Newsletter and Portfolio Performance Update for 9/30/09

The last few months have seen a surge of interest in the Stock of the Week (SOTW) selection and has led to several posts on the subject, including a detailed September 7^th piece with the title, Stock of the Week ‘Sequential Portfolio’ Up 466% Since 3/30/08 Launch.

With the increased interest in the SOTW has come increased interest in the VIX and More portfolios in general and has led to my resuming coverage of the Aggressive Trader Portfolio in the newsletter. The Aggressive Trader was one of the original features of the newsletter, but in the early months I became concerned that the newsletter was tilting too much in the direction of model portfolios and stock selection, at the expense of original research on volatility, market sentiment and related subjects. Based on reader feedback over the past few months, I have made some refinements and now believe the newsletter strikes an appropriate balance between commentary, analysis and trading ideas. A large part of the reason that I added the Aggressive Trader back to the fold is that the portfolio has a great deal in common with the SOTW. As recently as two weeks ago, for instance, 79% of the Aggressive Trader holdings were represented by former SOTW selections.

The graphic below shows the updated performance data for the VIX and More portfolios for 2008, 2009 and since inception, both in absolute terms and relative to their respective benchmarks. As noted previously, these are long-only portfolios of individual stocks that do not invest in ETFs or options and are rebalanced only on weekends. The Focus portfolios derive their name from the fact that each portfolio is limited to only five stocks. Both the Aggressive Trader and Stock of the Week portfolios were launched on March 30, 2008 and use the S&P 500 index as a benchmark. The Focus Growth 2 Model Portfolio was launched on August 31, 2008 and utilizes the S&P 500 index as a benchmark; the Focus Foreign Growth, was launched on March 30, 2008 and uses as a benchmark the EAFE (Europe, Australasia and the Far East) Index ETF (EFA).

The unquestioned star performer has been the Stock of the Week ‘Sequential Portfolio,’ which racked up a 97.7% gain during the turbulent 2008 markets and has easily surpassed that mark with a 218.2% gain for the first nine months of 2009. Two other portfolios have had stellar years so far: the Focus Foreign Growth portfolio is up 103.2% year-to-date; and the Aggressive Trader portfolio is up 75.5% during the same period. The laggard among the group has been the Focus Growth 2 portfolio, which is the only portfolio not to have a cumulative gain since inception. Somewhat ironically and to my slight consternation, two sister portfolio to Focus Growth 2 have been up and running for about five years and sport cumulative returns of about 350% during this time.

In terms of content, the newsletter has been relatively stable during the last three months, with no significant changes in terms of the standard sections. For more information on the standard sections and content, readers are advised to investigate:

• Content Changes and Portfolio Performance Update for 6/30/09
• Subscriber Newsletter and Portfolio Performance Through December 2008
• Stock of the Week ‘Sequential Portfolio’ Up 466% Since 3/30/08 Launch

As a reminder, I am currently offering a 14-day free trial to the subscriber newsletter for new subscribers.

Stock of the Week ‘Sequential Portfolio’ Up 466% Since 3/30/08 Launch

By far the subject which seems to generate the most emails is what I call the Stock of the Week ‘Sequential Portfolio,’ often known simply as the SOTW.

I launched this feature on 3/30/08 with the first issue of the newsletter. My intent was to highlight one relatively unknown stock each week, which I believe is worth owning for both fundamental and technical reasons. While all positions are long-only and are limited to one week, the purpose of the SOTW is not to encourage readers to hop on a single stock and ride it for a week, but rather to generate a new idea each week that might be a candidate for further investigation and perhaps an extended holding period.

Each week I combine my broad market outlook, sector analysis and favored stock selection criteria (sometimes overweighting technical factors and other times favoring fundamentals) to arrive at a handful of finalists for the SOTW. More often than not, the selection of the SOTW for a particular week is the result of analysis of the charts, recent news flow for the stock, and sometimes my perception of how likely I think a particular stock is to become a story stock.

The self-imposed rules of the SOTW state that each week the entire portfolio is invested in a single stock that is purchased at the beginning of the week and sold at the end of the week, regardless of performance. To make for easier accounting, I elected to use Friday's closing price as the official cost basis in the newsletter and do not subsequently adjust that priced based on Monday's open or any other data. At one point I toyed with the idea of editing the data the following week so as to use Monday's open as the official cost basis for record-keeping terms, but over the long run, the difference between Friday's close and Monday's open should be negligible. Also, to my knowledge, I have never there have not been any SOTW selections that have had significant news over the weekend.

