Week In Review 5-23-2008

Things didn't go any better for me today. One week ago, I was flying high. This week I got kicked in the shins. For the week, my portfolio lost 9%. The market has a way of teaching guys like me painful lessons. The key is to live to fight another day. I know that what I do works over the long run. One week is just a blip. This week was a nasty blip, but a blip nonetheless.

None of my screens suffered like I did. Zweig Relative Strength 5 (down 5.92%) was brought down by GHMs 15% drop--ouch. There is a lot of good discussion on StockPunk this week about using stops and about some of the struggles Zweig screen traders had this week. There are always going to be weeks where the screens blow up on you. Most people who trade don't make money because they quit after a week like this. If you just realize that you've got to experience the bumps and bruises and just stick with the program. Don't over-think things. Just trade your plan and hang in there.

The other screens did relatively well considering the trading environment this week. Zweig MACD lost 1.79%, To the Moon was up 1.45%, and Zweig and Zacks was down 2.01%.

It will be nice to have a break on Monday (its been a long time since I've looked forward to a holiday from the market). Take the long weekend to relax, rethink, and enjoy the freedom we all enjoy to trade our money in the freest market in the world.

Another lesson from 2007

I always like to go back and analyze the previous year's data to see if there is something I can learn from what happened. I like to see if new information I've learned helps or hinders my trading. Most of the time, any new information causes me to perform poorly.

Last year was no exception. Although it was a pretty good year, I still didn't manage to outperform any of my screens. What that means is that all of my labor, sweat, knowledge, and effort created no advantage over a simple mechanical stock screen. I could have spent 15 minutes a week and created the same (or even better) results than I did with constant monitoring, reading, thinking and planning.

Don't get me wrong--I enjoyed every minute of all that hard work because I absolutely love what the market has to offer. I love reading about it, watching it, analyzing it and trading it. But I do think that I could spend a lot of the time that I spend on the market on other more productive things.

To give you an example, one of the things I've really studied this year is timing the market--going to cash when things suck and going crazy when things are going well. I put together several indicators that I think really capture the "underbelly" of the market and allow me to accurately predict the short-term direction of the market.

I went back and applied what I learned to my stock screens to see if I could utilize my timing models to capture the upswings and sit out the downswings. The results kind of shocked me. I expected to at least double my theoretical return. Instead, I cut it in half. For my style of trading and screening, market timing is counterproductive (at least over 2007 it was).

So, I'm back to the conclusion that I had at the end of 2006. If I stick to a mechanical plan in the good times and the bad, I have a very good chance of soundly beating the market.

What I Learned

Here’s what I learned this week. I kept stocks that were no longer on the Zweig screen because they were rated 1 or 2 on Zacks. My thinking was that the ZZ screen was pretty close on a monthly basis to the weekly rebalancing so I shouldn’t be too quick to drop a stock. This thinking was good as GES and CRDN took off on Monday. However, my mistake was that I didn’t put tight stops on the stocks and CRDN took a dive which I couldn’t pull the trigger on. It went on to lose Thursday big time. So the idea not to be trigger happy was a good one GES has done well, but I need to put 3% stops on them. I’m not worried about missing out through volatility. The stocks are no longer recommended so as soon as they disappoint, they’re done, but before that I’ll allow them to make me a few more bucks. If I had sold CRDN after it lost 3% and bought ANF I would be up almost $2000 more this week than I was.