Omicron Research Institute

QuanTek Econometrics Software

Model Portfolio

Most of the Graphs are too big to fit on the web page. So, we have provided a link to them and to other files such as Report files. To view these files in your web browser, just click the link. The files will open in their own tab in a separate web page. Then, to return to this web page, just click its tab in your browser. You can switch back and forth between tabs to compare the Graphs and Reports and then return to this web page.

Warning: The Price Projection represents the expected N-day prices.The error bars represent the expected N-day price range.  These are estimates only. It is entirely possible for prices to end up outside the expected price range at any time.

It should be emphasized that the Price Projection cannot predict every short-term fluctuation in prices. It is based on past prices only, and cannot anticipate exogenous events such as news events that influence prices. However, it seems to give predictions that are at least plausible, and over a long-term average (1024 days or 4 years), yield significant correlation with future returns, according to the correlation tests.

Dow Industrials (.DJI) (2019-01-18)

Here is the latest shot of the Dow Jones Industrials (.DJI), on Scale 8. The support/resistance level at Dow 24,000 is shown as the green line. This shows the recent selling climax in December 2018:


Here is another shot  of the Dow Jones Industrials (.DJI), on Scale 4. The support/resistance level at Dow 24,000 is shown as the green line. This shows the sell-off from the beginning of October to the end of December of 2018:


Here is another shot  of the Dow Jones Industrials (.DJI), on Scale 2. The support/resistance level at Dow 24,000 is shown as the green line. This view shows how the Dow 24,000 level was a support level until recently:


It appears that the selling climax of the past few weeks has finally completed after a brief pause at the Dow 24,000 support/resistance level. The green horizontal line at the Dow 24,000 level was the previous support level, and for a week or so served as a resistance level. But finally this week the Dow broke through this level, so hopefully it will be a support level once more. The first graph shows the short-term action over the past week. The third graph shows the longer-term action over the past year or so, showing how the same Dow 24,000 level was a support level back in February through July of 2018.

The second graph shows the recent sell-off that occurred over the last three months. It is curious why this occurred. The logical explanation is the unfavorable news events, culminating in the government shut-down that is still ongoing. The economy appears to be strong and stocks are not over-valued at this point. But investors seem to be increasingly afraid of dysfunction and chaos in the government -- hence the selling climax of the previous month. If there is any more political turmoil coming out of Washington, this could well send stocks lower again. However, there is another interpretation of this sell-off. There has been increasing talk that the bull market is getting old and we are due for another bear market. It is the fear of a bear market that may have spooked the market and caused the selling climax. However, the market seems to have discounted this idea and all the bad news events coming out of Washington, and is now headed higher again. So maybe the sell-off from October through December, 2018, was itself the long-awaited bear market. Maybe now that the market has shaken off all the bad news, it is ready for another upleg. According to the graphs, the market has now returned to its normal long-term trend line.

On the other hand, there is a darker possibility. If the turmoil in Washington continues, it could be a repeat of the situation in 1974 in which there was a steep bear market. This coincided with the unfolding Watergate scandal and impeachment of President Richard Nixon, after years of unrest and conflict due to the Vietnam War. Really, I think the current situation is merely a pale reflection of that era, in which the conflicts and tensions were real and serious. But if the current situation continues to unfold and becomes more serious, it could have a similar effect on the markets.

The selling climax was actually an interesting situation, because the price action as the market was headed lower was unpredictable. The situation with the prices sharply below the mean price levels and headed down, represents a direct conflict between the two types of market correlations, namely the trend persistence, which should cause the prices to trend sharply lower, and the return-to-the-mean, which should cause the prices to reverse and trend sharply higher. At some point the latter mechanism starts to dominate over the former, and at that point the prices reverse sharply. You can see that this happened already twice previously in the recent past, once at the end of October and again near the end of November. This time the reversal was sharper than before. It resulted in a selling climax, which occurs when panic selling drives prices more and more sharply lower, so that fear dominates and builds upon itself, then suddenly greed takes over and prices rebound just as sharplyhigher. But the exact point at which this occurs is essentially unpredictable.

Much of this behavior seems to be caused by program trading. The programs sell on the way down and then buy on the way up, which creates a positive feedback loop, leading to instability in the market. This is not such a good idea -- if ordinary traders try to do it, they will probably lose money because they will be too late. A better idea is buy-low, sell-high, which creates a negative feedback loop and makes the market more stable.

