Mark Minervini (Meltdown)

[deaddog]

I think the difference between technical traders and fundamental traders, at least between myself and L&S is that the fundamentalist wants to know why the price is advancing. The technician only cares that it is advancing.

The institutions move the price. They have resources the retail trader can't afford. But I still maintain that you don't have to know why the price is advancing to take advantage of the advance.

 

[longandshort]

For pre earnings companies rev growth and ebit growth can be good proxies. What makes accelerating earnings a good driver of stock returns is that it requires investors to revalue the stock at much higher prices. Revenue and ebit lead earnings, and only when a company is in its earnings phase (nature company) does it become more important.

This should read mature company***** and not nature company lol

 

[longandshort]

I think the difference between technical traders and fundamental traders, at least between myself and L&S is that the fundamentalist wants to know why the price is advancing. The technician only cares that it is advancing.

The institutions move the price. They have resources the retail trader can't afford. But I still maintain that you don't have to know why the price is advancing to take advantage of the advance.

Your statement is highly compatible with semi-strong form efficient markets and momentum, and I have no problem with that. However, that approach is not sufficient to beat a buy and hold using the same basic rules. E.g. actively managing positions using technicals doesn’t add value, just automate off momentum (slope of roc ex- most recent 20 days).

To add value you can start with a basket of momentum stocks and then select based upon whatever signals give you an edge. For example, in a previous post I mentioned earnings revisions. So if you looked at your momentum basket and cut out stocks seeing negative revisions, you should have an increase in ex-ante returns.

I do this across most factors, but primarily momentum/growth and value. Instead of buying the entire basket I’ll filter using signals that should improve (based upon lots of research) the expected returns. This is the latter steps in my process but it’s pretty much what all active hf PMs are doing.

You can go deeper by forecasting which stocks will have momentum in the future. One way to do this is by building a model to see if a company is likely to beat & raise, as that is a driver of “post announcement earnings drift” (PEAD), which is a significant source of momentum.

Why would you do this? Because ideally you want to hold a portfolio with the greatest amount of expected return. If you purely trade beta + momentum you’ll get the risk premia of both (~8% Ave for equity over long term, 3-6% Ave for momentum over long term), which is ok. If I want a portfolio to do 40%+ on Ave per year (like Soros or Cohen or other top tier managers) then I need to do more than just a simple factor loading.

 

[DallasCowboysFan]

I don't see the melt down, also who cares what a company does.

Perhaps the staff of CNBC should have done some basic research before they posted the highlighted companies on the air.

 

[deaddog]

Your statement is highly compatible with semi-strong form efficient markets and momentum, and I have no problem with that. However, that approach is not sufficient to beat a buy and hold using the same basic rules. E.g. actively managing positions using technicals doesn’t add value, just automate off momentum (slope of roc ex- most recent 20 days).

Yet it seem to beat buy and hold.

I know it's a sample of one and it's anecdotal evidence, but I check at year end the stocks I sold. I take the price and position size I sold at and compare it to the year end price. In most cases I was better off to have sold, and in the few cases where I would have been better off to have held, the performance of my actual portfolio was better than if I had held the stocks I sold.

It's a hit and miss exercise at best. I have to try and adjust for the fact that if I hadn't sold this stock I wouldn't have been able to replace it with that stock. And then there are the stocks I re-enter. But for the most part the stocks I have sold don't do that well after I have sold them.

I do feel that actively managing stocks using technicals adds value as it takes you out of stocks as they start to fall. When a stock hits an exit signal based strictly on the charts, I'm out. It doesn't matter to me why it's falling. Someone who has more money than I do has decided to sell and that's a good enough reason for me. Granted it might be someone much smarted and better informed than me who is accumulating a position but I have no way of knowing that. If I'm wrong I can always get back in albeit at a higher price and I'm right I have protected my capital.

I cannot see why a strategy that exits positions using TA would not outperform a buy & hold strategy when the market is trending down?

 

[longandshort]

Yet it seem to beat buy and hold.

I know it's a sample of one and it's anecdotal evidence, but I check at year end the stocks I sold. I take the price and position size I sold at and compare it to the year end price. In most cases I was better off to have sold, and in the few cases where I would have been better off to have held, the performance of my actual portfolio was better than if I had held the stocks I sold.

It's a hit and miss exercise at best. I have to try and adjust for the fact that if I hadn't sold this stock I wouldn't have been able to replace it with that stock. And then there are the stocks I re-enter. But for the most part the stocks I have sold don't do that well after I have sold them.

I do feel that actively managing stocks using technicals adds value as it takes you out of stocks as they start to fall. When a stock hits an exit signal based strictly on the charts, I'm out. It doesn't matter to me why it's falling. Someone who has more money than I do has decided to sell and that's a good enough reason for me. Granted it might be someone much smarted and better informed than me who is accumulating a position but I have no way of knowing that. If I'm wrong I can always get back in albeit at a higher price and I'm right I have protected my capital.

I cannot see why a strategy that exits positions using TA would not outperform a buy & hold strategy when the market is trending down?

The "value add" in your approach is that you are staying invested in a basket of momentum stocks. You don't need actively manage that using TA -- you can just automatically rebalance your basket of momentum stocks every x period based upon their price performance. This is what I mean when I say that the strategy is essentially a "buy & hold" of momentum investing. It doesn't mean you aren't trading, you are through frequent rebalancing, but you are trying to get as close to the systematic factor (momentum) as possible by cutting stocks that no longer meet your momentum criteria. Does that make sense?

That is not an alpha approach, because you are not improving upon the selection criteria. In fact, the time delay and ad hoc decision-making in your TA approach is probably a net negative vs. a systematic basket of momentum stocks rebalanced frequently.

