2010 Annual Performance Review

Back in the days when I was a wage peon for a large multinational corporation, we had annual performance reviews and God did I hate those. Invariably, I ended up not getting credit for the good work I had done and being blamed for problems I had absolutely no control over. Then I was told I was going to have to do better next year but not given any means of accomplishing that. I say foo on all that. That sort of nonsense is a big reason I just walked out one day and decided to make money in a way that I at least could have some control over and see the direct results of my decisions.

Ironically, my jump from wage slave to independent trader did not obviate the need for performance reviews. If anything, it's even more important. The big difference is that I no longer hate the prospect. If I do poorly, it's nobody's fault but my own and if I do well, I get all the credit and all the rewards. I don't have to sit through an hour of having to justify every decision I made all year to someone else who knows less than me but thinks he could have done better.

So anyway, let's get on with it. This exercise is primarily for my own benefit, but you may find it useful as a reference point to compare against your own results. I've divided it up into three convenient sections we'll call the Good, the Bad, and the Ugly (hey that would make a good movie title).

The Good

My total return for 2010 was 31.99%. I'm quite pleased with this because I not only beat all three of the major averages, but beat my own return last year which was 30.57%. This is important because last year was the first year I was profitable in trading. I lost 16.7% in 2008 and 10.8% in 2007. (I also lost money in 2004-2006, but back in those days I was so clueless I wasn't even keeping score. I think my losses then were similar to '07 and '08).

A 32% return also compares favorably to other benchmarks. The Dow finished the year up 11%, the S&P 13%, and the Nasdaq 17%. According to Seeking Alpha, Jim Cramer was up 31% in 2009 (I don't have his 2010 numbers yet). Warren Buffett, the ultimate investor, returned an annual average 27.7% in Berkshire Hathaway over the last 32 years (but only 7.39% over the last 10 years). Even Bernie Madoff's Ponzi scheme only delivered "returns" in the 13% to 20% range to his victims. And I understand that the Wall St. types consider anything over 20% excellent.

The Bad

I violated the Second Commandment of Trading a few times, "Thou Shalt Not Turn a Trade Into An Investment" (see the Ugly below for the First Commandment). In the spring, I took on positions in AKS, DRYS, CSIQ, AMD, and TIE. They started to go down. Then they went down some more. Then I was in deep. I decided to hang on. I was finally rewarded by AKS and DRYS which did give me my money back, but I'm still under water in CSIQ, TIE, and AMD, to the tune of a total of about $1,000. Now $1K may not even be sofa cushion change to ol' Warren Buffett or Bill Gates, but it's significant to me. These three stocks are my only losers for the year. The "bad" part is that they didn't have to happen.

The Ugly

Here's a graph of my trading balance on a daily basis for 2010. Those two Nixonian gaps in the middle are where I took some needed vacation time. While the end compared to the beginning is pretty good, there are two really ugly declines in there along the way. In the first, from May 3rd to June 8th, I took an ugly, nasty 13% hit. Now admittedly, the Dow was down even more during that time (about 15%) but still I'm afraid I broke the First Commandment of Trading, "Thou Shalt Preserve Thy Capital". You can excuse a one or two day drop that you didn't see coming, but there's no excuse for watching your account go down for a solid month without doing something about it.

And even worse, I did it again. From August 9th to August 26th, I lost another 10%. This was even worse because it happened over only three weeks. I'm going to have to think about that one.

The Rest of the Numbers

Here's a few other interesting numbers from my year:

* Win-lose ratio by day, 1.65. That's just shy of five to three, meaning for every three days I lost money, I made some on five.

* Maximum daily gain, 4.22%

* Maximum daily loss, -5.30%

* Longest winning streak, 17 days without a loss

* Longest losing streak, 6 days in a row

Happy New Year!

It's a wrap! 2010 is history and was my best year yet, finishing up a nice 31.99% in my trading account. I'll go over the numbers tomorrow. In the meantime, here's to a safe, prosperous, and Happy New Year to one and all!

Down to the wire

Well, this is it. 2010 is almost in the record books. With just one more day to go, it will be interesting to see if the tax loss sellers show up or if traders want to realize some gains tomorrow. The very last session of the year is historically a down one, according to The Stock Traders Almanac. But based on the recent good economic news and the sluggish pace of trading all week so far, I'm not expecting a major downturn. And I note that all three futures (ES, NQ, and YM) are up at this hour (1:30 AM EST). So the swing trend arrow remains green despite today's 16 point loss on light volume.

Over the weekend, I'll be posting my annual performance review of how and what I did this year, plus a look ahead to what technical analysis might tell us about next month and the rest of 2011. Stay tuned.

Trades

Yesterday, I bought some Intel (INTC) at 21.00. Intel has been beaten down lately and it is my "Dogs of the Dow" candidate for this year. The DoD theory holds that you can make money by buying the worst Dow performers at the end of the year. Technically it's not the biggest woofer, but I already own AT&T and Verizon and Intel is more affordable. It closed today at 21.02 and I'm planning on holding onto it for a while, longer than my usual swing period.