Note that the Price Projection can't predict the short-term selling climax, even though we can do it ourselves to some extent. The Adaptive Filter is a Least-Mean Square filter which responds mainly to the long-term trend. This results in a prediction that resembles very closely that of the Random Walk model, which predicts the long-term trend no matter what the price level. (Of course, it is not clear which long-term trend the Random Walk model is supposed to predict.) There is just not enough data in a short-term anomaly for the filter to establish a correlation in the data, given the long-term trend which is very well-established (in the case of an index). The correlation in the long-term trend overpowers that in any short-term anomaly. So, unless the market becomes grossly over-valued or under-valued, we can expect it to return quickly to its long-term trend.

I think what we are seeing, longer-term, is a return to a more normal market, as the fiscal stimulus and low interest rates are gradually removed by the Federal Reserve. This, coupled with the political uncertainty, has been causing increased volatility over the past few months. (I think the uncertainty over our trade relations is also having an effect.)

Portfolio Report (2019-01-11)

The Optimal Portfolio we are tracking for this week is displayed in the following QuanTek Report file:

Report (2019-01-11).pdf

The Model Portfolio this week is showing a profit once again. This is mainly due to gains in Facebook, Tesla, and Boeing. The other stocks are still below their basis price. But they will probably recover shortly once the market is fully recovered from the recent sell-off. Hopefully there will be no more shocks to the market, and all of these securities can resume their up-trend.

I don't see any good buy opportunities this week. I am tempted to buy Amazon, due to its favorable Price Projection. However, it looks like it might be poised for another short-term down-trend. So I will wait for the next pull-back to buy this one. Netflix had a very impressive jump upward this past week. But now it is too high-priced, and poised for a posible short-term down-trend. Also it has a slightly negative Price Projection. So maybe it will be a good buy on the next pull-back.

Portfolio Securities (2019-01-11)

Here are some screen shots of the QuanTek Main Graph for the Standard & Poors 500 (.SPX). These illustrate the recent selling climax within the context of the long-term trend of the S & P 500 index, on three different scales.

Also shown are some screen shots of the QuanTek Splitter Windows for the Standard & Poors 500 (.SPX). The first two Splitter Windows represent three different Indicators, with low-pass smoothing and band-pass smoothing. The third Splitter Window shows the output of the Adaptive Filter directly and associated indicators:

Figures (2019-01-11).html

In the first two Splitter Windows, the three indicators shown are Relative Price, which is the price action relative to the 512-day smoothing curve, the Velocity, which is the returns or daily price differences, and the Volatility, which is the absolute deviation of the daily returns. All of the indicators are smoothed using N-day Wavelet Smoothing, and they are all causal (except the Range and Threshold lines themselves, which depend on taking an average over the whole indicator). The most important indicator in each case is the Relative Price. The Volatility indicator is relative to zero for Low-Pass Smoothing, but relative to its mean value for Band-Pass Smoothing.

Fig.1 .SPX-Standard & Poors 500 (Scale 8): This graph on Scale 8 shows the recent selling climax of the past several weeks. It made a partial, but not complete, recovery back to previous price levels. It appears that the recovery hit resistance at a price level about equal to the previous support level. This is probably due to the ongoing political turmoil coming out of Washington, and in particular the government shutdown, which tonight has become the longest in US history. The prices appear very oversold, being quite a bit below the Bollinger Bands. Hopefully if, and when, the political turmoil subsides, maybe the index will recover back to its long-term trend. However, note in this graph that QuanTek is giving a Buy Signal (green rectangles). This comes from the Relative Price (Low-Pass) Indicator (Fig.4) being below the Range setting, while the Adaptive Filter Output (Fig.6) is positive. In fact, the Adaptive Filter Output (Fig.6) is also above its Threshold setting, so it is also giving a Long Signal (not shown on this graph).

