Milk The Market Investment Blog

Just a update… this system is done and live on Milk The Market Investment Tools. It took a lot longer trying to stand up a whole site while working on a lucrative contract that has been taking up my time and still trying to keep a pulse on this crazy market for my own investments.

I need beta testers who are good with manual R1 calcs to verify the data and spot anomalies. After porting this into a custom module from a personal tool, things looks good, but I haven’t personally verified enough data to say everything is tip top. If you are interested, PM me, I will send you a free account code.

As you know, my R1 is slightly modified, and will still put you on the right track if you are a R1 purist, but more importantly will not let you miss some important opportunities that strict R1 will exempt. It uses 6 - 8 years data (assuming the company has been reporting that long, then only as far back as reporting), as opposed to 10.

Some things to consider in this market, especially since Tuesday looks like it will be hammered down…

We are not at the bottom, we are going down from here as a market, IMO.

You should be looking at playing shorts for inverse MoS if you are trader and/or aggressive investor.

There are huge opportunities opening for serious MoS discounts all over the place for entries. The key is to isolating the babies getting thrown out with the bathwater… and I’m not talking about financials. I don’t own any, I am still short on the S&P. I have started looking into sectors whom traditionally do well, or at least hold their head above water during recession or general economic slowing, and have a been discounted to the realm of accepted MoS. I am also looking at places that deal with the government, since we know those presses will never slow down (hmmm… gold..).

On your charts, take all your MoS candidates, overlayed against the S&P, and see how they did on the market down days we’ve had. Sometimes it can be telling where the smart money is flowing once you have a smaller “target” to help confirm decisions.

You will need to adjust stop losses (particularly if you do trailing SL) or the volatility of this market will buck you out of positions before you get a chance to take a good ride on them. On my double inverse S&P I finally bumped it back to 14% after missing out on 3% here and there on failed rallies that were causing positions to close.

Good luck! It’s crazy out there, but the crazier it is, the more opportunities arise, along with treacheries. Be careful!

Bookmark To

The good news is even though I think overall the market is going down, if you live by Rule #1 strategy you also know that even when the market is going down there are always stocks that are going up.

I did a fresh screen with data (earnings, prices, volume, etc) current up to today and recompiled all of the aproximately 8,500 stocksin the database.

My ruleset is more lenient than Phil Town’s, but I also screen out thinly traded stocks and anything under $10. What I came up with is about 150 modified Rule 1 candidates.

What this means is that the overall shake up and uncertainty has driven a lot equities down, some likely deserving, some not. It is a lot easier when your list is only 5 long to begin with and you don’t have to evaluate the effect of the credit crisis against them, but it also gives you a lot of industries to choose from. Just about every sector and sub-sector has a stock or two to look into further.

Here are a few that look interesting to me at a quick glance:
HP
SKM
TTM (recent news about buying Jaguar and Land Rover today)

Bookmark To

I have been trying to release the screener software for a while, but unfortunately I have been busy with a number of other projects. It seems just when some time appears to do all the things you’ve wanted to wrap up for yourself, an opportunity or problem presents itself that takes precedence.

We are getting close to releasing it, and I want to get it out while there are a number of good deals right now for getting a strong MOS / discounted sticker price.

Please subscribe to our list if you haven’t done so already so you will be the first to know about its release and get a special discount. People are charging hundreds of dollars for so called magic bullets, but we are going to be creating a tool with a lot of value, at a value based priced… after all, we are value investors!

Bookmark To

I’m not a big fan of wacky indicators, or really indicators in general. Almost all indicators are derived from price and volume, and hence they are lagging, especially averages. But can they assist in a predicting the future based on which way a line is trending for instance, sometimes… but I think the more important thing is that so many people believe indicators are the holy grail that you can predict what a lot of other traders (mainly retail) are going to do. So you do you fade those, or do you play along? Anyways, here’s an interesting video. And yes, as he states, whether what he is doing is right or wrong, you cannot argue with results.

Bookmark To

In a previous post I alluded to using this tool to be a mini quant, or hedgie. This strategy is not something covered in Phil’s book, but I myself have found it to be profitable, especially given the instability in the market at the moment. Being market neutral means your portfolio does not care if we are in a bear market or a bull market. Click for details on being market nuetral.

So here is how I do it. I run the screener for the top 20 stocks with the highest MOS. I then run the screener for lowest 20 (worst MOS). I filter out any of these equities based on obvious things that make may make their MOS moderately justified and hence probably not the best choices through individual research. For example, I wouldn’t be going long on financials, even though the prices are dirt cheap, and I wouldn’t be shorting AAPL even though the MOS is quite low.

I then correlate each to their sector, and find pairs (my pairs system is far from as complex a true quant). IE: One very high MOS and one very low MOS that are both part of the Oil Services sector. I buy 500 shares of the high MOS stock and short 500 shares of the low MOS stock.

The theory is that even in a bear market, a high MOS stock will hold its ground or increase in price, while a low MOS stock will surely go down considerably. Any loss from the long position should be outweighed by the short position and vice versa. The reverse would hold true for a bull market.

You can apply this same method to options instead of stocks as well.

Of course, if you know you are in a bear market or a bull market, you can just take a long or short position only. However, the beauty of this strategy is you don’t need to predict what type of market you are in or if it is going to reverse in the near future. The market today is probably a good example of when this strategy is most appealing. Although it looks like we are in for a bear market, you never know what can happen, especially with the Fed ready to intervene at any juncture.

I would try to find about 3 or 4 pairs, let them run for a bit, and cut the 1 or 2 under performing, if any.

Bookmark To

Our scanner tool based on the principles outline in Phil Town’s Rule #1 strategy is in beta testing. We are working on making the criteria very flexible while still giving you results in line with the Rule #1 strategy in a user friendly interface. Once beta testing is done, we will start offering monthly subscriptions. This will save you countless hours trying to find Rule #1 criteria stocks, and allow you to search with varying degrees of liberalness to get more results instead of being locked down to the criteria in a concrete formula.

This tool will become a must have for any serious long term investor and possibly even swing traders. We have came up with interesting strategies as well that can be applied with this as well. Start thinking like a junior quant or hedge fund manager and you’ll know what I am thinking also.

Bookmark To