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Even Advisors are promoting better Risk Management – Down Markets Matter!

SmartStops comment:  We couldn’t agree more!  It is exactly why we brought this service to the marketplace.

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http://www.onwallstreet.com/video/?id=2679576&page=1

Look at the money protected by SmartStops recently on AAPL, CMG, NFLX etc.

Despite The Recent Run Up, Could This Be A Good Time To Buy?

The markets experienced a period of excessive turmoil and uncertainty this past year.  However, despite facing the “Fiscal Cliff”, a continued European debt crisis, high US unemployment and a presidential election, the S&P 500 managed to produce a gain of 13.47%.

So, what can we expect for the year ahead?  Nobody knows for sure, but measurements of market risk are sending signals that this may be a good time to buy.

The VIX, a measurement of implied future volatility, remains low at just 13.26.  This has partly been influenced by the continued quantitative easing by the Fed which results in a great deal of liquidity in the markets and lower volatility.VIX

According to SmartStops.net’s market risk signals, the percent of S&P 500 components currently in the above normal risk state is down to 14%.  This is historically very low and below the 100 day risk ratio average of 42% producing an SRBI of 0.33.  An SRBI below 1 indicates risk has been on the decline.

S&P 500 SRBI

Visit the SmartStops Market Risk Barometer

When we review 2012 and compare the SmartStops Risk Ratio for the S&P 500 to its performance, we clearly see the inverse relationship between risk and performance.  The current low risk ratio of just 14% indicates it may be a good time to buy.

S&P 500 Risk vs Performance

Published previously in the SmartStops Members Year End Letter.

As always, market and equity performance are influenced by many factors and their direction can change on a dime.  We should all invest accordingly.

To learn more about sidestepping periods of elevated risk and improving returns per day in the market, Visit www.smartstops.net.

Nowhere to Run: The Correlation Bubble

SmartStops Comment:: Indeed, Beta and correlation approaches are not enough to manage risk in today’s markets. However we have somewhere for you to run – to intelligent self-adjusting risk methodologies that the SmartStops optimization engine offers.

Originally published at Seeking Alpha: http://seekingalpha.com/article/815851-nowhere-to-run-the-correlation-bubble

Fundamental analysis of “buy and hold” companies is a quaint, Warren Buffetish notion that probably works in the long term. But as Keynes said, in the long term we’re all dead. The big risk in today’s über-correlated markets is systemic shock. One can practice due diligence on a company and buy at a reasonable valuation, but if global markets collapse the next day and don’t recover for years, one has paid a lot in opportunity cost. In other words, tail risk is not reflected in fundamental analysis.

Fundamental analysis is valuable so long as the basic fabric of capital markets remains intact. In an insane world (where U.S. Treasuries and German Bunds are considered “risk-free”, of infinite rehypothecation, where MF Global’s John Corzine walks off with $200M segregated assets, of the London Whale, LIBOR, Goldman’s muppets, regulatory capture of SEC and Fed, U.S. / China animosity and the dollar’s loss of world reserve status) it’s unlikely that business-as-usual will continue without a disruptive bout of creative destruction.

Precisely when and how it will occur is anyone’s guess, but, unfortunately, old school techniques like cross-asset class and regional diversification have lost their glimmer. Just as socioeconomic disparity is partitioning the globe into lords and serfs, so too has the market been divided into polarized castes of highly correlated risk-on assets and (scarce few) risk-off havens.

Position Sizing: Key to Maximizing Returns

In a time when market volatility and equity preservation is of utmost importance, determining the correct number of shares to buy, or “position sizing”, is key to maximizing returns and minimizing risk.

The common investor generally doesn’t spend much time thinking about how many shares to buy or how significant of a position to take.  Instead, most investors use a common methodology of trading the same number of shares each time, which usually translates to a specific dollar amount.  Other, more sophisticated investors, opt to allocate a certain percentage of their portfolio value to a specific position. Following this train of thought, a new position in a portfolio of $100,000 would transcribe either a $10,000, or 10%, investment or a usual position of 50 shares.

Although these methods may work for some, using the volatility of a specific portfolio is likely to be the most effective decision tool.  Measuring a portfolio’s overall volatility enables an investor to decide on what percentage of that portfolio he is willing to risk losing on the new position.  This methodology is better explained through the following example. Read More…

A New Risk Indicator To Sidestep Market Downturns: Is It Better Than VIX?