Fig.2 .SPX-Standard & Poors 500 (Scale 4): This graph on Scale 4 gives a little more historical perspective. Once again, the selling climax is below the outer Bollinger Band, which follows the 512-day S-G Smoothing Curve, indicating an oversold condition. Previous to that the index appeared a little overbought. On this graph are also indicated some Buy Points. These indicate inflection points in the Relative Price (Band-Pass) Indicator (Fig.5), as can be seen in Fig.5. These Buy Points are indicated by vertical green lines in all the Indicator graphs and green arrows on the Main Graph. They are triggered when the Relative Price (Band-Pass) Indicator (Fig.5) goes through a minimum outside the Range setting, while the Adaptive Filter Output (Fig.6) is positive. They indicate possible favorable buy points in case you want to time your trades, or possibly for swing trading. (Analogous statements apply to the red Sell Points.)

Fig.3 .SPX-Standard & Poors 500 (Scale 2): This graph on Scale 2 gives even more historical perspective. Also this graph is plotted relative to the 2048-day (robust) Trend Line. Relative to this long-term Trend Line the selling climax still appears to be an oversold condition. As of now, the prices have recovered back to the outer Bollinger Band, which this time follows the 2048-day Trend Line. In all these graphs, it can be seen that the Price Projection has latched on to the well-established long-term trend and is following it closely. It was not even significantly affected by the sell-off. This should be a reflection of the fact that the sell-off was just a short-term anomaly, due to exogeneous news events, which from the long-term perspective is just a minor feature of the graphs. Almost the opposite type of anomaly occurred in January, 2018 when the market became overbought for a few weeks, then recovered. From past experience we can infer that the market will probably recover and resume its upward trend within the Bollinger Bands, in a few months time.

Fig.4 .SPX-Indicators (Low-Pass Smoothing): These indicators are smoothed using Low-Pass Smoothing, similar to a moving average. The bottom indicator is Relative Price, and it serves as an indicator of overbought/oversold conditions. It can be seen that for the past couple of years, the indicator has been relatively flat, indicating that prices have stayed close to their long-term trend line. Recently, however, prices have entered an oversold condition, triggering a Buy Signal. The Range control sets the level at which Buy/Sell Signals are triggered. Note also the increased Volatility.

Fig.5 .SPX-Indicators (Band-Pass Smoothing): These indicators are smoothed using Band-Pass Smoothing, similar to the difference of two moving averages. The bottom indicator is Relative Price, and it serves as an indicator of N-day inflection points, similar to an oscillator indicator. These are shown on the graphs as the N-day Buy/Sell Points. With the recent downturn, it can be seen that this indicator shows a strong Buy Point. The Range control also sets the level at which the Buy/Sell Points are triggered. Actually, we don't use these Buy/Sell Points, but they are convenient for lining up features on the graphs. They might be useful for N-day Swing Trading, however, if you are downloading data every day.

Fig.6 .SPX-Adaptive Filter Output: These three indicators pertain to the Adaptive Filter. At the bottom is the raw output of the filter. Green indicates a positive expected return and red indicates a negative expected return. This indicator forms the basis of the Long/Short Signals. The Threshold control sets the level at which the Long/Short Signals are triggered. It can be seen that up to the present time, the Adaptive Filter has been giving a strong positive signal, which is a long indication. The middle indicator is the actual N-day 'future' returns which is the "desired output" of the Adaptive Filter. It can be seen that most of the short-term fluctuations are just stochastic noise and are not picked up in the filter output. This is also due to the fact that the LMS filter is a low-pass filter. The upper graph is the actual expected return due to the 2048-day long-term trend, extended into the future. It can be seen that the Adaptive Filter output resembles this long-term trend much more closely than it does the "desired output" that it is trying to mimick. However, it is not exactly the same, and under favorable conditions the Adaptive Filter can exceed the performance of the long-term trend. (The long-term trend is pretty good, however, over the long-term.)

Portfolio Report (2019-01-04)

The Optimal Portfolio we are tracking for this week is displayed in the following QuanTek Report file:

Report (2019-01-04).pdf

I don't see any good buy opportunities this week. Netflix might be a good buy eventually, but for the moment its Price Projection is still negative. It just had a sudden spike upwards, but this has happened four other times in the past couple of months, and was followed immediately by a steep decline. The trend since last June has been negative, so it might be better to wait until an intermediate-term uptrend is established. It is a similar story for Amazon and Alphabet. It might be best to wait until the government shutdown ends and the political uncertainty subsides a bit. However, our previous stock picks seem to have been pretty good. They seem to have weathered the storm pretty well -- the portfolio is down less than 2%, in spite of all the carnage.

