Fun with Funds the Simon Sez Way

[Arindam]

The securites plotted (and now owned) are open-end mutual funds (OEFs). The tickers have been omitted. The charts are self-explanatory.

Back in the day, OEFs had onerous mins, mandatory holding-periods, and abusive ST trading fees. These days, many have low mins and no ST trading fees. Some are leveraged, and there are even a few inverses. The possible downside to OEFs (vs CEFs, ETFs, and ETNs) is their single, EOD pricing. OTOH, if one is a decent chartist and is looking to capture just the obvious moves, that might not be a hassle.

[PuddinHead42]

Nice. If you make any real-time decisions, let us follow along so we can learn and evaluate you trading method. You can keep the tickets private for a few days if you are worried we might follow “tips”.

Pete

[Arindam]

Pete,

Thanks for your kind interest.

All of us are probably old enough that mutual funds were probably the first financial products we invested in. And back in the day, mutual funds were what got a lot of attention in the financial press. These days, not so much for ETFs having outpaced them. But there is serious money to be made from trading them, never mind their being so retro as to be cool again. Also, given their single, EOD pricing and orders not having to be sumnitted until just before market close, they make it easy for us Pacific coast, late risers to gamble in the market.

Quill hates mutual funds and has endless bad things to say about them. But I think they can be a useful tool. Schwab and Fido offer their own inhouse funds, as well as warehouse those of other companies. (Sometimes with sales charges waived.) But the most interesting groups are those from ProFund and Rydex, which offer a means to bet on the $US (long or short) , commodities, the major countries, nearly all industries/sectors, plus the usual nine style caps and the major indexes, again, both long and short.

Mutual funds don’t report volume. So that simplifes the charting task. Also, because they have single, EOD pricing, OHLC bars can’t be used. But HA bars plot well especially when combined with Elder bars.

This morning, I dug into the mutual funds that track utilities, benchmarking them against XLU, plus digging a bit into their underlying portfolios. Ended up backing away for now from putting on a position, because I didn’t like the look of the charts. Same-same with the China funds. Took a quick look a bank loan funds, but backed away from them, too, becuase I already own a slug of them in their ETF version.

My concern is this. We are mere weeks, if not days, away from the US doing yet more stupid things in Central Europe, West Asia, and the South China Sea that is finally going to make our lives really difficult. So I’m not willing to put much new money to work. But I do want to be positioned defensively --my shopping list in hand-- for when things do go on sale.

Charlie

[PuddinHead42]

@Arindam

We are mere weeks, if not days, away from the US doing yet more stupid things in Central Europe, West Asia, and the South China Sea that is finally going to make our lives really difficult.

But, that has probably been true for years. IBD says don’t predict, but take it day-by-day and let the market tell you what it is doing.

So we beat on, boats against the current.

[Arindam]

“IBD says don’t predict, but take it day-by-day and let the market tell you what it is doing.”

Pete,

You don’t take advice from drunkards nor maniacs, nor should anyone.

Think back to your reading of The Intelligent Investor and what Graham says about Mr Market. One day he’s euphoric and bidding everything up, way beyond intrinsic value. Another day, he’s depressed and selling everything down, far below fair value. Only rarely can his signals be trusted. For sure, the market goddess can occasionally be kind and her advice be trusted. But mostly, investing or trading is a matter of trying to figure out why your counterparty to a trade is wrong and not you.

Think about your own investing/trading experience. When you buy a stock, you are PREDICTING that today will be a better day to do so than tomorrow (or next week or never). When you sell a stock, you are PREDICTING than tomorrow won’t be a better day than today (or never).

What is the essence of ‘gambling’? Making bets about an unknowable future. That future might be highly constrained, such two sides of a coin or six sides of a die. But the outcome is unknown. Investing is just gambling. One hopes to stack the odds in one’s favor by reading the tea leaves of technical charts or financial statements. But if any of that stuff really worked, there’d be no money to be made from markets. Profits come from uncertainty. Them who make the best predictions --i.e., get it right about the things that matter-- make the best money.

Now comes the practical application of that basic axiom about markets. Open-end mutual funds price once a day, at end of day. Therefore, entries and exits are going to lag by a day. But if one can use the evidence in the chart to predict the likely direction of prices, then one has stolen a march on everyone else AND reduced his ‘price risk’. Price patterns like Measured Moves are one way to make sound predictions about when to get out of a position. Another, as this morning’s research confirmed, is the old bon mot that “Gaps get filled”.

Charlie