Drifting on...

Down a bit, up a bit, move along, nothing to see here. Yesterday's Dow hanging man did not have any follow through and we actually ended up 21 points today. In such a listless market, technicals pretty much lose their predictive power. But it's all pretty much as I expected. I'm just watching the charts and letting my longs run. The green arrow remains in place, mainly because I don't have a better clue as to what I might change it to right now.

There's really not much to do now but wait for the big players to come back from vacation and see which way they decide to push the market next week, next month, and next year. In the meantime, I'm just putting the champagne on ice and counting down the few days left until the ball drops in Times Square. No trades today.

Doldrums

Zzz... zzzz... zz... huh? Oh, sorry - I guess I must have dozed off after watching today's lethargic trading, where fewer than 77 million shares traded hands today, leaving us with another mixed market, the Dow losing all of 18 and the S&P and Nasdaq just barely positive. Whether it was the mega-snow storm or the usual inter-holiday slump, today was a real snoozer. Not much to say about it.

I don't particularly like the shape of today's candle, being a Hanging Man, but with such light volume, it's difficult to draw any conclusions about anything right about now. This candle also brings us under the RTC lower edge, which is a bearish setup. But again, I think we're more just drifting along so I can't read too much into it. So I'm still just standing on the sidelines and counting down to New Year's. No trades today.


Interesting Reading

Here's a story from the Seeking Alpha web site today that's worth a read:

http://seekingalpha.com/article/243555-thoughts-on-market-timing?source=email_investing_income

Short summary: the author expects a market downturn in the near future on contrarian grounds, citing growing bullish sentiment. I suppose that's possible, but I generally try to refrain from looking more than a week ahead. And I don't see a crash coming this week.

Weekly Review

I know that most everyone has already declared victory and gone home for the year by now, but here's my take on the next few days anyway.

Take a look at the weekly chart of the Dow. After four consecutive weekly green candles, you'd think the indicators (being, from top to bottom a long stochastic, RSI, momentum, money flow, and short stochastic) would all be pretty overbought. But they're not. In fact, if you use a bit of imagination looking at the candles, the last three weeks look like a "three white soldiers" pattern and that is quite bullish. Also, our weekly close at 11,573 still leaves us a few hundred points shy of the upper Bollinger band at 11,818, implying at least a bit more room to run. Note also that the last week of December (modulo the very last day) is historically good for the markets.

The VIX

In a piece in marketwatch.com today, someone from a place called Warren Financial says:

“The Vix is the lowest we’ve seen since before the financial crisis,” said Warren of the CBOE Volatility Index /quotes/comstock/20m!i:vix (VIX 16.47, +1.02, +6.60%) , which on Wednesday fell 6.3% to 15.45, its lowest close since July 2007."

OK, well let's look at the VIX. Here's a chart of the VIX, in monthly candles (since Mr. Warren is taking the long view) going all the way back to 2006, before the housing bubble really took off. In the 2005-2006 area, the VIX was averaging below 12, and actually hit a low of 9.39 in December of 2006. Compare that to today's 16 and a half and I'd say that the alarm bells are a bit premature (as they generally are). Remember back in those days when people were saying the VIX was "broken", that it no longer worked and that some new indicator was needed? I'll believe a market correction is imminent when I start hearing that sort of talk again. Until then, I think the VIX still has room to fall further and stocks have room to run higher. Today, the VIX is only low if you compare it to the crazy levels it reached back in 2008. The VIX at 90??? Now that was the buy signal of all time.

Conclusion

It's hard to draw any significant conclusions in a market where the major players are absent, but I think the last week of the year will be pretty much a re-run of last week. We may see some tax loss selling on Thursday, but I think that effect will be muted this year, since the market as a whole has done well this year and therefore people will have fewer losers they feel a need to jettison for tax purposes. I'm not expecting any major disasters out of Europe this week mostly on psychological grounds. The weather there is too dreadful right now for rioting in the streets and I think most people would rather stay home and digest their Christmas goose or turkey or whatever. So I'm going to keep the green trend arrow up and keep my long hat on for the next few days.
That said, the ES right now ( 9 PM EST) is down nearly half a percent, so tomorrow might not be so hot, but I'd still expect the year to end no lower than we are right now.

Performance

Last week I was up a gratifying 1.12%, bringing my YTD total to a nice 30.80%, compared to the Dow's 10.98%. My win/lose ratio by day (number of days I made money over number of losing days) now stands at 1.62, or just under a 5 to 3 ratio. I'll do an annual performance review next weekend.

Merry Christmas!

Merry Christmas to one and all. The Night Owl is taking a few days off. I'll be back tomorrow with the weekly review and a look ahead to the final week of the year. In the meantime, I'll make one quick observation: the uptrend remains in place and the swing trend arrow stays green.