Portfolio Securities (2019-01-04)

Here are some screen shots of the QuanTek Main Graph for various securities in the Optimal Portfolio:

Figures (2019-01-04).html

Fig.1 .GSPC-Standard & Poors 500 (Scale 8): Here is a screen shot of the S & P 500 showing, once again, the selling climax of the past couple of weeks. The light blue line is drawn at the S & P 500 2600 level, which seems to be the previous support level. Note the buy signals denoted by the green rectangles. The pattern did not make it quite back to the previous support level, unfortunately. I surmise this is due to the ongoing political uncertainty due to the government shutdown and related problems, and probably also all the talk about impeachment. But the index was up on Friday due to a better than expected employment report. The market will probably do better once all the turmoil ends, and I expect it to remain in a trading range for a year or two. Maybe then it will start a new upleg again due to new industries on the horizon, such as artificial intelligence, big data, automation, self-driving cars, clean energy, etc. My theory is that we are at the beginning of a new generational economic cycle that began around 2015, and this will power the next upleg in the market. (Of course, it is "only a theory"...)

Fig.2 AAPL-Apple Inc. (Scale 4): This shot shows the breakdown in Apple over the past couple of months, since the end of October. This seems to be due to lowered expectations for sales of the iPhone. In particular, the breakdown in the last couple of days was due to a news report of lowered expectations for iPhone sales in China. To me this seems overblown and Apple should recover from this bad news, hence now looks like a good buy opportunity. (Note the Buy Points indicated by the green arrows.) But the stock looked rather overbought from August through October, and now it is oversold, so I expect it to return to its long-term trend once the market discounts all the recent bad news events.

Fig.3 Inc. (Scale 4): The graph of Amazon actually does not look too bad at this point. The Price Projection indicates a 32-day return of 24.00%. (Note that it was previously negative, a few weeks ago.) However, since September the stock has been in an intermediate-term downtrend, and if this patter were to continue it would be at a short-term peak right about now. It looks susceptible to more bad news over the short-term. However, for a long-term investor, now might be a good buy point. Given the strong long-term uptrend for this stock, it appears that the Price Projection has estimated that the positive return to the mean is stronger than the negative intermediate-term trend persistence (although it helps that the short-term trend is strongly positive). A week ago would have been a better buy point.

Fig.4 Inc. (Scale 2): On this scale, the Bollinger Bands are drawn with respect to the 2048-day trend-line rather than the 512-day Smoothing Curve as on Scale 4. With respect to the long-term trend-line, the perspective looks a little different. From this perspective, it looks like Amazon was very overbought starting in January, 2018. It reached a peak in September, then broke down in the sell-off that started in October. But the recent selling climax of the past couple of weeks merely put Amazon back on the yellow trend-line once more. In other words, Amazon has merely corrected back to the price level where it should have been, if it had not become so overbought during 2018. Perhaps this is the case for the market as a whole, in which case the sell-off was merely a healthy correction back to reasonable valuations.

Fig.5 MRK-Merck & Co., Inc. (Scale 4): Merck has barely been affected by the downturn in the FANG and tech stocks over the past several months. It has been in a healthy uptrend since last Spring. It was also barely affected by the selling climax of the past couple of weeks. However, at the moment it appears somewhat overbought, at the upper range of its Bollinger Bands. Although probably a good long-term buy, at the moment it appears a little expensive. As a rule of thumb, I like to buy below the yellow curve, and sell above the yellow curve. The fact that Merck appears so favorable at the moment might mean it is near a good sell point, if an investor wanted to take some profits (and the market as a whole were at a sell point, which it isn't).

Fig.6 TGC-Tengasco Inc. (Scale 4): This is an oil/gas company, and it serves as an example of a very risky security. Note the extremely wide Bollinger Bands. You might not notice how risky this stock is, if you were to see a normal graph of it in isolation. The QuanTek graphs are all on the same (logarithmic) scale, so you can immediately notice the wide Bollinger Bands and wild behavior compared to other stocks. The most recent price was $0.99, so this qualifies as a borderline "penny stock". Typically, the lower the price, the greater the percentage swings in price, and the greater the risk. This is immediately visible on the logarithmic scale, which shows percentage changes. Note also the corresponding very wide Error Bars on the future Price Projection. You may not want to own this stock unless you are a real risk-taker!