The results of the SOTW selection are below and include the date of the newsletter in which the SOTW selection was published, the ticker and the price change from Friday to Friday. For 2008, the SOTW was up 97.7%. For the first eight months of 2009, the SOTW is up 186.5%. Over the full 17 months since the SOTW was launched, the cumulative gains to date are 466.5%. For the record, during this same 17 month period, the S&P 500 index is down 22.7%.

For more information, try:

• Stock of the Week ‘Sequential Portfolio’ Up 343% in 14 Months (VIX and More)

Content Changes and Portfolio Performance Update for 6/30/09

Thanks to those who reminded me to update what has happened to the subscriber newsletter and specifically the three VIX and More portfolios over the course of the last quarter.

Starting with the newsletter content, I see at least four areas in particular in which I have expanded and enhanced the information and analysis. These include:

• more earnings data and a new earnings surprise graphic
• increased focus on key economic reports, with an emphasis on looking under the hood at the full set of numbers to get at the nuances the major media headlines missed or glossed over
• a broader scope of analysis for the Volatility Corner feature and an expansion of the accompanying Volatility Update graphic
• a more detailed discussion of the Stock of the Week selection

With these changes, I have heard from some subscribers about the dangers of page creep. For now I am capping the weekly newsletter at 10 single-spaced pages and am targeting 8-10 pages for each issue.

The graphic below shows the updated performance data for the VIX and More portfolios since inception. To reiterate, these are long-only portfolios of individual stocks that do not invest in ETFs or options and are rebalanced only on weekends. The Focus portfolios derive their name from the fact that each portfolio is limited to only five stocks. The Focus Growth 2 Model Portfolio was launched on August 31, 2008 and utilizes the S&P 500 index as a benchmark; the Focus Foreign Growth, was launched on March 30, 2008 and uses as a benchmark the EAFE (Europe, Australasia and the Far East) Index ETF (EFA).

Focus Growth 2 was up 5.6% for the first half of the year, nearly doubling the performance of the benchmark SPX. The three stocks that were the strongest performers were FRPT, HRBN and HOGS. Even more impressive were the results turned in by the Focus Foreign Growth portfolio, which gained 56.1% for the six months ended 6/30/09, 52.4% better than the benchmark. The biggest winner was TSL, which gained 242% since being purchased in late February. The portfolio, which was heavily weighted in Chinese stocks during the second quarter, also benefited from a 124% gain in SNDA.

As impressive as the Foreign Growth returns were, the star attraction has clearly been the Stock of the Week ‘Sequential Portfolio,’ which ended June up 101% for the first six months of 2009. During the second quarter, the SOTW saw a streak of 13 consecutive gains come to an end. The biggest winner was Kirkland’s (KIRK), which gained 29.9% one week in the middle of May. For more details on specific picks, check out VIX and More Stock of the Week Selection Up 343% in 14 Months.

Starting next quarter, when I provide an update through September 30^th, I will provide some more detailed portfolio performance data in this space.

As a reminder, I am currently offering a 14-day free trial to the subscriber newsletter for new subscriber.

Finally, for those who may be interested, I updated the second quarter performance for EVALS earlier in the month in EVALS Q2 2009 Update: +18.47%.

One Year Portfolio Performance Update

Now that the subscriber newsletter is available on a free trial basis, I no longer see the need to detail some of the content that is available in the newsletter. The format is essentially unchanged from the beginning of the year, but since I have had several requests to provide quarterly updates of the performance of the VIX and More model portfolios, I will use this space to do just that.

Technically, the first quarter does not end for one more day, but since today is the one year anniversary of the launch of the newsletter, I thought it would be an ideal time to update the portfolio performance data.

The graphic below shows the 2008 and 2009 performance data for the three VIX and More portfolios. These are long-only portfolios of individual stocks that do not invest in ETFs or options and are rebalanced only on weekends. I call the top two portfolios Focus portfolios because each portfolio is limited to only five stocks. The Focus Growth 2 Model Portfolio was launched on August 31, 2008 and utilizes the S&P 500 index as a benchmark. The Focus Growth 2 portfolio was actually beating the benchmark until last week, when the top holding, DRDGOLD (DROOY), suffered a sharp decline.

The second Focus portfolio, Focus Foreign Growth, has been a standout performer, particularly in 2009. Launched on March 30, 2008 in the initial newsletter, this portfolio has been heavily invested in China in recent weeks, where top holding Shanda Interactive Entertainment (SNDA) has helped propel the portfolio to an 8.8% advantage over the benchmark EAFE (Europe, Australasia and the Far East) Index ETF (EFA).