An alpha approach would be to say -- okay, there are 25 stocks that meet my criteria, what additional signals can I use to select further (say top 5 stocks) that actually beats that systematic basket? Those signals would be your "alpha" signals.

 

[deaddog]

The "value add" in your approach is that you are staying invested in a basket of momentum stocks. You don't need actively manage that using TA -- you can just automatically rebalance your basket of momentum stocks every x period based upon their price performance. This is what I mean when I say that the strategy is essentially a "buy & hold" of momentum investing. It doesn't mean you aren't trading, you are through frequent rebalancing, but you are trying to get as close to the systematic factor (momentum) as possible by cutting stocks that no longer meet your momentum criteria. Does that make sense?

I believe it does. Well kind of; but if I'm rebalancing every x period using price performance am I not using TA? Especially if I get my information off a price chart?

That is not an alpha approach, because you are not improving upon the selection criteria. In fact, the time delay and ad hoc decision-making in your TA approach is probably a net negative vs. a systematic basket of momentum stocks rebalanced frequently.

An alpha approach would be to say -- okay, there are 25 stocks that meet my criteria, what additional signals can I use to select further (say top 5 stocks) that actually beats that systematic basket? Those signals would be your "alpha" signals.

I'm basing my selection process in price performance. I'm not adding any additional signals mainly because I don't have access to all the resources the institutions have. My thinking is if the guys who know what they are doing come up with a stock based on their fundamental research, they will probably accumulate it. If I see price starting to increase to a new level I just come along for the ride. The rise in price shows up on a chart. That is all the information I need.

I know it sounds too simple to be of any value, but if price is rising on increased volume there's a good chance that there is increased demand. If I think the probability of the price continuing to rise is good I can speculate and open a position. If price continues to rise I'm happy, if price falters I bail. Yes I get whipsawed and yes I miss opportunities but I don't lose a lot of money.

I realize it may be just me but I have found that too much information keeps me in trades I should have been out of. There is just too much I don't know to make rational decisions. I'm probably one of those in your video who thinks they know but doesn't. Might even be both of us.

 

[longandshort]

I believe it does. Well kind of; but if I'm rebalancing every x period using price performance am I not using TA? Especially if I get my information off a price chart?

Say your rule is you cut positions that are down 5%. You don't need look at a chart to calculate that...you can simply rebalance everyday (or every period, like 5 minutes, 4 weeks, whatever) to cut out positions that meet your rule (e.g. sell if stock 5-day pct return < 5%). I'm not suggesting that this is a good idea though -- lots of research shows that there is a short-term reversal effect with momentum stocks, especially in a weekly or monthly interval. What I am saying, however, is that in real time this rule will likely outperform your ad hoc chart review...unless you're admitting that you change your rules depending upon your interpretation of the chart.

I'm basing my selection process in price performance. I'm not adding any additional signals mainly because I don't have access to all the resources the institutions have.

If you are buying with some kind of trend, then you are trading momentum. Since you are not long/short you are "factor loading". In hedge-fund-speak this means you are overweight momentum on top of your beta exposure. E.g. your portfolio = beta return + momentum return. That's what factor loading means, versus your portfolio = beta return.

My thinking is if the guys who know what they are doing come up with a stock based on their fundamental research, they will probably accumulate it. If I see price starting to increase to a new level I just come along for the ride. The rise in price shows up on a chart. That is all the information I need.

What if those institutions are bad at managing money and the stock goes down? E.g. a short rise in the near-term followed by sustained declines as everyone else bails? In which case when you buy the stock it's probably at the highest it'll go...

Inherently you have a belief that stocks seeing strong volumes and price rises have positive subsequent returns. So it's not really about institutions, it is merely that an expectation that momentum (positive change) in volume + price will lead to higher future stock prices. That's why you buy now and hope to sell later at a higher price.

 

[fan27]

Say your rule is you cut positions that are down 5%. You don't need look at a chart to calculate that...you can simply rebalance everyday (or every period, like 5 minutes, 4 weeks, whatever) to cut out positions that meet your rule (e.g. sell if stock 5-day pct return < 5%). I'm not suggesting that this is a good idea though -- lots of research shows that there is a short-term reversal effect with momentum stocks, especially in a weekly or monthly interval. What I am saying, however, is that in real time this rule will likely outperform your ad hoc chart review...unless you're admitting that you change your rules depending upon your interpretation of the chart.



If you are buying with some kind of trend, then you are trading momentum. Since you are not long/short you are "factor loading". In hedge-fund-speak this means you are overweight momentum on top of your beta exposure. E.g. your portfolio = beta return + momentum return. That's what factor loading means, versus your portfolio = beta return.


What if those institutions are bad at managing money and the stock goes down? E.g. a short rise in the near-term followed by sustained declines as everyone else bails? In which case when you buy the stock it's probably at the highest it'll go...

Inherently you have a belief that stocks seeing strong volumes and price rises have positive subsequent returns. So it's not really about institutions, it is merely that an expectation that momentum (positive change) in volume + price will lead to higher future stock prices. That's why you buy now and hope to sell later at a higher price.

Enough talk of theory...let' have a challenge starting Jan 1 2022 through the end of 2022. Your systematic momentum strategy vs my chart reading momentum strategy...real money.

 

[smallfil]

he sounds like a cheat, tbh

His trading approach is very similar to Stan Weinstein who influenced him according to his book. Do not know if he is selling his services, he does give his general opinions on Twitter when I was still on Twitter. So, how is he a cheat? Lots of so called gurus out there will charge you $3,000 or more to mentor you, but I have yet to hear of people being huge success stories as a result of that training. Most of it hype. 95% of traders lose monies because they believe the hype. Risk management is job number 1 and agree on Mark Minervini on the risk management as well as other things on his book.