Portfolio Report (2018-12-28)

The Optimal Portfolio we are tracking for this week is displayed in the following QuanTek Report file:

Report (2018-12-28).pdf

The market seems to have turned a corner, so it looks like a good buy opportunity right now. Actually, it would have been even better last Friday when the outlook appeared so gloomy. However, I wanted to wait until it actually turned the corner and started to exhibit upward momentum. I decided to buy 200 shares of TSLA at the close price on Friday. This is a somewhat risky stock, but had a good long-term expected return and Sharpe Ratio of 111.47%, and expected 32-day (annualized) return of 51.87%, according to the Price Projection. Some of the other stocks that might be good buys due to their low price, had a negative expected return, so TSLA was the best choice for now. Also this choice provides a little more diversification.

Portfolio Securities (2018-12-28)

Here are some screen shots of the QuanTek Main Graph for various securities in the Optimal Portfolio:

Figures (2018-12-28).html

Fig.1 TSLA-Tesla, Inc. (Scale 4): Tesla was my buy choice for this week. It has not suffered from the intermediate-term down-trend like many of the other securities, and the 32-day Price Projection is a very healthy 51.87% (annualized). This is to be contrasted with its long-term trend line which is giving a healthy 50.13% return. So the Price Projection coincides in this case with the prediction of the Random Walk model. This is a somewhat risky stock, with wide Bollinger Bands. There is no clear intermediate-term trend evident, which explains why the Price Projection has latched on to the long-term trend as the dominant trend. It appears that I got this stock at a good price, and after riding out the volatility it should give a robust long-term return.

Fig.2 NFLX-Netflix, Inc. (Scale 4): Netflix is a stock that I was considering for a buy at this time, since the price is down, but decided against it because the Price Projection is negative at -13.04% (annualized). This is to be contrasted with its long-term trend line which is giving a healthy 50.20% return. Netflix reached a peak in June and has been in a strong intermediate-term down-trend since then. Also notice that this is a rather risky stock with wide Bollinger Bands. So apparently the intermediate-term down-trend has overpowered the long-term up-trend in this case, as well as the return to the mean. The prices are still within the Bollinger Bands, so this is not a serious breakdown, but nevertheless I will wait until a positive Price Projection before I buy this stock.

Fig.3 FB-Facebook, Inc. (Scale 4): This was one of our recent buy selections, and it appears to have been a good choice. Facebook appears to be trying to recover from its dramatic down-trend starting with a serious gap in July, and establish a new up-trend. It seems to have shown some strength in the face of the recent sell-off of the past couple of weeks. This is reflected in the Price Projection, in which the return to the mean mechanism has dominated over trend persistence. In fact the Price Projection for FB corresponds more or less to its rather healthy long-term trend of 37.21%, so it is actually taking a neutral position, just as the Random Walk model would predict.

Fig.4 MSFT-Microsoft Corporation (Scale 4): Microsoft appears relatively healthy, with only a small breakdown over the past couple of months. Even during the sell-off of the past couple of weeks, it stayed within its Bollinger Bands. So the Price Projection predicts a continuation of the ongoing intermediate-term up-trend, and in fact this should surpass the long-term trend. Apparently we have a return to the mean mechanism at work, after the recent sell-off.

Fig.5 AAPL-Apple Inc. (Scale 4): This graph shows the major breakdown in AAPL since the middle of October, but it is not as bad as it seems, since AAPL started out very overbought to begin with. Now it is very oversold, but has not completely departed from the range of its Bollinger Bands (compare with GE). The Price Projection, according to trend persistence, should be strongly down, but according to return to the mean, should be strongly up. In fact, it appears to be somewhat neutral, corresponding to the average long-term trend. This is just the prediction that the Random Walk model would give. So either the Price Projection is conflicted between the two correlation mechanisms, or else it has latched on to the long-term trend, which in this case is very well established. Just as in the case of the Dow or other indexes, the long-term trend is very well established, and it is hard to believe that AAPL will stay depressed for very long. It will have a tendency to return to its long-term trend, which is what the Price Projection shows.

