X-INDEX FUND Magazine Issue 3: October 2011
Oct
31
Written by:
Monday, October 31, 2011 7:50 PM
X-INDEX FUND Magazine Issue 3: October 2011
By Johan G. van der Galiën.
Definition X-Index Fund
This index fund is composed of initially the 50 lowest entropic (= X-Index) securities from 1,924 New York Stock Exchange (NYSE) securities whereof stock quotes can be downloaded with HQOUTE PRO. These 50 are among the securities with the potentially highest profitability in the last bull market and the bull market yet to come. From these initially 50 securities there are at the moment still 42 actively traded. So these 42 securities, 10,000 shares per security, bought virtually all at once for about $ 1.8 million in total on 2011-08-08 closing prices, is the X-Index Fund or also called DOWN42 portfolio in this magazine.
The X-Index Fund portfolio
From a list of 3,461 NYSE ticker symbols, from the Dutch Wikipedia, HQOUTE PRO could download only stock quote files from 1,924 of these 3,461 securities. These files were analyzed by ‘The Automated X-Index Technical Analysis Software’, that curve fits to a distribution function I would like to call Omega (Ω), and entropy ranked. A 50 down ranking securities portfolio (DOWN50) was drawn and the ticker symbols, closing prices at 2011-08-08 (purchase day virtual portfolio) with 10,000 shares per security data were uploaded to Google Finance. After carefully inspecting the resulting spreadsheet, for 7 out of the 50 securities in this portfolio there was no trading anymore for various reasons or too less trading for Google Portfolio to take them into account or the ticker symbol is not a Google recognized one from the NYSE. Nonetheless remained 43 valid ticker symbols and consequently I spoke of the DOWN43 in ISSUE 1 of this magazine.
Now I must speak of the DOWN42 portfolio because the trading has stopped for ticker symbol SFN.
The resulting DOWN42 portfolio
|
Ticker Symbol
|
Closing Price ($) 2011-08-08
|
# Shares
|
|
CBR
|
3.07
|
10000
|
|
CPE
|
4.9
|
10000
|
|
CSU
|
7.15
|
10000
|
|
CT
|
2.25
|
10000
|
|
EK
|
1.86
|
10000
|
|
EXE
|
3.71
|
10000
|
|
FCH
|
2.85
|
10000
|
|
FCS
|
12.27
|
10000
|
|
FR
|
7.81
|
10000
|
|
FRM
|
6.41
|
10000
|
|
GKK
|
2.35
|
10000
|
|
GMR
|
0.45
|
10000
|
|
GPK
|
3.66
|
10000
|
|
GSL
|
2.84
|
10000
|
|
HL
|
6.66
|
10000
|
|
HW
|
2
|
10000
|
|
IO
|
5.06
|
10000
|
|
IRE
|
1.13
|
10000
|
|
LSI
|
6.23
|
10000
|
|
MAG
|
1.45
|
10000
|
|
MEG
|
2.3
|
10000
|
|
MIM
|
24.96
|
10000
|
|
MNI
|
1.69
|
10000
|
|
MPG
|
2.25
|
10000
|
|
NCT
|
4.06
|
10000
|
|
NLS
|
1.66
|
10000
|
|
NTE
|
4.9
|
10000
|
|
NWY
|
4.12
|
10000
|
|
PKD
|
4.91
|
10000
|
|
QTM
|
1.77
|
10000
|
|
RAS
|
3.39
|
10000
|
|
SFI
|
4.61
|
10000
|
|
SRZ
|
5.93
|
10000
|
|
STM
|
6.31
|
10000
|
|
SWS
|
4.08
|
10000
|
|
TCI
|
2.26
|
10000
|
|
TGS
|
3.05
|
10000
|
|
THC
|
4.63
|
10000
|
|
TLB
|
2.79
|
10000
|
|
TRR
|
3.93
|
10000
|
|
VG
|
2.88
|
10000
|
|
ZLC
|
3.84
|
10000
|
Table 1: Google Finance upload data.
Performance of the X-Index Fund at 2011-10-13 20:56 CET
Fig. 1: My Google Finance X-Index Fund screenshot, with only part of the securities, because of space limitations. But you can upload and check it yourself! (http://www.google.com/finance)
· At the time of writing this magazine (2011-10-13). The X-Index Fund profitability was +1.89%. So again positive!
