January 1, 2021 BDH Strategy Up 34.5% in 2020

NASDAQ COMPOSITE 12,889.28 Close

 +5.7% for the MONTH +43.64% for the year

BDH DASHBOARD ISSUES SELL SIGNAL ON DECEMBER 31

2020 Market Performance Was Stellar as Was BDH’s Strategy

What a year!  With all the worldwide turmoil caused by the COVID-19 pandemic, coupled by the results of the U.S. presidential election, and many other financial and worldwide events, none the less the stock market came out of its 38% first-quarter decline with a heart-stopping recovery.  Both the S&P 500 and DJIA closed the year at record all-time record highs.  The NASDAQ Composite’s all-time high occurred this past Tuesday at 12973.33, closing the year at 12889.28 up 43.64%, its best year since 2009 where the NASDAQ gained 43.9%. This month’s NASDAQ  performance was half that of November, but certainly overall it was an amazing performance led by many tech names most notably the FAANG gang.

Our BDH ETF portfolio outperformed all three major market averages for the  past month two months, and has more than doubled the annual return of the S&P 500 based on price return alone, and more than quadrupled that of the DJIA.  Of course, the BDH portfolio not being 100% NASDAQ-focused, and being in cash during part of the year, did not enable the BDH portfolio to beat the NASDAQ Composite.

                                       December   YTD – Price Return

Dow-Jones Industrials      +3.3%          +7.25%

NASDAQ Composite      +5.7%           +43.64%

S&P 500                           +3.7%           +16.26%

BDH Strategy                  +7.84%         +34.54%

BDH SELL Signal on Thursday’s Close

Since the last blog, there have been two signal changes on the Dashboard.  They both occurred on Thursday, December 31.  Indicator #5 and #8 gave simultaneous SELL signals (see accompanying charts) resulting in a BDH “1” SELL signal (see attached Dashboard).   Having a sell signal when the market is closing at all-time highs is a very rare occurrence.  More about what action to take in the Game Plan section.

Market Internals

The percentage of NYSE stocks above their respective 200-dmas stands at 87.15%, the exact same level of a month ago. The current readings for the past two months are much improved from 51.74% in October 2020, the 74% reading of  January 2020 and 75% reading of January 2019.  Note that the current reading is the highest since 2010, the recovery year of the crash of 2007 to 2009.  Higher readings occurred in September 2009 at 93%, and in 2004 at 91%.  So we are in rarified territory where a downdraft could occur at any time.  Whether it will or not happen remains to be seen. Complacency is not an option here as a miscalculation could be costly

The percentage of NYSE stocks above their respective 50-dmas was 86.1% on the Thursday night close which was slightly below the 87.2% from November, and October’s 27.26%.  The highest reading this year occurred in early June at 95%.  Note that when these readings get to the 85% level or higher and then reverse down, the market tends to take a hit and start a correction of varying amounts. (See the chart on the next page for the weekly history since mid-2016). I also looked at this data on a monthly basis back to 2006 and found similar tendencies.  Can this market continue rising with the reading getting back to 95% again in the next weeks or months?  Of course it can, but the odds do not favor it, as it has already changed direction to the downside (column of 0’s).

BDH DASHBOARD – SELL “1”

The BDH Dashboard (attached as separate item) declined to a “1” SELL on December 31, thereby reversing its original BUY signal on March 26 – right near the market bottom.

Indicator #2 NASDAQ Composite Index and 100-dma. The last BUY signal was on May 2, 2020 which is still in effect.

Indicator #5 NASDAQ Composite with MACD. This indicator has had a dozen signal changes since the March 26 BUY signal. Refer to  the  Dashboard and look at Indicator #5 column. Now it is on a December 31 SELL signal,

Indicator #6 AAII Weekly Investor Sentiment Survey Bullish Percentage. The current reading is 43.57% compared to the November 24, 2020 Bullish Percentage reading of 44.4% down from 55.8% the week of November 17 resulting in a SELL signal that week Remember, a rise above 50%, and then a fall below that level constitutes a sell signal. The last buy signal was on December 7, 2018 so this sell signal was a long time in coming.  This new SELL signal serves as a note of caution in this euphoric market, as I mentioned in the previous blog.

Indicator #8 NASI Summation Index and MACD. This indicator issued a SELL signal on December 31. This negates the November 12 BUY signal. Note that the index crossover just confirmed the slow MACD crossover that occurred on the December 21.  Also, note that the fast MACD experienced a faster negative crossover on December 11 (Refer to $NASI chart).