The big success story has been what I call the Stock of the Week ‘Sequential Portfolio,’ whose name reflects the fact that the ‘portfolio’ consists of only one stock. Each selection is retained in the portfolio for one week only and is automatically replaced the following week, regardless of performance. Also launched on March 30, 2008 in the initial newsletter, the SOTW has gained a remarkable 101.6% during a period in which the benchmark S&P 500 index has declined more than 41%. Some of the top performers in the SOTW have been JDAS (+18.5%), WTI (+15.5%), MAXY (+14.5%), CCOI (+12.3%) and SQM (+11.0).

For those who may be interested, I will update the EVALS performance data tomorrow after the close and then update both these three portfolios and EVALS at the end of each subsequent quarter going forward.

Announcing Blogger Triple Play

While Direxion 3x ETFs have been a big hit since their launch back in November, deep down I have always thought I could do better. So today I am delighted to announce that VIX and More has joined forces with bloggers extraordinaire Jeff Pietsch of Market Rewind and Rob Hanna of Quantifiable Edges with a new 3x offer, the Blogger Triple Play.

For an annual subscription of $865, the Blogger Triple Play promises a savings of 25% from the combined monthly subscription prices of the three subscriptions if they had been purchased individually.

Included in the package is:

1. Market Rewind – How does your portfolio stack up to the market? What's working now? Take a deep-dive each night into over 170 ETFs while maintaining a broad perspective over twelve major asset classes with Jeff Pietsch’s ETF Rewind Pro. If that weren't enough, actionable model portfolio ideas, mechanical timing signals, nightly commentary, pairs trading, and custom portfolio correlation and optimization analytics are all included!
   
   
2. Quantifiable Edges – Start your week right with Rob Hanna's Quantifiable Edges Silver Subscription. Understand how recent market action compares historically. Get more detailed research than has ever been provided on the blog. Give yourself and your trading a Quantifiable Edge.
   
   
3. VIX and More – My weekend subscriber letter goes beyond the blog to provide a global overview of what is moving the markets, from geopolitical events to macroeconomic issues and fundamental analysis, along with a detailed assessment of volatility and market sentiment. The newsletter is comprehensive in scope and focuses on all asset classes.
   

As part of the three-day trial period, you will receive three evening editions of Jeff's ETF Rewind Pro, as well as the most recent weekly subscriber letters from Quantifiable Edges and VIX and More for evaluation.

The annual subscription fee of $865 clears through Market Rewind's secure Paypal site under the Maple Park Management, LLC name. This inaugural pricing will not last! You aren't likely to find a better bargain for as much of a diverse informed edge anywhere else on the web. Why not give it a try?

Note: Each service is subject to the respective author's disclaimers and notices.

Subscriber Newsletter Features and Portfolio Performance Through December 2008

As I mentioned previously, I continue to make enhancements to the subscriber newsletter. The most important change is that instead of publishing two very different editions on Wednesday and Sunday, I am now combining all the content into one weekly issue, with new content.

Starting with today’s the newsletter, the Market Recap and Commentary section is being expanded into a more comprehensive The Week in Review and separate Market Commentary section. There will be an increased emphasis on a global perspective, macroeconomic issues and fundamental analysis.

Another new section, Volatility Update, tracks and analyze changes in the VIX, the VIX and More Global Volatility Index, the VXV, and a number of related indicators, such as moving averages in the VIX, historical volatility in the SPX, the VIX:VXV ratio, etc.

The new VIX and More Subscriber Newsletter will be published on Sunday evenings going forward, with the following ‘permanent’ sections:

1. The Week in Review
2. Market Commentary
3. The Week Ahead: What to Look For
4. Market Sentiment (using a proprietary Aggregate Market Sentiment Indicator)
5. Volatility Update
6. Asset Class Outlook (short, intermediate, and long-term outlook for ten asset classes)
7. Weekly Feature(s)
8. Current Investment Thesis
9. VIX and More Focus Model Portfolios
10. Stock of the Week

As the newsletter and the economy are undergoing some dramatic changes, I am now making the newsletter available on a free trial basis. In order to receive a free trial, just click on the “Monthly Subscription: Subscribe” button in the upper right hand corner of the blog and follow the instructions. The free trial lasts for 14 days. Readers who elect not to cancel after the 14 day trial period will be billed at a rate of $30 per month.

Also, as a gesture of appreciation to former subscribers, I will add one free month to any subscriber who chooses to re-subscribe.

