Small Caps Rule! (and another sell)

Out of Oakton on a profit exit (140% gain) - but it doesn't appear to be slowing down.

The Small Ords index has outperformed the All Ords by around 10% over the last year. Many people focus on stocks they know, many of them in the top 100. The biggest gains are in stocks outside the top 100 (ASX100) - those stocks we probably haven't heard of until they pop up in a scan of the entire market.

Stevo

System design, discretion and a load of fertiliser

When I designed one of the systems that I trade today back in 2002 / 2003 I used data from 1996 to 2002 when backtesting. One aspect of the system includes a profit exit - an exit that is triggers when the price moves up very fast. Incitec (IPL) did this not long after I bought it and the exit was triggered as shown by the $30.40 sell signal on the chart below.

When I developed the system I tested with and without the profit exit, and the equity curve was a little smoother with the exit than without, but there wasn't a lot in it.

The exit rarely triggers so I have been using some discretion. I didn't take the exit signal on IPL above. In this example it paid off. It is possible that this aspect of the system could be dropped altogether, but I will leave it in for the moment. A bull market is not the best time to take profits. The profit exit might be more useful in a less bullish envirnment - like 2000 through to 2002.

I bought into IPL at $26 (I must have been busy that week since it opened at $25.75) Now it is the biggest % and dollar winner in my Super fund portfolio - up 103%. The trailing exit is still valid. It does surprise me that a fertiliser company can perform so well! Who buys fertiliser in a drought? I guess I should stick to trading my systems and leave the fundamentals to those that understand them.

I have another profit exit signal for this weekend. I don't know how discretionary traders cope with all the decisions that would have to make.

Stevo

ALE property group (LEP)

Another sell.

Whilst I took a slight loss on the trade the dividends offset the loss for a slight gain. I sold LEP on Monday.

Stevo

Monthly Performance for 2007

I am sure that all the traders out there (and I use the term in it's broadest sense) are having a pretty good year. Adding up the monthly percentage gains I am up 31% on the portfolio, including cash in the bank (rather than shares) in the base. Obviously it's best not to leave money sitting in the bank in the current market.

In the Financial Review today (Wednesday 2 May 2007, Page 20) Barton Biggs, a hedge fund manager with a reputation, is tipping that the Dow Jones Industrial Average might rise by 19% this year and that "markets in general are going higher". To quote the Fin. "shares of the largest US companies were "very cheap" relative to other asset classes."

It would be nice if he is right. A blog devoted only to market predictions that people make would keep someone really busy! I have often said that the weather tommorrow is likely to be the same as the weather today, and often enough I am right - the weather does trend.

Stevo