What your broker won’t tell you

Friday, 6 December 2019
Adelaide, Australia
By Bernd Struben

  • How to trade the banks
  • Tracking…and trading…gold

Morgan Stanley… and the other brokers, were quick to tell their clients when to buy, but never told them when to sell.

Tom Meyer, on the post dotcom ‘bloodbath’

Yesterday we peeked under the bonnet of a unique new trading service, Algo Trend Trader.

It’s the brainchild of former Morgan Stanley veteran Tom Meyer.

Tom launched Algo Trend Trader in Australia in July alongside James Woodburn, over at our sister company, Fat Tail Media.

Now, for four days only, the doors to Tom’s service are open to paid subscribers of Port Phillip Publishing. Like you.

Those doors close again at midnight on Sunday, 8 December. I don’t know when they’ll open again. Or if the current price reduction and extended money back guarantee trial period will ever be repeated.

So do be sure to check out the full details of what’s on offer before then.

Today we’ll look at a few more examples of how Tom’s algorithmic trading system can help keep you on the right side of the trade. Long, when the trend is up. Short, when the trend is down. Or on the sidelines in cash when there is no clear trend.

But before moving on, you’ll get a lot more out of this if you read yesterday’s instalment of Port Phillip Insider. If you missed that…or want a quick review…it should have hit your inbox shortly before 5pm yesterday. You can also find that in our website archives.

[Pause for reader review…]

OK. Now I assume you’re up to date.

You know Tom’s system tracks 10 assets. (Six ASX-listed stocks, three global stock market indices, and gold.) And you know you get one email every Monday morning giving you a clear signal on what Algo Trend Trader recommends you do with each of these assets for the week.

Yesterday we looked at the 14% outperformance Tom’s signals could have potentially given you on the ASX 200 during the October to December 2018 downturn. (That’s based on back testing.)

With bank stocks under fire…and under the microscope…today I thought we’d look at Commonwealth Bank of Australia [ASX:CBA].

We’ll do so, right after the markets…

[Ed note: Get the full story behind Algo Trend Trader and the special short term offer to Port Phillip Publishing’s paid subscribers by clicking here now.]

Markets

Overnight, the Dow Jones Industrial Average closed up 28.01 points, or 0.10%.

The S&P 500 closed up 4.67 points, or 0.15%.

In Europe the Euro Stoxx 50 index closed down 11.89 points, or 0.32%. Meanwhile, the FTSE 100 lost 0.70%, and Germany’s DAX closed down 85.77 points, or 0.65%.

In Asian markets Japan’s Nikkei 225 is up 57.73 points, or 0.25%. China’s CSI 300 is up 0.18%%.

The S&P/ASX 200 is up 17.25 points, or 0.26%.

West Texas Intermediate crude oil is US$58.43 per barrel. Brent crude is US$63.39 per barrel.

Turning to gold, the yellow metal is trading for US$1,475.80 (AU$2,160.13) per troy ounce. Silver is US$16.96 (AU$24.82) per troy ounce.

One bitcoin is worth US$7,429.14.

The Aussie dollar is worth 68.32 US cents.

How to trade the banks

CBA is one of the 10 assets Algo Trend Trader follows.

CBA has been the best performer of the Big Four banks this year. Though down from its July peaks, the share price is still up 11.4% for the calendar year.

I can’t give you the current trading signal for CBA. That’s for subscribers only. So let’s have a look at a historically difficult time for the bank. The two-year period from 2015–16.

During that time the share price fell by 21%.

Did you hold shares in CBA at the time? Was there anyone telling you to consider selling and going to cash? Or even shorting the stock as it continued to slide?

Now Algo Trend Trader didn’t exist yet then. But below you can see the results of the signals derived from a rigorous back testing process.



chart image
Source: Thomas Meyer
(Figures above exclude trading fees, taxes and dividends)
Click to enlarge

As you can see, the system really delivers its best outperformance when stocks head lower.

When there’s no clear trend — the yellow transition zone — Algo Trend Trader recommends going to cash.

When the trend is up, the recommendation is to buy…and to hold as long as the up trend persists. During these times your gains will be no different from any buy and hold investor.

The real boost can come when stocks turn down. That’s when the signal recommends going short. Meaning you’ll gain as the share price falls.

And over the two-year period — where CBA stock fell 21% — Tom’s algorithm delivered a hypothetical gain of 5%.

That’s not the type of gain to usher in an early retirement. But it outperformed a buy and hold strategy by a remarkable 26%. Of course, back testing won’t necessarily guarantee the same results in future, but you can certainly see what’s possible.

And with stock valuations looking frothy, some algorithmic insight into when to go to cash and when to short could make an equally big…or bigger…difference in the year ahead.

Tracking…and trading…gold

We spill a fair bit of digital ink on gold here at Port Phillip Publishing.

And for good reason.

While not all of our editors and analysts agree gold is going to rocket to US$2,000 per ounce…and beyond…next year, there is a consensus that gold is a strong store of value. And that it will, most likely, continue to trend higher over the next few years. Driven by factors like geopolitical uncertainty, a resurgence of inflation, and growing sovereign demand outpacing meagre supply growth. To name a few.

But even the most fervent gold bugs don’t forecast the yellow metal going up in a straight line.

Colleague Greg Canavan, for example, remains bullish on gold over the mid- and long-term. But short-term he’s expecting a pullback. ‘I wouldn’t be surprised to see gold fall to at least US$1,430 an ounce,’ Greg wrote on Wednesday.

That would be 3.2% down from today’s US$1,476 an ounce.

Not a huge loss.

But this is where Algo Trend Trader can potentially put you on the right track. Meaning you could gain when gold rallies…and when it pulls back.

Gold is one of the 10 assets the system tracks. One of the ‘Big 10’.

Buying and selling physical bullion is cumbersome. Which is where a gold tracking ETF comes in handy. These closely follow the gold price. And you can buy and sell shares just like with any liquid stock.



chart image
Source: Thomas Meyer
(Figures above exclude trading fees, taxes and dividends)
Click to enlarge

The black line is the gold price. The yellow line is again the transition zone. And the green line is the theoretical gain you could have made using Tom’s weekly signals.

(Remember, these figures are derived from back testing.)

You can see that when the gold price was steadily climbing from 2009–12, the green and black lines are almost identical. As mentioned above, when any one of the 10 assets is in a strong uptrend, the gains from Tom’s algorithms are largely the same as any buy and hold strategy.

But now look at what happens when the gold price began to plummet in early 2013. The green line keeps heading up, after the system signalled it was time to short gold.

The end result of following the signals was a potential 185% gain over 10 years. That’s a 136% outperformance over the 49% gain from simply holding gold in a vault.

To learn more about how Algo Trend Trader can help put you on that green line, go here.

That’s all for today.

Enjoy the weekend!

Cheers,
Bernd