The Traders Journal

Charts I'm Stalking: Action Practice #12

Gatis Roze

Gatis Roze

Author, Tensile Trading: The 10 Essential Stages of Stock Market Mastery

In previous blogs, I’ve sermonized that Asset Allocation is the highest leveraged activity that investors can undertake.  We produced an entire two-disc DVD on how to execute what we call our “Methodology Allocation” process which maximizes the benefits of a CORE & EXPLORE approach and then optimizes it by laying on top a “Best-of-the-Breed” technique.  

I bring this up because the previous Action Practice #11 blog is ideal to use as an example.  In our book, we present the correlations of 59 different asset classes.  We invite investors to pick perhaps ten of these classes which are spread across the entire correlation spectrum so that you achieve diversification with a lower beta.  In other words, when one asset class goes down, another is likely to go up.

Country funds are an ideal asset basket for this because they have a lower beta and a lower correlation to the S&P 500.  Therefore, to implement our  Methodology Allocation process, you would install nine asset classes in the CORE portion of your portfolio and use the “Best-of-the-Breed” technique with these nine by investing in the top-rated ETFs or mutual funds for each of those nine different asset classes.

The remaining tenth asset class could be Country Funds where you deploy your EXPLORE strategy for your portfolio.  It could be as little as 5% of your portfolio (or up to 20%), but here is where you go for asset growth.  The CORE portion is for asset protection with more modest growth as the prime objective.

The advantages of this approach is an entire DVD, but the bottom line is that you can achieve both asset protection, diversification and portfolio growth with a focused approach in which you become a bit more of an active trader with a small portion of your portfolio and all the satisfaction that comes with it.

Returning now to the Action Practice #11 blog, here is how I would group the six country funds.  The exercise was to group the funds based on the following:

  • Group A:  Buyers in Control — Positive Money Flow / Volume Accumulation
  • Group B:  Neutral Money Flow — Flat  Money Flow
  • Group C:  Sellers in Control — Negative Volume Accumulation

Here are the results for Action Practice #11:

Group A  — Both Argentina and Sweden exhibited the most positive money flow and subsequently continued making us money.

Group B - The neutral money flow of both South Africa and the Philippines resulted in a basically flat price trend.

Group C — Nigeria and the United Emirates had negative money flow and the sellers remained in control as both continued to lose more money.

This Week’s Action Practice Charts:

Let’s continue with the Country Funds as an Asset Basket.  Again, one of the many reasons I like this as an asset class is because its global nature makes it interesting to trade, while the low correlation to our S&P 500 makes it a sensational diversification vehicle.  Layer atop that the fact that over the past 30 years, the world’s top performing market has been outside the USA 100% of the time, and you can see why this asset basket is worthy of your attention!

This week, the exercise is to rank these six country funds in order of attractiveness. Good luck.

Trade well; trade with discipline!
- Gatis Roze, MBA, CMT


Gatis Roze
About the author: , MBA, CMT, is a veteran full-time stock market investor who has traded his own account since 1989 unburdened by the distraction of clients. He holds an MBA from the Stanford Graduate School of Business, is a past president of the Technical Securities Analysts Association (TSAA), and is a Chartered Market Technician (CMT). After several successful entrepreneurial business ventures, Gatis retired in his early 40s to focus on investing in the financial markets. With consistent success as a stock market trader, he began teaching investments at the post-college level in 2000 and continues to do so today. Learn More