· However the α for the chosen Dow Jones Industrial Average benchmark is still negative (-4.66%) But during the first part of its existence the X-Index Fund has beaten the common benchmarks several times! As you can see from the graph and alpha’s (α) with the Dow-Jones Industrial Average benchmark in ISSUE 2.
Evaluation last forecast (2011-09-09 to 2011-10-07)
|
Period Fig. 1, 2 or 3
|
Explanation
|
|
2010-09-29 to 2011-01-07
|
Rising of prices draw more buyers to the NYSE. Bull market. Strong decrease in X-Index within positive region. Consequently peak in Volume and Trading Activity. Because X-Index is far in the positive region this is a period of high positive Trending. Because trading decisions are partly based on (rising) former prices there is also high Autocorrelation. Low Volatility and Risk.
|
|
2011-01-07 to 2011-07-26
|
Stagnant (flat) stock market climate. Consequently side ways Trending X-Index and this is also true more or less for all the mentioned stock quote distribution properties.
|
|
2011-07-26 to 2011-09-09
|
Declining of prices draw more sellers to NYSE. Initially bear market then bear-to-stagnant transition at 2011-08-08. Severe deep dip in X-Index to negative region. Consequently period of zero to negative Trending and peaks in Volume and Autocorrelation. High Sigma and Volatility. At 2011-08-08 start of stochastic period.
|
|
Next 20 trading days forecast
|
-SEM 95% crosses the +SEM 95% Resistance red line far in the positive region. So I must rationally say, with a 95% Confidence Level, there comes a period of less Trading Activity, less Volatility and significant positive Trending because the X-Index is far in the positive region. $-Value of the DOWN42 portfolio since 2011-08-08 will then most likely increase. BUT according to the violent swings in the tail of X-Index graph, it could be that this swinging continues and we stay in a stochastic market in the (near) future. Then the above prediction is only temporary phenomenon for lets say a week as the market continues to swing up and down. Maybe this hypothetical stochastic market is heralding a severe stock market crash on Wall Street. All of this is also supported by the fact that Autocorrelation was extremely low, even at the lowest point of the year, at 2011-09-09 and lately the Volatility Index ^VIX keeps rising and rising. All of this is suggesting that the market has become irrational and unpredictable.
|
Table 2: The last forecast of the former ISSUE 2 of this magazine.
And this was the actual performance of the now DOWN42 portfolio (in red):
Fig. 2: The performance of the now DOWN42 portfolio over the period of the last forecast (in red). Modified screenshot Google Finance Portfolio. (http://www.google.com/finance)
· Over the specified prediction period the market was in the beginning indeed in a down trending stochastic state. Later on it seems to stabilize.
· The market became worse compared to the 20 trading days before considering the strong -20% trend. Before ~0%. (See also ISSUE 2)
Forecast market until 2011-11-11
Fig. 3: X-Index and (+/-) 85% Confidence Level SEM curves calculated over a 20 trading days time window. And Fund Value and Dow-Jones Industrial Average 20 trading day snapshot. Curves are all standardized to be able to compare them in one graph. Modified screenshot EXCEL graph.
As we have seen in the Fig. 3 graph, the X-Index curve goes violently up and down, this comes from a combination of numerous (+/-) effects. Some major and minor ones are:
· (-) Volume or Trading Activity.
· (-) Sigma: Risk or Volatility.
· (+) Potentially positive Trending.
· (-) Potentially negative Trending.
· (-) The degree that former prices influence future prices (Autocorrelation).
