red line). The SPY closed October at a new weekly all-time high, hitting 304.55 on October 30.

If the SPY can stay above the point 4 red line, the bull market should continue. I note, however, that there is resistance just overhead at a trendline (heavy gold line) extending from the highs at points 1, 2, and 4. We know that the recent week (November 1) ended a penny below the new high at SPY 306.18. Confirmation of the uptrend above this point will be the next challenge, with this trendline serving as potential resistance for any minor pullbacks.

(Source: Chart created by author from the TD Ameritrade 'thinkorswim' platform.)

As I have noted previously, the Nasdaq index fully retraced the 2018 bear market. However, financials, as represented by the Financial Select Sector SPDR Fund (XLF), left below, and "small caps," as represented by the iShares Russell 2000 ETF (IWM), right below, have still not made new all-time highs. As these weekly 2-year charts show, the XLF finally just retraced the bear market but is still considerably below the early 2018 high, and IWM has struggled to stay above the .618 retrace of the bear market. The progress of these indexes is important because, as I have been taught, bull markets should include the participation of these components. While I expect this bull market to continue in the near term, financials and small caps need to catch up.

(Source: Chart created by author from the TD Ameritrade 'thinkorswim' platform.)

Elliott Wave Pattern

For some time now, I have referred to the quantitative Elliott Wave pattern for the SPX by the late Tony Caldaro (Objective Elliot Wave). Since February, the "OEW Group" has provided analysis of the market pattern. The most recent update continues to indicate that the 2018 bear market was a Major 2 wave (down) within a larger Primary III bull market, and that the Major 3 wave (up) is underway.

The OEW Group's most recent update (November 1) characterizes the long-term pattern for the SPX as "early stages of breakout from consolidation." Regarding critical price levels for this count to hold for the near term, the update concludes that:

"We are bullish as long as the 2920 level provides support going forward.... A move below 2893 would invalidate the current Micro wave 1 and Micro wave 2 count."

This pattern count has emerged from considerable choppiness over the past month and more. If correct, this pattern count would support long positions for any equity that tends to move with the market.

The current OEW Group chart and wave level legend are presented below.

(Source: StockCharts.com)

The current uptrending wave is Micro 3 within Intermediate wave i (up) of Major 3 (up).

2. Portfolio Allocation And Adjustments For October

On October 2, I added to 2 of my closed-end fund positions and started another:

  • I added 150 shares of Calamos Strategic Total Return Fund (CSQ) at $12.38/share.
  • I added 100 shares of Royce Value Trust Inc. (RVT) at 13.31/share.
  • I bought 150 shares of Tekla Healthcare Opportunities Fund (THQ) at $10.97/share.

With these changes, my portfolio continues to be comprised mostly of closed-end funds (72.5%), at a total investment of $123,450. REITs now comprise only 4.5%, and income/growth stocks comprise 10.1%, with swing trades at 10.2%.

The pie chart below presents the composition of the 15 CEFs, based on classification using my TD Ameritrade Portfolio Planner Analysis tool. Domestic funds are dominant (59.5%) compared to international funds (40.5%), and fixed income funds (77.5%) greatly outnumber equity funds (22.5%). I will look to continue adding to these CEFs and initiating new positions during larger market pullbacks, buying at discounts to net asset value, NAV.

I didn't make any other adjustments to the portfolio in October.

3. Dividend Income

Total monthly income from dividends in October totaled $915, the second highest monthly income since portfolio inception. As I have recently taken profits on many REITs and stocks, closed-end funds contributed 88.4% of dividend income for October.

The chart below presents the total and average monthly dividend income (blue line) for this second year. Average monthly dividend income has risen rather steadily and ended the year at a new high, at $788. (Note: This chart corrects an error shown previously for July 2019)

(Source: Chart created by author from portfolio data as of October 31.)

For this second year of my portfolio, dividends from income positions and closed swing trades totaled $9,865 and contributed 42.8% of total portfolio cash returns, with the balance coming from swing trades. About 81% of all dividends this year came from my closed-end funds.