By Chris Georgopoulos, originally published on 11/14/11

Without question the most popular model to predict market crashes is the VIX, commonly referred to as the “Fear Gauge,” a market index that measures the implied volatility of the S&P 500 index options. Its concept is quite simple, when the uncertainty and fear among investors rises, they commonly run to the S&P 500 options to either hedge or speculate. The increased interest in the options usually leads to higher premiums and as the premiums increase so does the VIX. However, predicting the future isn’t 100% accurate, most of the time it’s not even close. Every forecasting model has its flaws and the VIX is not an exception. There are many problems skeptics have found with the VIX such as; its population study is limited to only the 500 stocks of the S&P 500 and” {the} model is similar to that of plain-vanilla measures, such as simple past volatility” (Wikipedia). A blog post on sensibleinvestments.com summarized the VIX as “simply an indicator of actual volatility in the market but one that is very sensitive to changes in actual volatility particularly if it is on the downside.” Is there a better way?

An elementary statistics theory states that the larger the population size, the greater the likelihood that the sample will be represented. If markets are graded by the performance of popular indexes such as the S&P 500, why limit a forecasting model’s population to only 500 stocks? The economy has become global; interactions from every corner of the world’s businesses affect every other business. If there is a model that forecasts market direction, should it limit itself to just the largest companies? As for only using a month or two of short term option premiums to garner a prediction, as the VIX does, it seems to limit itself to only a single variable. Instead of short term options premiums and limited samples what if we could measure real-time individual stock trend alerts on thousands of domestic and foreign stocks and ETFs? Or simply what if we analyzed the micro components (every stock) to develop a macro forecast of the market based off trends and risk?

By studying the history of risk alerts from SmartStops.net, an intelligent risk management service, two proven alternatives to the VIX were found. SmartStops.net has developed their own proprietary risk model that monitors the trends and risks to over 4,000 of the most popular stocks and ETFs. If the risks grow on any individual investment SmartStops.net alert their subscribers with both long and short term exit triggers. However not only do these alerts help individual and institutional investors manage specific investment risk, the reviews of the alerts themselves have predictive capabilities. By back-testing every alert that SmartStops.net has issued from their inception versus the S&P 500 performance, there is proof of this and the results speak for themselves.


There have only been 7 days for which the amount of Long-Term Exit Triggers (stop alerts) as a percentage of every stock and ETF covered by SmartStops.net has been over 20%. The subsequent market action of the S&P 500 has averaged a negative return for the time periods of 1 week, 1 month, 3 months, 6 months and a year. The 6 month average return is over -7% and when examined from the absolute lows of the S&P 500, the returns average over -19%. If you remove the knee-jerk market reactions caused by “Flash Crash” on 5-6-2010, the returns are even lower.
Another metric offered by SmartStops.net is their SRBI(tm) (SmartStops Risk Barometer Index); this index measures the current percentage of stocks and ETFs that are in “Above Normal Risk” state (ANR) divided by the 100 day average above normal risk percent. By definition, a stock that is listed ANR experienced a risk alert as its last SmartStop alert identifying a downtrend. Conversely, a stock that is listed in a “Normal Risk State” experienced a reentry alert as its last SmartStop alert indicating trading strength and an upward trend. Back-testing historical SRBI data since inception shows that the repercussions to the market when the percentage of downtrends increases to over 40% of all stocks and ETFs covered are profound. Below you will see that there have been only five occasions where this has happened. In each case the S&P returns for the following year were all negative.

Is this a better way?

Before a concrete conclusion can be determined, the predictive capabilities of the VIX must also be analyzed. Read More…

NETFLIX Investors – Did you Protect Yourself?

NETFLIX , NFLX, drops but SmartStops keeps investors and traders from major losses.

This is why Risk Management and Protection are a must in every investor and trader’s arsenal.   SmartStops triggered its short-term protection for Netflix at $74.13 at 9:32AM.  NFLX closes at $60.28 today, 7/25/12.

In the most recent Netflix downtrend SmartStops saved its clients  $42.46 per share!  

See chart at: http://www.smartstops.net/PublicPages/SmartStopsOnDemand.aspx?symbol=NFLX

 

SmartStops.net Teams With TradeKing to Facilitate Risk Management

San Francisco, California, July 11, 2012– SmartStops.net, an online service that helps investors of all levels manage investment risk, announced today that the SmartStops BrokerLink service is now available for clients of online broker-dealer, TradeKing.