(+) = directly proportional with X-Index and (-) = reversed proportional. By all these and more effects the X-Index curves can look erratic but can nonetheless be explained (Table 3).
|
Period #
|
Period Fig. 3
|
Explanation
|
|
1
|
2010-09-29 to 2011-01-07
|
Rising of prices draw more buyers to the NYSE. Bull market. Strong decrease in X-Index within positive region. Consequently peak in Volume and Trading Activity. Because X-Index is far in the positive region this is a period of high positive Trending. Because trading decisions are partly based on (rising) former prices there is also high Autocorrelation. Low Volatility and Risk.
|
|
2
|
2011-01-07 to 2011-07-26
|
Stagnant (flat) stock market climate. Consequently side ways Trending X-Index and this is also true more or less for all the mentioned stock quote distribution properties.
|
|
3
|
2011-07-26 to 2011-09-09
|
Declining of prices draw more sellers to NYSE. Initially bear market then bear-to-stagnant transition at 2011-08-08. Severe deep dip in X-Index to negative region. Consequently period of zero to negative Trending and peaks in Volume and Autocorrelation. High Sigma and Volatility. At 2011-08-08 start of stochastic period.
|
|
4
|
2011-09-09 to 2011-10-07
|
Stochastic period seems to have stabilized far in the positive region, since the violently going up and down has stopped. When the X-Index goes from this point gradually down into negative territories, like the Santa-Claus-Rally of period 1, we can be sure that we are in a bull market rally again.
|
|
5
|
Next 20 trading days forecast
|
-SEM 85% crosses the +SEM 85% Resistance red line far in the positive region and stays there for 20 trading days. Stochastic going up and down with zero or negative trending seems to be over. Now I have the arguments to say, with a 85% Confidence Level, there comes a period of lesser Volume, lesser Volatility and significant positive Trending because the X-Index is far in the positive region. $-Value of the DOWN42 portfolio since 2011-08-08 will then most likely increase. Since At 2011-10-03 the Volatility Index ^VIX did go from 45 to 28. Autocorrelation is back to normal (mean) levels. All of this is suggesting that the market has become rational and predictable, with most likely a bull market ahead.
|
Table 3: Explanation of the sections of Fig. 3 plus the forecast.
Buying and selling the X-Index Fund (until 2011-11-11)
Fig. 4: When a security is under the 200 days moving average this is a severe buy sign (red). And when above a severe sell sign (green). Shown are the 50, 100, 150 and 200 days moving averages of the complete X-Index Fund (DOWN42 portfolio). Screenshot HQOUTE PRO portfolio spreadsheet. (http://www.hquotes.com/)
· Buying: We are now (2011-10-13) as you have seen in the forecast hopefully at the start of a bull market (Santa-Claus-Rally). Shares are still cheap and almost completely below all the 50, 100, 150 and 200 moving averages (Fig. 4). The coming month is the time to buy, better sooner than later. In the next paragraph I will show you that I have indeed recently bought shares from the X-Index Fund.
· Selling: There is to little profit (only +1.89% and before provisions) in two months. If the end-of-the-year rally sets in profits will be around 16% to 40% at its peak somewhere within a 7 month period. See reference at the end.
Real Investments on Parts of the X-Index Fund
Fig. 5: Executed orders at my Dutch internet broker (BINCK). 115 shares each bought on 2011-10-06 of the four top performing securities around 2011-08-28 (Table 4). This portfolio will be called in the magazine DOWN 4 of 42 X-Index Fund. Screenshot page of BINCK web application (http://www.binck.nl)
|
TICKER
|
PROFIT%
|
|
EK
|
68.26
|
|
TRR
|
46.83
|
|
EXE
|
22.88
|
|
SFI
|
12.85
|
|
SRZ
|
11.64
|
|
GKK
|
10.57
|
|
THC
|
9.76
|
|
IO
|
9.76
|
|
VG
|
8.64
|
|
NCT
|
7.75
|
|
HL
|
6.56
|
|
TGS
|
6.32
|
|
FRM
|
3.13
|
|
CBR
|
2.28
|
|
SWS
|
1.95
|
|
QTM
|
1.89
|
|
IRE
|
0.93
|
|
NTE
|
0.83
|
|
MIM
|
-0.43
|
|
GPK
|
-1.28
|
|
HW
|
-1.79
|
|
MPG
|
-2.34
|
|
CSU
|
-2.40
|
|
LSI
|
-2.46
|
|
CPE
|
-2.82
|
|
MNI
|
-2.90
|
|
ZLC
|
-3.68
|
|
GSL
|
-4.50
|
|
CT
|
-5.02
|
|
FCS
|
-5.16
|
|
STM
|
-7.88
|
|
PKD
|
-7.93
|
|
FR
|
-8.21
|
|
MAG
|
-10.17
|
|
MEG
|
-11.27
|
|
FCH
|
-12.72
|
|
NLS
|
-14.12
|
|
TLB
|
-14.47
|
|
RAS
|
-15.47
|
|
TCI
|
-16.22
|
|
GMR
|
-33.78
|
|
NWY
|
-38.54
|
Table 4: The DOWN42 ranked on performance around 2011-08-28. The DOWN 4 of 42 X-Index Fund portfolio is composed of the first four securities.