Since portfolio inception, dividends have totaled >$16,300 including $615 in dividends from closed swing trades. Of that, more than $12,000 was from closed-end funds. I have grown my CEF positions over time, but even to this point three CEFs have generated >$1,000 in dividend income, with the DoubleLine Income Solutions Fund (DSL) alone contributing >$1,800 in dividends. The 15 CEFs currently in my portfolio carry an unweighted yield at current cost (several at post-bear market highs) of +8.08%. And despite that the Aberdeen Asia-Pacific Income Fund (FAX) - my only really poor performer - is down -9.5%, the 15 as a group are currently up nearly $3,200 over cost (+2.57%). In my Roth IRA account, CEFs are great income positions, especially when initiated and added-to during pullbacks. With most of my CEF distributions paid monthly, they are growing quickly now that I am re-investing income. Based on my experience with these during the past two years, I have a lot of difficulty understanding the reluctance of investors to include CEFs as a component of an income portfolio.

Equity CEFs such as the Calamos Strategic Total Return Fund (CSQ) and the Eaton Vance Tax-Advantaged Global Income Fund (ETG) are comprised of a large number of leading stocks such as Microsoft (NASDAQ:MSFT), Google (NASDAQ:GOOG) (NASDAQ:GOOGL), Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), and Facebook (NASDAQ:FB), as well as large financials. As a result, they can be traded along with the inter-mediate level market trend moves/waves or held longer-term for entire bull markets.

4. Swing Trades

October was a good month for my swing trades. I closed 5 stock/ETF swing trades for a net profit of nearly $2,100 (+14.76% for an average of 34 days). The average trade cost was $2,827.

The table below presents the dates, symbols, names, number of shares, sell prices, percentage gains, and number of days in the trade for the 5 swing trades closed in October.

Date Sold Symb. Security Name Qty. Sell Price % Gain # Days
10/21 AMTD TD Ameritrade Holding Corp. 70 37.45 12.75 14
10/25 TQQQ ProShares UltraPro QQQ 70 67.75 18.90 57
10/25 SPXL Direxion Daily S&P 500® Bull 3X Shares 70 54.50 16.17 57
10/30 MC Moelis & Co. 70 35.00 10.18 21
10/30 SFM Sprouts Farmers Market 125 20.73 12.08 21

I continued to post what are, in effect, trade alerts as "updates" for readers, posted to the most recent monthly articles or weekly blogs.

For readers who know my trading style, most of these stocks were generally oversold when purchased. I look for bounces in the 5-10% range, typically within about 30 or so trading days. However, I am content to wait longer if needed, and I can often collect dividends until I exit the trades.

For October, three of the five trades closed were also opened this month, on 10/2: AMTD at $33.15, MC at $31.70, and SFM at $18.46. The SPXL and TQQQ trades, 3x-leveraged ETFs on the S&P 500 and the Nasdaq 100, respectively, were "rinse and repeat" trades, meaning that I have traded them in the portfolio several times. In this second year of my portfolio, I traded SPXL six times for a net profit of $1,757 and I traded TQQQ five times for a net profit of $1,687.

The chart below shows the most recent three TQQQ trades, including the entry, add, and exit points. I was able to capture the bulk of the Nasdaq's move up in June (2 trades) and some of the trade in August, which was very choppy and actually over-lapped the previous trades. Investors never know where the markets are heading and there is additional risk with leveraged ETFs, but I used the Caldaro OEW Group SPX market pattern as my guide for these trades. This is not a perfect association, and the details within the Caldaro count changed several times during the mid-summer chop. I missed an opportunity to sell TQQQ in early August and re-enter in early October, but otherwise I was able to get in and out near the major pivot points. I am interested in continuing to make these pivot-based TQQQ trades, including using the SQQQ for down-trending legs of the pattern.

New Swing Trades

I opened two new swing trades in October:

  • On 10/7, I bought 40 shares of Six Flags Entertainment Corp. (SIX) at $49.05/share. This stock is in a portfolio I follow and it was doing well for a week after my entry. But the stock sold off on earnings on 10/22 and my position is now down about -15%.
  • On 10/25, I bought 50 shares of Twitter Inc. (TWTR) at $30.22/share. I entered this on an earnings miss when the stock dropped from the previous day's close at $38.83. The stock seems to be rounding off now but the risk is a continued drop to the 1-year double bottom at $26.26.

5. Cumulative Swing Trade Results

I continue to use swing trading to add profits and grow my portfolio balance more quickly than through collecting dividends alone.

For this second year, I have been fortunate to close 82 of 86 non-option swing trades for profits, for a net gain of $12,896 including $441 in dividends on those trades. This represents an average cost-weighted gain of +7.18% for an average of 35 trading days (+51.5% annualized). These 86 trades had a total cost of nearly $179,500, for an average of nearly $2,100 per trade. This is more than double the average cost of the 42 swing trades for my first year.