BDH Decision Page – BDH Dashboard ETFs

The link to the BDH Decision Page is as follows: https://www.etfscreen.com/buydonthold/bdhdecision-page.php

On ETFscreen.com website Decision Page, there were 49 ETFs with a “pass” rating ( Only IYT has a fail rating) compared to 43 last month, showing the market’s impressive strength. The screen indicates that the technology related ETFs (5 out of top 9 ranked ETFs) have soared, outpacing all the others and masking the market’s mixed performance. The Top 6 on the current BDH Decision Page are TAN, QCLN ARKG, ARKK, and ARKW based on 6-month Relative Strength.  Clearly, all the five ARK ETFs focusing on disruptive technologies have been exceptional performers.  The CEO, Cathie Wood, certainly knows how to pick stocks! Of course, the 10% holding of TSLA in a few of these ETFs aided the overall return.

You can easily check our universe’s top performers for the past 5-days and one month by clicking on the “Additional Fund Stats” tab on the right side of the BDH Decision Page, and arraying the “Rtn5d” and “Rtn-1mo” columns, respectively heading from high to low. If you check the performance over the one month by hitting the down carat you will note that the best performing ETFs in our universe were TAN,QCLN, HACK, ARKG, and ARKK

Dark- Liquidity.com

At www.dark-liquidity.com/index.php/strategies scroll down the page to see the Buy – Don’t Hold Signal History and Strategies Performance – Masonson sections. You will see the performance of all ETFs in the portfolio.  The site needs to update the Dashboard readings.

The BDH strategy is ranked 7th out of 22 competing strategies with the higher ranked strategies  all 100% NASDAQ focused which makes our ranking stand out with a more diverse portfolio. The dark-liquidity BDH table shows our current portfolio of ARKW, CLOU, XLV, QCLN and XHB. Clearly, the performance of ARKW (122%), CLOU (36%), and the recently added  QCLN (22%) have enhanced the portfolio profits. Unfortunately, XLV and XHB have consistently been the weakest performers, but I have not removed them from the portfolio.  That approach will change going forward with a focus on removing laggards much earlier.

Top 5 ETFs –100% Invested Right Now , But Maybe Not for Long

The BDH ETF portfolio has performed exceedingly well this year up 34.5%, beating both the S&P 500 and DJIA, but was 9 percentage points behind the NASDAQ Composite.

The interim update on November 8 recommended selling HACK on the open on November 9, and replacing it with QCLN.  That’s what we did.  So far, QCLN has worked out well, although HACK has had an equally nice recent run. Both QCLN and HACK are each up 13.7% for December.  Too bad I was cautious about selecting TAN instead of QCLN which actually beat QCLN by 10 percentage points over the month.  TAN has risen 222% for the year, but it was too risky for me at the time, as it is now. QCLN is up 179.6% for the year, but we got in very late.

Game Plan Going Forward

Can the market keep advancing? Absolutely. Will it? No one knows. Although we have just completed a stellar year, the question is what 2021 portends.  It is hard to imagine that the current uptrend will continue at its current pace.  But January has a decent seasonal track record of market strength.   However, we now have a BDH Sell signal, as of the close of business on Thursday night.  Therefore, it is a time to consider our choices based on this non-emotional SELL signal:

  1. Do nothing, keep current wide stops in place, and maintain all positions until  stops are hit
  2. Sell the entire portfolio on the open on Monday, January 4, and await the next Buy signal.
  3. Sell 25% / 50%/ 75% of the portfolio on Monday, and hold the rest with stops in place.
  4. Set tighter end-of-day stops to protect profits by placing the stop price of each ETF just below its own 8-day exponential moving average (a day trader’s setting) to not give up too much of our profits.  Using this approach, each of ETFs will remain in the portfolio until it breaches its own 8-ema.  This is much more refined and smarter approach than selling out the portfolio all at once, but it may not work out as well if the market immediately tanks as the year begins.

At this time, I recommend following #4 with the 8-ema closing stop limits to remain long if the uptrend continues. As you can see below three of these ETFs are already below their 8-ema, so if they close below those stop limit prices on Monday, sell at or near the close.  It is your choice what to do.

