Market Commentary for February 2018
"My new daily U.S. Signals System "
By Alan Hull
This commentary is in part or entirely created using extracts and comments from my weekly Blue Chip Report. For more information about the Blue Chip Report, including subscription details and a recent sample report, go to Blue Chip Report
Late last year I promised you a detailed explanation of my new daily U.S. Signals System, and here it is....
At the time of writing this commentary the Dow Jones index is up nearly 7% and the NASDAQ is up over 8% for 2018, while our local ASX200 index is in negative territory. Chalk and cheese. In fact for the past 9 years the U.S. Stockmarkets have easily outperformed the Australian market. Combined they represent nearly 50% of world equity markets in terms of market capitalization, while the Australian Stockmarket represents only 1.5%.
Their liquidity is immense and today, many of the household names that produce the everyday products we use are Companies that trade on either the NYSE or the NASDAQ Stockmarket, and not the Australian Stockmarket. Google, Facebook, Netflix, Visa, Apple are some of the name brands that propelled the U.S. Stockmarkets to an average return of 26% in 2017 while our local Stockmarket rose only 7%.
One outstanding example is Boeing Airlines which was in my U.S. Top 10 portfolio since February and rose 80% by the end of 2017. So it’s no surprise that the U.S. Stockmarkets have attracted investors and traders from around the world…many Australians being among them.
Past performance is not and should not be taken as an indication of future performance. Caution should be exercised in assessing past performance. The products mentioned here, like all other financial products, are subject to market forces and unpredictable events that may adversely affect future performance.
It’s also no surprise that my U.S. Top 10 portfolio has been my best performing strategy, achieving a total return in 2017 of 28.4%. I’m also very certain we are looking at a major reversal in 2018 and U.S. stocks can be short sold as easily as they can be bought and sold. This means the U.S. Stockmarkets are an ideal vehicle for profiting in a down cycle.
And that’s exactly what I intend to do, but I’m planning on going one better than the U.S. Top 10 Portfolio. As I am now moving my own personal trading away from Australia and to the U.S., I’m analysing the U.S. Stockmarkets every day and my watchlists don’t stop at the 130 stocks that make up the Dow Jones & NASDAQ 100 indexes, as does the U.S. Top 10.
I trade across the entire New York Stock Exchange & NASDAQ Stockmarket and I can enter & exit these markets on a daily basis, not weekly. This means much greater opportunity across thousands of stocks with superior risk management, thanks to daily and not weekly signals.
How it works...
Trading the U.S. Stockmarkets is primarily based on trend optimisation, whereby I individually analyse each and every stock, identifying ones that are defining obvious trend channels. I then measure their rate of annual return so I can select the more profitable opportunities. The following charts include both a daily and a weekly example…
Looking at the second chart, Corcept Therapeutics, you’ll see two special features. Firstly it uses a logarithmic scale which is a common requirement for analysing U.S. stocks. This means the trend is accelerating over time...and this is a good thing. It also has a central trendline which splits the price channel in half, creating a buy zone in the lower half and a hold/profit-take zone in the upper half. A pool of over 100 stocks is checked daily for buy, hold, profit take and sell signals.
These daily signals are then used to create and manage a portfolio of around 20 stocks, this relatively high number keeping specific stock risk to a minimum. So my U.S. Signals System is a daily strategy which incorporates small, medium and large capitalization stocks and can profit in both rising & falling markets. It can also reside in cash and is suitable for SMSFs.
This strategy is executed in association with Dean Smith of Primary Securities via the Interactive Brokers (IB) trading platform. Dean manages the liquidity requirements, position sizing and exchange/sector risk. He will receive the same information as you do and then contact you to authorise trade execution. You can also ask him about automatic trade execution.
Ideally the minimum amount of capital you will start with is 100,000AUD spread across 20 individual positions. Then as your capital grows you would allocate 5% of your total capital to each new position, maintaining a total of about 20 individual positions. Depending on the arrangement you have with Dean, he will either manage this process on your behalf or advise you accordingly.
So let’s now assume you’re starting with 100,000AUD. It is also assumed that you have already established an IB trading account with Dean and you are ready to commence trading. Each day, usually just after midday, you will receive an email from me with a list of stocks to buy and sell. The email has a very simple format, a sample of which appears below….
Subject: U.S. Signals for 01/01/2018 - Alan Hull
Dean will have received an identical email at the same time. Normally you will select up to 4 stocks per day to buy, taking into consideration liquidity, exchange allocation and sector risk. Of course selling is a straight forward process where you would ignore any signals that do not apply to you.
From time to time I will also sell half a position to either take some profit or because I am concerned about a stop loss being tested. Please be aware that this can impact the number of positions in a portfolio. Again, depending on the arrangement you have with Dean, he will either manage this process on your behalf or advise you accordingly.
What does it cost?
Please refer to Dean Smith regarding the cost of trade execution. Interactive Brokers is the largest international trading platform in the world and it obviously provides very competitive pricing. I also believe it to be one of the most secure systems with your funds held in your own account. IB also has account insurance, which you can make further enquiries about with Dean.
The cost of this service is higher than my other subscription products because it is a daily system. To receive my daily U.S. trading signals you have to pay both a quarterly subscription fee and a performance fee. The quarterly subscription is $750, payable at the start of each period. The performance fee is also calculated and paid on a quarterly basis. It is 20% of any profits and is high water marked.
This means that if you incur a loss for any given quarter, it must be made up before a performance fee would apply. So if you were to make a profit of 10% in the first quarter then you will pay 20% of this amount. But if you make a loss in the next quarter then this loss will have to be made up before you would pay any further performance fees.
Dean can generate reports on request and will also calculate & track performance fees. Also note that GOLD and SILVER PASS lifetime subscribers don’t have to pay the quarterly subscription fee and only pay a 10% performance fee. So over the longer term, a lifetime subscription is easily the most cost effective strategy. For any further enquiries about my daily U.S. Signals System, please contact Dean or myself.