In response to reader requests, I will also be creating a detailed glossary to provide background on terms, abbreviations, acronyms and tickers I frequently refer to in the newsletter. The beginnings of this glossary can be found in the post below.

For the record, some of the December features included:

• 2008 Volatility Highlights and Observations
• What the VIX Indicates Right Now
• Equity and Credit Risk Both Dropping Rapidly
• Housing Prices, Inventory, and Net Worth
• Strong Divergence Between Investment Grade and High Yield Corporate Bonds
• VIX Term Structure Shows Changing Evolution of Volatility and Risk Expectations
• Further Research into the Spread Between the VIX and the Historical Volatility of the SPX
• A Closer Look at VIX and SPX Divergences
• Week By Week Asset Class Year in Review
• Financials Lagging, Consumer Discretionary Stocks Leading
• Options Expiration Income Strategy
• A Buy-Write Strategy Approach
• New Feature: Volatility Update
• Sector Strength in the Recent Rally
  

Since their launch (3/30/08 for the Focus Foreign Growth and Stock of the Week, 8/31/08 for the Focus Growth 2), the portfolios (equities only, long only) have performed as follows:

If anyone has any additional questions about the subscriber newsletter, please feel free to email me at bill.luby@gmail.com

VIX and More Subscriber Newsletter Glossary

AMSI – Aggregate Market Sentiment Indicator: a VIX and More proprietary sentiment indicator that incorporates components of volatility, put to call data, market breadth, volume and other factors 

Aggressive Trader Model Portfolio – a a mechanical, long-only, aggressive growth portfolio of 5 stocks that was launched on 3/30/08 and is evaluated for rebalancing every weekend. The portfolio is typically 100% invested in U.S. equities and ADRs. It is non-diversified and has extremely high turnover, generally >1000% per year. 

backwardation – a downward sloping term structure curve in a futures product (e.g., VXX, VXZ) in which front month futures are priced higher than back month futures 

contango– an upward sloping term structure curve in a futures product (e.g., VIX, crude oil, natural gas, etc.) in which front month futures are priced lower than back month futures 

Contango Index – a VIX and More proprietary index that evaluates the degree of negative roll yield across all outstanding VIX futures contracts on a scale of 0-100.  A high number means a high degree of negative roll yield across the full term structure and a low number means a positive roll yield across the full term structure.   A value of 50 is a considered the median reading and actually indicates some small amount of negative roll yield, as the full VIX term structure is typically in contango.

CVOL– ticker for the C-Tracks ETN on CVOL, which targets VIX futures with three to four months of maturity, utilizes 2x leverage, and also includes a dynamic short position in the S&P 500 index 

DJIA – ticker/abbreviation for the Dow Jones Industrial Average: the U.S. equity index that is most widely tracked by the media and the general public 

EAFE – the MSCI EAFE Index of developed countries from Europe Australasia and the Far East (excludes the U.S. and Canada) and basis for the popular EFA ETF 

EEM – ticker for an ETF that tracks the MSCI Emerging Markets Index 

EFA – ticker for an ETF that tracks the MSCI EAFE Index of developed countries from Europe Australasia and the Far East, which excludes stocks from the U.S. and Canada 

EMA – exponential moving average: applies an exponential weighting so that most recent data points in a series are given greater weight in the calculation of a moving average 

ETF – exchange-traded fund: a group of stocks that often resemble a mutual fund in composition, but can be traded much like a stock during the trading day 

ETN – exchange-traded note: similar in most respects to an ETF, except that ETNs are technically a debt security of the issuer 

ETP – exchange-traded product: in an effort to simplify nomenclature and gloss over the distinctions between ETFs and ETNs, I am using the ETP name to describe a superset of exchange-traded products consisting of both ETFs and ETNs 

FOMC – Federal Open Market Committee: plays a lead role in establishing U.S. monetary policy by setting target Fed Funds rates 

Focus Foreign Growth Model Portfolio – a mechanical, long-only, aggressive growth portfolio of 5 stocks that was launched on 3/30/08 and is evaluated for rebalancing every weekend. The portfolio is typically 100% invested in ADRs. It is non-diversified and has high turnover, generally >1000% per year. 

Focus Growth 2 Model Portfolio – a mechanical, long-only, aggressive growth portfolio of 5 stocks that was launched on 8/31/08 and is evaluated for rebalancing every weekend. The portfolio is typically 100% invested in U.S. equities and ADRs. It is non-diversified and has high turnover, generally >500% per year. 