Fig.6 GE-General Electric Co. (Scale 4): Here is an example of a stock with a very abnormal breakdown. The price action for GE has broken down badly, having declined by over 50% in the month of October alone. The 512-day smoothing curves are curved up because, after the end of the past data, these curves are trying to make it back to the 2048-day long-term trend curve, which is far above. Notice that the Price Projection has a strong negative slope, indicating trend persistence, corresponding to the intermediate-term down-trend that has been in place since October. The Price Projection could just as easily have had a strong positive slope, indicating return to the mean, since prices are so far below their trend-lines. So this represents another conflict between the two correlation mechanisms, and in this case the trend persistence won. If the return to the mean mechanism starts to win, according to the Price Projection, then it will be a good time to buy this security.

Portfolio Report (2018-12-21)

The Optimal Portfolio we are tracking for this week is displayed in the following QuanTek Report file:

Report (2018-12-21).pdf

This week I was too disheartened to buy an stocks. I have decided to wait until the market seems to have found a new support level or turns back to an uptrend. Now might be a good buy opportunity, however, for a long-term investor. I would rather wait for some sign of an intermediate-term uptrend. In particular, I would like to wait until these political events find some resolution. I am sure many other people feel the same way -- investors hate the political uncertainty that has been going on the past few months.

I was thinking about buying GE at a bargain-basement price. Even though it has been showing some signs of life, it still has a very negative expected return according to the Price Projection (just like several weeks ago). I have not heard any rumors that GE is going bankrupt -- that would be unbelievable. So at some point it would have to recover in the market and start heading up. Maybe it would be better to wait until the full story becomes more clear, and the stock is clearly established in an uptrend.

Portfolio Securities (2018-12-21)

Here are some screen shots of the QuanTek Main Graph for the S & P 500 on various scales:

Figures (2018-12-21).html

Fig.1 .SPX-Standard & Poors 500 (Scale 4): This screen shot of the S & P 500 looks very much like that of the Dow Industrials. In this shot there is a clear support level at about the 2630 level which was badly violated this week. This is the support level that was established in a similar sell-off that occurred earlier in the year, back in February and March, 2018. Probably, this support would not have been violated, had it not been for the alarming political news that occurred (including the government shutdown).

Fig.2 .SPX-Standard & Poors 500 (Scale 4): Here is another shot of the S & P 500, this time spanning the time interval from July, 2015 to August, 2016. (Note that this is part of the same graph, which spans 8 years continuously.) Here you can see a couple of other sell-offs that occurred, one in August to September 2015, and one in January to February, 2016. Each sell-off occurred with increased volatility. Notice that about a month later, the prices had recovered to their previous long-term trend values, with low volatility. So in each case, the sell-offs merely represented a good buy opportunity.

Fig.3 .SPX-Standard & Poors 500 (Scale 2): This is a shot of the S & P 500, on a smaller scale. This scale shows the 2048-day trend line, which indicates that the average annualized return of the S & P 500 over the past 2048 days (8 years) has been 11.37%. On this scale you can see the recent sell-off, and the sell-offs in late 2015 and early 2016, together on the same graph. They don't look a whole lot different, except for this past week which was a little more serious. But in all previous cases, the market recovered quickly, and the sell-offs were really insignificant compared to the long-term secular trend.

Fig.4 .SPX-Standard & Poors 500 (Scale 2): This is another shot of the S & P 500, on the same smaller scale. This shot shows the other half of the graph, starting 8 years ago in November 2010. Notice the rather serious sell-off in August and September of 2011. In that case, the market found support and then recovered completely in a few months. As in the other sell-offs, this one represented a good buy opportunity. Notice the shapes of the price dips during the sell-offs, with their sharp reversals. The last dip, in particular, has the characteristics of a selling climax. There are at least five dips, all testing the same support level.

Fig.5 .SPX-Standard & Poors 500 (Scale 1): This is another shot of the S & P 500, on the smallest scale. This graph, with one pixel per day, gives the panoramic long-term view of the price graph.You can see how "tight" the graph of the S & P 500 is, and that these sell-offs we have seen appear merely as tiny "blips" on the overall long-term secular trend. Nevertheless, it can be seen that there are long-term fluctuations above and below the  2048-day trend line, which indicates that a buy/sell strategy based on these long-term fluctuations might be profitable. But these are precisely the long-term fluctuations that are captured by the Price Projection.