The recommended stop limits just below the current 8-dmas are as follows:

ETF            Stop Limit – Below 8% -EMA   12/30/2020 close   Monday Action, if any

ARKW                        $146.96                          $146.36                Sell if closing below $146.96

CLOU                              28.01                              27.90                Sell if closing below $28.02

XLV                               112.16                           113.44                 Hold

QCLN                               68.92                             70.23                Hold

XHB                                 58.20                              57.64                Sell if closing below $58.21

Use the stop LIMITs that best suit your personal situation that may be other than those mentioned above. Be extremely vigilant here as the market can change direction at any time. Being forewarned with a defensive strategy is the key to investing successfully.  Don’t give up the majority of your profits by being stubborn or greedy.

Interim updates will be sent to subscribers during the week, as needed. Any subscriber who has recently sent in a payment and has not received this monthly blog at the beginning of each month should email me at lesmasonson@yahoo.com, so I can check my records and correct any oversight on my part.

Remember that you are responsible for your investments and how you manage them. This website was developed for educational purposes only and is not responsible for any actions you take with your investments. If you decide to follow the BDH strategy, then you are 100% responsible for your investment outcome. Make sure to check the BDH indicators daily during times when the market is volatile like now. Just bookmark the charts above and look for any signal changes. I may not available during the week to provide interim Dashboard signal changes. It is important to be pro-active, so as not to miss any Dashboard signals. Decide on and place your stop LIMITs that meet your own risk profile.

Les

Leslie N. Masonson, MBA, CCM, is President of Cash Management Resources, a financial consulting firm that he founded in 1987. He is an ETF Strategist and currently actively trades ETFs on a daily basis Masonson’s 47-year working career has spanned financial advisory services, trading, investing, banking operations management, teaching, and cash/treasury management consulting. He was a Financial Advisor for six years offering investment management services to retail clients. Much earlier, he worked at three large banks for a total of 17 years as a Vice President at Citibank, an Assistant Vice President at Bank of America, and an Assistant Secretary at Irving Trust Company. He has written more than 140 articles – interviews with traders, software product and book reviews – for numerous financial publications including Technical Analysis of Stocks & Commodities (TASC), Active Trader, SFO and Futures magazine, as well as on Amazon. He has lectured on investing on several cruise lines including Crystal, Celebrity, and Norwegian. In November 2003, he spoke at the Intershow Online Investor’s Expo, on “Successfully Trading Stocks for a Living.” As of September 2016, he has been the ETF Columnist for TASC. Masonson has been researching and investing in the stock market for 60 years. He has invested in mutual funds, stocks, options, futures, ETFs, and commodities. Masonson has read more than 625 books on investing and trading, and he is proficient in technical analysis. He has used many investing and trading software programs over the years, including Telescan, OmniTrader, DTN, TradeStation, ULTRA, VectorVest, High Growth Stock Investing, TheWizard, and ETFReplay.com, as well as many brokerage charting programs including Fidelity Active Trader, Think or Swim, Interactive Brokers Trader Workstation, and Schwab’s StreetSmart Edge. He has been interviewed on business radio stations, as well as on cable TV on the Financial News Network and CNBC. The Wall Street Journal, USA Today, Institutional Investor, Bottom Line/Business, Inc., Las Vegas Review-Journal, and Advertising Age have interviewed him. His latest book Buy DON’T Hold: Investing with ETFs Using Relative Strength to Increase Returns with Less Risk was published in May 2010. He has previously authored the following books: All About Market Timing: The Easy Way to Get Started, (McGraw-Hill, November 2003 and translated into Chinese in February 2010) as well as the Second Edition published in April 2011, Day Trading On The Edge: A Look-Before-You-Leap Guide to Extreme Investing, (AMACOM, 2000), Cash Cash Cash: The Three Principles of Business Survival and Success, (Harper Business, 1990), Corporate Cash Management: Techniques and Analysis, (Dow-Jones Irwin, 1985. Co-edited with Frank Fabozzi), and the Corporate Treasury Management Manual (A.S. Pratt & Sons, 1998. Editor and Contributor). In April 2011, his first ebook was published with the title Profiting from ETF Rotation Strategies in Turbulent Markets. Masonson received a BBA in Finance and Investments from The City College of New York and an MBA in Operations Research from Bernard M. Baruch College. His master’s thesis title was “Statistical Evaluation of the Relative Strength Concept of Common Stock Selection.”

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