NEW YORK (
) -- In May, I put together
, and updates were published in
. In the July review, the portfolio was up 4.01%. Since then, following my contrarian leads has lost much of that gain and its return is now 1.79%. The dog days of summer treated me like a dog.
The vehicle suggested was the
Ultrashort Gold ProShares
exchange-traded fund. As of the July 14 update, the position was ahead by 5.7%. Gold has rallied for the rest of the summer and the position was stopped out for no gain on July 20.
Buy Corporate Bonds
iShares iBoxx Investment Grade Corporate Bond
ETF was used for this position. LQD advanced in a very well-defined channel through the end of July. On July 14, a $2 trailing stop loss was instituted. The stop was triggered on Aug. 6, for a 7.73% gain. The following chart shows the stop loss in the context of price action before and after the sale.
This is a classic example of the problem of using trailing stop losses in a strongly trending market. There was a sharp spike in price in early August, followed by a typical correction which triggered the trailing stop. Of course, this type of unusually large spike also can occur at a market top. If that had been the case, we would be congratulating ourselves for "catching the top."
In hindsight, a better strategy would have been to use fixed stops, placed whenever an advance occurred from a price pullback. Examples of such stops are shown with solid blue lines. Entry points for each stop are indicated with blue arrows, when a daily close was 1.5% higher than the intraday low of the dip. This strategy would have an advance for the position at the market close on Sept. 11 of 11.59%, with the stop loss protecting an advance of 9.31%, both including dividends.
Ultrashort Financials ProShares
was closed on the stop loss defined in the July 14 article just one day later. The position lost 5.40%. SKF has lost another 33% since July 15.
This position involved selling short
iShares S&P National Municipal Bond
. The position was closed on Aug. 5, at the stop loss price of $101.20 established on July 14. The loss on the position was 1.82%. The stop loss was well-selected; since the closing date the position would have lost another 5%.
This was entered with the purchase of
UltraShort Oil & Gas ProShares
for $17.14 on June 16. It was sold for $17.90 on Aug. 24, based on a trailing 20% stop loss order. The position gained 4.43%. However, based on the intraday high of $22.44 on July 8, the largest unrealized gain for this position was 31%. There were signs that our strategy did not see, as shown in the following chart.
On July 14, there was a gap open to the downside, followed by a large open gap down on July 15. The strategy didn't specify watching for gaps. This should always be an option for identifying entry and exit points. If these two gaps had been recognized, an exit on July 16 around $19 would have been a likely outcome. That would have produced a gain of 10.8%.
Buy Health Care Stocks
I am following this position with the
Health Care Select Sector SPDR
ETF. I am closing out the contrarian ideas for the summer, but I am keeping this position open. The gain as of Sept. 11 was 13.39%.
Sell Real Estate
Ultrashort Real Estate ProShares
was used for this strategy. It was closed on the stop loss order specified in the July 14 article for a loss of 5.14% on July 15. This was another well- timed stop loss. SRS has lost another 44% after the sale.
Buy the Dollar
This position used
PowerShares DB US Dollar Index Bullish
. It was closed on Aug. 1 for a 3.17% loss (stop loss order placed on July 14). At market close on Sept. 11, UUP was down an additional 17%.
Buy the NASDAQ 100, Sell the S&P 500
This position used 2 times leveraged ETFs:
Ultra QQQ ProShares
UltraShort S&P500 ProShares
. Since May 26, QLD has gained 40.54% and short SDS has lost 27.55%; the combined return for the hedged position is 6.49% as of market close on Sept. 11. I closed this trade on Sept. 11.
Buy Treasuries or Sell Treasuries -- You Pick 'Em
The two positions here are
iShares Barclays 20+ Year Treasury Bond Fund
UltraShort 20+ Year Treasury ProShares
(two times short) tracking long-term Treasury bonds. The loss for TBT is 7.72% after being stopped out (15% trailing stop) on June 26. As of Sept. 11, TLT was ahead 6.29%.
The summary of all contrarian positions as of Sept. 11 is shown in the following table. In a few days I'll have available my contrarian picks for the fall.
-- Written by John Lounsbury in Clayton, N.C.
At the time of publication, Lounsbury had positions in SKF. Clients and family members also currently own Vanguard Health Care, a mutual fund invested in many of the same stocks as XLV.
John B. Lounsbury is a financial planner and investment adviser, providing comprehensive financial planning and investment advisory services to a select group of families on a fee-only basis. He worked for 34 years with IBM, and spent 25 years in R&D management and corporate staff positions. He also was a Series 6, 7, 63 licensed representative with a major insurance company brokerage for nine years.
Specific interests include political and economic history and investment strategy analysis. He holds degrees from the University of Vermont, Columbia University and the Illinois Institute of Technology, where he studied chemistry, physics and mathematics. He is a contributor to Seeking Alpha and his own blog,