2006 Performance Summary: +11.2% return
2006 saw 1 LONG position opened which
was substantially into profit by the end of the year. No losing trades.
During this year we turned
$1,240,024 into $1,379,391. Please scroll down for links to all weekly real-time reports.
The first few months of
2006 saw the market fluctuate within a fairly tight range and no straightforward trade was presented by our model.
Indeed, it was only on 19th
May that the model crossed back over the 70% barrier to signal a fresh LONG trade:
We
were initially filled through a market order on 22nd May at a NASDAQ level of 2178 as documented by the reports above.
Further fills were scaled in at 2176 on the same day, then at 2154 on
24th May and finally at 2164 on 6th June, as follows:
Indeed by the time of that final
fill on 6th June, we were LONG with 100% of our capital at an average level of 2171.
Our
position was then underwater over the summer as the pessimistic market environment festered a little longer (though never
really getting close to our “emergency stops”).
This remains the longest period
over which there has been a lag in our signal bearing fruit and it may have been that seasonal factors were at play: the
market has after all historically tended to struggle over the summer holidays.
In the meantime, our model’s
bullish reading continued to soar as evidence accumulated of excessive
pessimism.
This would eventually have to result in a rally. See for example
the report of 11th August in which we commented on multi-year peaks in pessimistic survey readings and asset allocation:
As of 18th August,
we commented: “We can look forward to strong gains in weeks ahead as market participants return from holidays”
as documented via the following link:
So it was no surprise that by
early September, the market finally began to power forwards as our model had been predicting for several months.
From September through to the
end of the year we moved substantially into profit on our fully-invested LONG position.
And our model continued to indicate a significant “wall of worry” throughout this period for the market
to follow through on its climb.
Hence we saw no reason to close
the open position as the NASDAQ closed the year at a level of 2415, 244 points above our LONG entry level.
Key learnings for 2006
It was interesting that we once
again managed to scale in fully to a LONG position after the model's signal was given, although this turned out to be
a couple of months early.
This
led to greater volatility in performance than had been previously felt, though we ended the year with a substantial open
profit.
In reality, our model can’t
always predict whether a dip or overshoot in the market is short-lived or not.
Therefore
we feel it is better to err on the side of entering the trade a little “too early” than to miss the opportunity
altogether, especially given the relatively infrequent signals given by the model.
Once again, our model showed
its worth in keeping us in a position for several months rather than trading out too early.