|
|
|
|
2x0.15% + 2x€ 9.50
|
|
|
|
|
|
|
TICKER
|
BUY PRICE 2011-10-6 21:00 CET
|
SHARES
|
PORTFOLIO €
|
PPS €
|
PORTFOLIO $
|
PPS $
|
BINCK
|
CHECK
|
|
EK
|
$1.4271
|
115
|
€ 143.7226
|
€ 1.2498
|
$189.6850
|
$1.6494
|
$1.5437
|
$1.5383
|
|
TRR
|
$3.0464
|
115
|
€ 285.2426
|
€ 2.4804
|
$376.4632
|
$3.2736
|
$3.1630
|
$3.1600
|
|
EXE
|
$2.8471
|
115
|
€ 267.8246
|
€ 2.3289
|
$353.4749
|
$3.0737
|
$2.9638
|
$2.9604
|
|
SFI
|
$5.7471
|
115
|
€ 521.2725
|
€ 4.5328
|
$687.9754
|
$5.9824
|
$5.8665
|
$5.8647
|
|
|
|
|
|
|
|
|
|
|
|
|
0.757690559
|
460
|
€ 1,218.0623
|
|
$1,607.5987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 1 = € 0.757690559
|
|
|
|
|
|
|
|
Table 5: The bookkeeping of the DOWN 4 of 42 X-Index Fund portfolio buying process. PPS = Price Per Share, including the provisions (2 x 0.15% + 2 x € 9.50) for my internet broker (BINCK). Currency risk of course not included! PPS $ = If the quotes are higher then these numbers, the estimation is you are really in-the-money and made a net profit with that particular security.
Fig. 6: Recent performance on closing prices (in green), from the moment of buying at 2011-10-06, of the DOWN 4 of 42 X-Index Fund portfolio. Modified screenshot Google Finance Portfolio. (http://www.google.com/finance)
Strategy
I advise a passive and index fund management:
· Buy all X-Index Fund stocks at once when the market index is low. Ideally on the moment of the market bottom of the ^DJIA, S&P 500 and NASDAQ benchmarks. Modify to your needs the DOWN42 Google Upload 2011-08-08 data. Despite the fact that I simply for reporting sake in this magazine virtually bought at 2011-08-08 (which was accidently a temporary bottom and support until 2011-09-21).
· No active selling losers or buying winners (or vice versa).
· Wait until market becomes bullish again.
· From the monthly Overall X-Index graph (like Fig. 1) and the X-Index Fund statistics from Google Finance, against the ^DJIA, S&P 500 and NASDAQ benchmarks, determine when to sell the complete portfolio (similar portfolios gave over 20 measurements an average profitability between 16% - 40% profit in 7 months).
· Recommended selling point in time will also be published and rationalized (Fig.’s, Tables or text) in this magazine. This also applies for buying points, to step into the X-Index Fund.
· Please see the X-Index Fund as a synergistic and holistic unity
For this magazine I simply delete securities, from the portfolio, that stopped trading on the NYSE for some reason or another (like a take over). So I do not do complete bookkeeping here! One also need to correct the Google Finance portfolio manually for occurring splits and reversed splits, otherwise the portfolio graph is not in sync with the spreadsheet. With the Google Finance interactive graph a determined user can set any date, at least about one month back in time, as starting point for benchmarks versus portfolio profitability calculations (i.e. like in Fig. 4).
See also:
Johan G. van der Galiën ‘Recent Bull Periods and the X-Index Effect’ Journal of Randomics 10 1-10 (2011) http://www.satoconor.com
By Johan G. van der Galiën.
Satoconor © 2011