Don’t Jump! Calmly Responding To Market Action

stock collapse

stock collapseThis was a difficult week for stocks in general, but it was an incredibly difficult week if you owned one of the stocks like NUS or QIWI that got slaughtered by the market.

Losses that run far into double digits can force traders to question the legitimacy of their strategy. I ran into some of those feelings this week as I watched both NUS and QIWI eat through profits that I’ve been slowly accumulating for months now.

My gut reaction when watching what was happening to those stocks was to override the strategy and get out. That’s probably good in the sense that I certainly didn’t entertain any thoughts of holding on hoping for a bounce back. However, I did begin to think about changing my strategy to include intraday stops.

The thing is, there isn’t anything wrong with using intraday stops. The problem is that I cannot base that decision on two stocks that collapsed during one week of what I expect to be a 50+ year trading career. When I look at my career over the long-term, the impact of this week’s losses is very small.

It also helps to keep in mind that there are winning positions in all of my portfolios that only exist because they recovered after triggering intraday, but not closing stops. My thinking on switching to intraday stops for two collapsing stocks never considered all of the positives that have come to my trading from not using them.

For that reason, the lesson of the week is: DON’T JUMP! Just because the market action is making you think a certain way this week does not mean that you should completely alter your long term strategy. 

Let’s take a look at how each of the four trend following portfolios we are tracking performed this week:

Weekend IBD 50 Trend Following Portfolio

The Weekend IBD Portfolio went on a wild ride this week. The market made it very obvious why it is an advantage that the weekend strategies keep the positions sizes of the individual stocks relatively small. Two different stocks in the Weekend IBD Portfolio got absolutely CRUSHED.

I’ve already written about how the portfolio was hurt by the extreme collapse of Nu Skin (NUS). After watching that situation unfold on Wednesday and Thursday, the portfolio exited NUS on Friday morning. Then, it had to go through the same thing with QIWI. Friday’s huge down day in QIWI left the portfolio sitting on a position that was down 18.03%, so the order has already been placed to sell at the market on Tuesday morning (Monday is MLK Day).

Those losses really hurt the Weekend IBD Portfolio, but they didn’t destroy or cripple it. That is the biggest takeaway here as far as I am concerned. Because the strategy is conscious of how position sizing can impact returns, these catastrophic losses didn’t blow up the account. While the portfolio was up 4.46% last weekend, this week’s action reduced the overall return to 1.16%.

Because the SPY is still well above its 100-day simple moving average (SMA), I will need to find two new positions to take the places vacated by NUS and QIWI. After running my weekend scans on this weekend’s IBD 50, the two new additions will be XRS and YY. The Weekend IBD Portfolio will establish those positions on Tuesday morning.

Here is what the Weekend IBD 50 Trend Following Strategy looks like this weekend (keep in mind that it will be selling QIWI):

ibd portfolio

Weekend S&P/Russell Trend Following Portfolio

As you might have expected, the Weekend S&P/Russell Portfolio wasn’t hurt as badly as the Weekend IBD Portfolio was. Weeks like this allow you to see the advantage in trading a less growth oriented portfolio.

While the S&P/Russell Portfolio didn’t get crushed this week, it still lost ground. Last weekend, it had broken into the positive finishing the week up 1.48%. This weekend, the portfolio is back in the negative sitting at an overall return of -0.84%.

There were no transactions in the portfolio this week, and only one stock appears to be in jeopardy of being removed from the portfolio. ACXM was the worst holding in the portfolio last weekend, and things got worse this weekend. The position is currently down 9.44%, so even a slight down day next week will force me to sell it.

Here is what the Weekend S&P/Russell Trend Following Portfolio looks like this weekend:

russell portfolio

Ivy Ten Portfolio

The general BLAH of the indexes this week lead me to expect a similar BLAH performance from the Ivy Portfolios. The Ivy Ten system delivered exactly that type of reaction this week. After closing up 0.86% last weekend, the portfolio finished this week up 0.81%.

Breaking down the equities ETFs that the Ivy Ten portfolio holds, VB was the only one of the three that was up for the week. VEU and VTI both fell back slightly.

Here is what the Ivy Ten Portfolio looks like this weekend:

ivy ten

Ivy Twenty Portfolio

Based on the way that the Weekend IBD Portfolio took a bigger hit than the Weekend S&P Portfolio this week, I expected that the Ivy Twenty Portfolio would be down more than the Ivy Ten Portfolio was. That was not the case, though.

The Ivy Twenty Portfolio was sitting on a profit of 2.28% last weekend. This weekend, that profit has improved to 2.47%. The portfolio took a loss on its position in VO, but the gains from VB and IWC more than made up the difference.

Here is what the Ivy Twenty Portfolio looks like this weekend:

ivy twenty