GVIX – Global Volatility Index: a VIX and More proprietary index which is derived from a weighted average of the implied volatility in options for equities in the 15 largest global economies 

HV – historical volatility: a measure of actual volatility in the price of security over a specified period of time, typically calculated in terms of standard deviations from the mean of a data series 

IV – implied volatility: a measure of estimated future volatility in the price of a security as derived from options prices 

LW – last week 

McClellan Summation Index –  A running total of the difference between the 19-day and 39-day exponential moving averages of the net difference between the NYSE advancing issues minus declining issues (more)

Mean Reversion Index –  a VIX and More proprietary index that Evaluates the likelihood that the VIX will decline due to the effect of mean reversion on a scale of 0-100.  The calculations in this index incorporate short-term, medium-term and long-term VIX moving averages in order to handicap the likelihood that the current level of the VIX will return to a prior trading range.  A high number means that the VIX is above most or all of its moving averages and is expected to decline going forward; a low number means that the VIX is below most or all of its moving averages and is likely to rise going forward.

NDX – ticker/abbreviation for the NASDAQ-100 Index: an index of the largest domestic and international non-financial securities listed on The NASDAQ based on market capitalization 

Retro VIX – calculates a backward-looking "VIX" based on realized volatility in the SPX over the course of the last 21 trading sessions 


Roll Yield Index - a VIX and More proprietary index that Evaluates the degree of negative roll yield between the front month VIX futures and the second month VIX futures on a scale of 0-100.  A high number means a high degree of negative roll yield (second month much higher than front month) and a low number means a positive roll yield (second month lower than front month.)  A value of 50 is a considered the median reading and actually indicates some small amount of negative roll yield, as these two months are typically in contango.

RUT – ticker/abbreviation for the Russell 2000 Index: measures the performance of the small-cap segment of the U.S. equity universe 

SMA – simple moving average: unweighted mean of a data series 

SOTW – stock of the week 

SPX – ticker/abbreviation for the Standard and Poor’s (S&P) 500 Index: de facto standard of U.S. equity indices for investors 

SPX hv20– the 20-day historical (aka statistical, realized or actual) volatility for the SPX 

USO – ticker for the U.S. Oil Fund, an ETF that tracks the movements of light, sweet crude oil, a.k.a. West Texas Intermediate 

VIX Futures Contango Index [often shortened to Contango Index] – a VIX and More proprietary index that evaluates the degree of negative roll yield across all outstanding VIX futures contracts on a scale of 0-100.  A high number means a high degree of negative roll yield across the full term structure and a low number means a positive roll yield across the full term structure.   A value of 50 is a considered the median reading and actually indicates some small amount of negative roll yield, as the full VIX term structure is typically in contango.

VIX sma10 – a 10-day simple moving average for the VIX (CBOE Volatility Index), which measures the expected 30 day volatility that is implied by options in the SPX 

volatility crush – a dramatic decrease in implied volatility, often associated with the passing of a major news events such as earnings or an FDA decision on a drug application 

vs. 10d/20d/50d/200d – current price relative to 10/20/50/200 day simple moving average 

vs. LW – percentage change since last week (for non-holiday weeks, this is equal to current price relative to the 5 day simple moving average) 

VXV – ticker for the CBOE S&P 500 3-Month Volatility Index, which measures the expected 93 day volatility that is implied by options in the SPX 

VXX – ticker for the iPath S&P 500 VIX Short-Term Futures ETN, which targets VIX futures with one month to maturity 

VXX roll yield – net differential between VIX front month futures and VIX second month futures 

VXZ – ticker for the iPath S&P 500 VIX Mid-Term Futures ETN, which targets VIX futures with five months to maturity 

XHB – ticker for the homebuilders sector SPDR, an ETF

+XIV Index – a VIX and More proprietary index that is a composite index which incorporates a dynamic weighted average of the Roll Yield Index, the Contango Index and the Mean Reversion Index in an effort to determine the attractiveness of a long XIV and/or short VXX position from a risk-reward perspective.  The weights change each week, but generally the Roll Yield Index has the highest weighting, followed by the Mean Reversion Index and the Contango Index.  While the index has theoretical values of 0-100, most readings cluster around the 40-60 range.  Additionally, while 50 is considered a median reading, note that this should be interpreted as a long XIV and/or short VXX position as having ‘median attractiveness.’  

XLF – ticker for the financial sector SPDR, an ETF 

XLY – ticker for the consumer discretionary sector SPDR, an ETF