Fig.6 .SPX-Standard & Poors 500 (Scale 1): This is another shot of the S & P 500, again on the smallest scale, showing the other half of the same graph. Again we have a sell-off early in 2011, followed by about four years of a steady bull market up to the beginning of 2015. It can also be seen that the sell-offs in these graphs seem to be preceeded by a clear overbought condition, so a profitable trading strategy might be to sell in these overbought conditions, and buy in the oversold conditions after the sell-off. Of course, the long-term secular trend outweighs the overbought condition, so it might be better just to buy and not to sell the index.

Portfolio Report (2018-12-14)

The Optimal Portfolio we are tracking for this week is displayed in the following QuanTek Report file:

Report (2018-12-14).pdf

This week I decided to take advantage of the market sell-off to buy (at the close price on Friday) 400 shares of BA (Boeing), which seems to be doing well according to the Price Projection, and with a Sharpe Ratio of 109.32%. We now have 5 securities in the Model Portfolio. Facebook is up nicely for the week, and Microsoft is also up. JP Morgan is down slightly, but Apple is down substantially. Since Apple is still a great company, probably what has happened is that people are over-reacting to projections that iPhone sales will slow down next year. So I have no doubt that Apple will recover and resume its upward trend eventually, although perhaps a little flatter than before. Really, I think all these are great companies, purchased at favorable prices, so they should all do well in the coming months (as soon as people stop being so pessimistic).

Portfolio Securities (2018-12-14)

Here are some screen shots of the QuanTek Main Graph for various securities in the Optimal Portfolio. These are an expanded shot of the Dow, together with the 5 securities in the Model Portfolio so far:

Figures (2018-12-14).html

Fig.1 .DJI-Dow Industrials (Scale 4): Here is an expanded screen shot of the Dow Industrials, with a horizontal line drawn at Dow 24,000. It can be clearly seen that this is an approximate support level, and the Dow is flirting with this level that it last reached back in March and April, and again at the start of July. Several Buy Points are clearly indicated at these levels. From a longer-term perspective, this looks like normal behavior, not the start of a "crash". So it would not be surprising if the Dow bounced off this support level and started a new upleg. Maybe there is a "Christmas rally" in store for investors after all!

Fig.2 AAPL-Apple Inc. (Scale 4): It looks like AAPL has had a very bad month in November. However, it is still above the levels reached last April, which again seem to form a support level. The recent fall in AAPL does not look so bad when it is observed how overbought it was from August through October. Now it appears oversold. Hopefully it has found support at last and is setting up for a "Christmas rally".

Fig.3 MSFT-Microsoft Corporation (Scale 4): It looks like MSFT has held up pretty well in this market downturn. Normally I do not like to buy above the yellow trend curve, but in this case the Price Projection is favorable, as is the Sharpe Ratio. Hopefully Microsoft will remain strong due to its rapidly growing cloud business. In fact, I like to think that 2015 marked the start of a new long-term economic cycle for tech (but that is just my view).

Fig.4 FB-Facebook, Inc. (Scale 4): Facebook has had some rough going since mid-July, when it experienced a large "gap" (presuming this is not just a data anomaly-- unbelievable!). It has been in the news lately due to the revelations of mismanagement of user data. The stock was punished up through mid-November, but appears to be making a comeback over the past 3 weeks or so. So it looks like I got a bargain. Surely this company will remain a pivotal tech company, and so I expect it to return to its former upward trend sooner or later. Notice that the Bollinger Bands are widely spaced compared to many older companies, which indicates that it is relatively volatile (hence risky).

Fig.5 JPM-JP Morgan Chase & Co. (Scale 4): It appears that JP Morgan has experienced a downturn over the past week or so, right after I bought the stock. I am not quite sure why. It should benefit from rising interest rates. Maybe the economy appears to be turning down, so interest rates may not rise quite so fast. Anyway, the downturn does not appear serious, and this looks like a good, stable stock for the portfolio. Probably fears of an economic downturn and immanent recession are overblown.

Fig.6 BA-The Boeing Company (Scale 4): This looks like a good buy point for Boeing. Notice the indicated Buy Points on the graph, and the favorable Price Projection. Probably the recent news of a software glitch in the 737 has caused the current dip in price. But for the long-term the outlook appears bright for this stock.

Go back to Home Page