The chart below shows the percentage gains for my 86 stock/ETF swing trades for my portfolio for this second year. Trades closed in October are in blue.

(Source: Chart created by author from portfolio data as of October 31.)

Looking back over the two years of my portfolio, the second year was a huge step up in investment and trading action, due largely to having added cash to the portfolio and closing trades for profits. The table below compares the first and second year and presents summary data for non-option swing trades since inception of the portfolio. Making mostly smaller trades over short time periods acts to limit the risk in trading and keep profits coming in for additional trades. With an average trade of 35-37 days to closing, I was able to re-deploy the profits and make 6-7 trades in a year, which averages 251 trading days. My practice was to stay fairly fully invested, perhaps resulting in about 5-6 trades. With a fairly consistent win rate, I was able to realize a cost-weighted annualized profit of 48% on these swings.

Swing Trades (non-option) Year 1 Year 2 Total
Total number closed 42 86 128
Profitable trades and % 41 (97.6%) 82 (95.3%) 123 (96.1%)
Total trade investment ($) $42,121 $179,490 $221,611
Total profit ($) $2,891 $12,896 $15,787
Cost-weighted profit (%) 6.86%

7.18%

7.12%

Average # days in trade

38 35 37

Annualized return (%)

44.2% 51.5% 48.3%
Average cost of trades ($) $1,003 $2,087 $1,731
Average profit ($) $69 $150 $123

Over the past two years, my portfolio has also included trading of option premiums. In my first year, I started with a nice winning streak of 16 trades with a net profit on cost of +39%. I then had a more mixed period of trades wherein I was net profitable on 8 of 14 option trades, but with a total net loss of about -$1,500, resulting in a gain of only +$956. For my second year, I only made 3 option trades, with 1 winning trade and a total net loss of -$739 for the year.

So for both years, my total profit was only +$217. As I wrote previously, my option approach resulted in winners when I got the trend reversal of a stock correct within a short period of time. Without doing rollovers or using other strategies, I took losses because I held most positions until expiration ("worthless"). I find that trading option premiums requires more time and close monitoring compared to other swing trades. Perhaps when I can focus more I'll revisit trading option premiums.

The time relationship is important for non-option trades as well, but the difference is that a trader can leave a trade open until the pattern works out, regardless of time and taking a 100% loss if the trade doesn't work before expiration. That said, most of my non-option trades worked well within a few months; by comparison, three months to expiration was my "standard" time for option trades. The plot below shows the 128 closed non-option trades (winners and losers) for both years of my portfolio as a plot of percentage return (X-axis) against time (number of days) in the trade (Y-axis). The heaviest cluster is for trades with about 4-12% profit within 30 days. This is expected given that my tactic generally looks for 5-10% gains in about 35 days.

(Source: Chart created by author from portfolio data as of October 31.)

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 are available for additional investment.

Total cash return for this second year totaled $23,048, including $9,457 (41%) from dividends on CEFs and stocks and $13,591 (59%) from closed swing trades. Whereas the monthly average cash earned for my first year was $1,063, it was $1,925 for the second year. The total gain for this past year was +15.15%, and the monthly average was +1.16%.

The chart below shows the overall progress of my portfolio since inception. The chart depicts the monthly cash income and the proportion from dividends and from swing trades. The growth in total cash income is clear, including as a result of adding some funds this year. The first year is shown in green and the current year is shown in blue.

(Source: Chart created by author from portfolio data as of October 31.)

Unrealized Gains/Losses

The total current value of all the positions in my portfolio at the end of October was -5.05%, much improved over the fall 2018 bear market. I still have some longer-standing losing positions such as General Electric (GE), Kraft Heinz (KHC), Macquarie Infrastructure (MIC), Nio (NIO), and Colony Capital (CLNY) that I will continue to hold for now. These 5 comprise <10% of total portfolio investment.

While I wait, I'm receiving good returns from a large portion of the portfolio. At the end of October, 11 of my 15 CEFs - which account for 75.2% of portfolio investment - were profitable, with a net gain for all 15 on share price of >$3,100, not including the distributions. These 15 CEFs currently average 8.08% in distributions.

7. Current Portfolio

At the close of October, my portfolio consisted of 32 holdings, the smallest number for any month over the past two years. 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 investment.