The SmartStops BrokerLink service makes it easier for investors to monitor the risk states of equities held in their brokerage accounts, as well as facilitate the placement and management of protective stop loss orders.  Using the TradeKing Applications Programming Interface (API), SmartStops.net has made BrokerLink available for TradeKing clients. Now, with a click of the mouse, TradeKing clients can synchronize their SmartStops.net portfolio with their TradeKing brokerage account positions.  The SmartStops BrokerLink service also provides a simple protective order management screen that makes it easy to update multiple protective orders at the client’s brokerage account at one time.

“At SmartStops, our goal is to help investors of all levels recognize when their risk exposure changes and facilitate timely action with the aim of protecting assets and improving returns,” said Chris Conway, Director of Product Management, SmartStops.  “TradeKing’s open, advanced API made it possible for us to offer the SmartStops BrokerLink service to their client base of active, self-directed investors.”

Kevin Delo, Senior Vice President of Product Management at TradeKing noted, “In today’s volatile market, it is more important than ever to manage risk exposure.  We are pleased to be working with SmartStops to bring this innovative approach of risk management to our clients.”

TradeKing clients who wish to take advantage of the SmartStops service to monitor their portfolios for changes in risk exposure can create a SmartStops account by visiting the SmartStops.net TradeKing Special Offer Page.

About SmartStops.net

SmartStops.net (www.smartstops.net) provides a simple to use solution helping investors of all levels manage investment risk. SmartStop risk alert prices are calculated and published each market day for stocks and ETFs. If your equity falls and triggers its SmartStop, consider taking protective action.  It’s that easy.  For more information visit www.smartstops.net or email SmartStops at info@SmartStops.net.

About TradeKing

TradeKing (http://www.tradeking.com) is a nationally licensed online stock and options broker offering simple, low cost online trading fees ($4.95 per trade plus $.65 per option contract).2 A pioneer in integrating new financial social media as part of its innovative online equities, options trading and fixed-income trading platform, TradeKing has received multiple discount broker awards from top industry sources and was rated best in customer service by SmartMoney2 Magazine, ahead of OptionsXpress, Scottrade, Fidelity, and TD Ameritrade. (June 2012 SmartMoney Broker Survey).

Follow TradeKing on Twitter at http://twitter.com/TradeKing,
Facebook at http://www.facebook.com/tradeking,
YouTube at http://www.youtube.com/tradeking,
LinkedIn at http://www.linkedin.com/company/tradeking.

Options involve risk and are not suitable for all investors. For more information, please review the Characteristics and Risks of Standard Options brochure before you begin trading options. Options investors may lose the entire amount of their investment in a relatively short period of time.

TradeKing provides self-directed investors with discount brokerage services, and does not make recommendations or offer investment, financial, legal or tax advice. The content of this press release is provided for educational and informational purposes only, does not constitute a recommendation to enter in any of the securities transactions or to engage in any of the investment strategies presented herein, and does not represent the opinions of TradeKing or its employees.

Advanced orders are placed at TradeKing on a Not Held basis. When the conditions are met they are automatically released to the market as open orders. Certain advanced orders may not be eligible for execution when the condition is met (for example: you do not have enough buying power in your account). You solely are responsible for managing your orders to avoid errors, and the costs associated with the resolution. An advanced order can be held indefinitely until you decide to cancel it. Please note that advanced orders are particularly exposed to the risks derived from system malfunction and disruptions. Read a more descriptive disclosure about Advanced Orders.

Online trading has inherent risks due to system response and access times that vary due to market conditions, system performance and other factors. An investor should understand these and additional risks before trading.

Member FINRA/SIPC.

(1)               TradeKing was ranked #1 in Customer Service in the SmartMoney June 2012 Broker Survey based on the following categories: Commissions and Fees, Mutual Funds & Investment Products, Banking Services, Trading Tools, Research, and Customer Service. SmartMoney is a registered trademark of SmartMoney, a joint publishing venture between Dow Jones & Company, Inc. and Hearst Partnership. Supporting documentation for any claims, comparison, statistics, or other technical data, will be supplied upon request by calling 877-495-5464 or via email at service@tradeking.com.  

(2)        $4.95 for equity and option trades, add 65 cents per option contract. TradeKing charges an additional $0.35 per contract on certain index products where the exchange charges fees. TradeKing adds $0.01 per share on the entire order for stocks priced less than $2.00. See our Commissions + Fees page at www.tradeking.com/rates for details on commissions on low-priced stocks, option spreads, and other securities.

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