At this time, only one position comprises >8.5% of the total portfolio investment (DSL at 11.6%).

Symbol Qty $ Unit Cost Cls. 10/31 Div yield % of Portfolio
REITs 4.50%
CLNY 345 11.785 5.60 7.72% 2.5%
SKT 125 26.052 16.12 8.65% 2.0%
CEFs 75.2%
AOD 209.971 8.221 8.44 8.13% 1.1%
AWF 1,175.16 11.873 11.97 6.55% 8.5%
BGX 525.563 15.060 14.94 9.56% 4.8%
BIT 416.686 16.579 17.15 8.18% 4.2%
CSQ 769.182 12.430 13.02 7.60% 5.8%
DSL 961.797 19.868 19.94 9.05% 11.6%
EMD 104.37 14.128 13.92 8.57% 0.9%
ETG 513.499 15.174 16.77 7.29% 4.7%
FAX 1,568.91 4.697 4.25 7.80% 4.5%
HYT 1,094.06 10.408 10.93 8.57% 6.9%
JPS 1,139.14 9.359 10.03 6.72% 6.5%
KIO 576.218 15.446 15.39 9.78% 5.4%
LDP 330.456 24.447 25.89 7.29% 4.9%
RVT 454.049 13.353 13.98 8.61% 3.7%
THQ 150 17.000 18.00 7.51% 1.6%
Income & Dividend Growth 10.1%
CMA 60 68.614 65.42 4.03% 2.5%
D 15 80.194 82.54 4.49% 0.7%
FDX 8 188.113 152.66 1.67% 0.9%
FRME 115 39.404 39.55 2.57% 2.8%
MIC 33 69.741 43.14 10.12% 1.4%
SNV 75 38.699 33.87 3.49% 1.8%
Swing Trades 10.2%
DSLV 100 22.295 15.67 -- 1.4%
OTCPK:ERBB 3,340 0.150 0.05 -- 0.3%
OTCPK:FUTL 5,000,000 0.000 - -- 0.3%
GE 103 23.922 9.98 0.40% 1.5%
KHC 50 43.238 32.33 5.61% 1.3%
NHTC 150 10.680 6.77 -- 1.0%
NIO 850 4.458 1.45 -- 2.3%
SIX 40 49.050 42.20 7.68% 1.2%
TWTR 50 30.220 29.97 -- 0.9%

Final Thoughts

With a record month in October for dividend income and total swing trade profits, my second year closed on a high note for the portfolio. My second year total return goal was +10% and I was able to realize +15.15% Since inception of the portfolio in fall 2017, the two-year total return was +27.9%. Given that 2018 was a losing year for the markets overall, I am happy with this performance.

I am looking forward to continuing to collect dividends on my fixed income holdings while working to profit on shorter-term swing trades. The markets should continue to reach new highs, but perhaps with higher than average volatility. If I can read the waves skillfully, I hope to realize gains as stocks go both up and down in the coming months.

This month and year concludes my work for sharing my investing/trading approach through the Green Dot Portfolio with readers on Seeking Alpha. It has been a rewarding experience despite having to remain anonymous due to disclosing the majority of my actual trade logs. I have enjoyed the comments from readers and the challenge of fielding the many questions posed, which helped keep me focused on reading the charts.

After taking a brief vacation from posting, I am thinking of returning on SA with an entirely new series that focuses mostly on trend trading some ETFs - and possibly individual stocks - using Elliott Wave and technical analysis. I would especially like to devote time to an active trading site that details trades for the TQQQ/SQQQ and SPXL/SPXS. The larger "waves" of these leading indexes, when traded through these 3x-leveraged ETFs, can produce higher than average returns as long as any downside risk can be managed. I'm thinking that perhaps readers who have been reluctant to swing trade individual stocks - and who I argue are missing out on income to supplement traditional buy-and-hold, dividend/G&I stock portfolios - might find some encouragement to use this more limited form of swing trading.

Until then, I wish readers well with their own endeavors!

=Green=

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Disclosure: I am/we are long AOD, AWF, BGX, BIT, CLNY, CMA, CSQ, D, DSL, DSLV, EMD, ERBBD, ETG, FAX, FDX, FRME, FUTL, GE, HYT, JPS, KHC, KIO, LDP, MIC, NHTC, NIO, RVT, SIX, SKT, SNV, THQ, TWTR. 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.