Another Period of 'Blah'

My apologies for once again going so long between posts.  The market, as I kind of thought it would, has returned to sluggishly heading upwards.  It probably will until something is done with interest rates.  I'd imagine that that something will have to be drastic to send the stocks into a spiral.  Yet, it's an unknown, which is why I like this method.  If the market keeps going up, so will these accounts.  If it crashes, there is cash to buy stocks at a bargain.

There is becoming a situation where there is so much cash in the accounts that I may start to use the method I found on one particular website that had some 'improvements' to Mr. Lichello's formula. I've probably talked about it before - when there is a buy market order, but the cash is above 50%, the amount of the order is added to the Portfolio Control, and no actual order is put in.  I half did this with one of the kids' accounts...in other words I put half of the amount in PC and the other half I put in an order.  Doing this all the time, I admit, would be a bit expensive because of the commissions, but I figured it doesn't happen very often.  If the market would go really nuts in the up direction, I may put the whole thing into the PC, so the cash percentage would be down closer to 50%.  This prevents the cash amount getting out of hand when the market goes up for ever and ever.

I did open an account with a little money I discovered my youngest son had from an account that I thought I had taken all the money from.  There wasn't enough to do an individual stock account, so I opened one using a low-priced Exchange-Traded Fund, or ETF.  I found one that had fairly low expenses, and would move similar to the S&P.  The fund's symbol is XLF - it's the Financial Sectors fund...not as volatile as an S&P or Dow fund, but its share price is not much more than $20, which works out well in this situation.  I figure to have a minimum order of $70 instead of $100. I plugged in some worst-case-scenario market prices to get this figure.  I just wanted to make a situation that would give the account a chance to have some activity in the case of a market blow-out, but also lower the possibility that the account would run out of cash before the market bottomed.

I try to let every one know of these modifications to the regular method...if someone would be opening an account with, say, $1000 or more, then the regular method works fine.  I recommend having at least $2000 or more to do an individual stock fund, and a search would have to be done to find stocks that are low enough in price and that still pay a dividend, just to have good rules in play for the stocks, if nothing else (the dividends are also helpful with the cash that is constantly trickling into the Cash part of the account.)

In order to do a 'Dogs' account right now, probably a $4000 or $5000 starting balance would really be needed, because the stocks of the Dogs of the Dow, even the small ones, are currently pretty hefty in price.  It's best to at least have 5 or 6 shares of each stock, and the more the better.  The larger amounts make it easier to buy or sell the amount of stock that AIM is dictating.

Correction! (In the market, that is)

This month I had the first buy signal in the buy/sell advice column since 2009.  Now, granted, the amount of the advice was a very small amount, and it would have to get up around 10 times what it is to actually have me buy some stock.  AIM has buffers in place to keep you from getting in before the market gets near its low.  Even when it does tell you to put in an order, there's no guarantee that the market has bottomed out.  If the rules are followed, though, a load of stock will have been bought at the cheapest prices of the stock, historically.  Also, the 'only put in one order max a month' rule keeps the trader from spending all his or her cash before the market starts heading back up.  Fortunately, history tells us that down trends are much faster than up-trends.  That means that with AIM, there will always be more than enough cash to buy stocks at bargain-basement prices.  There have been a few who have figured out modifications to the formula that keep the trader from accumulating too much cash in an extended bull market.  I've looked at those and find them to be still very conservative and fit within the parameters that the original inventor of this method likely would have approved.

      It's very likely that this is just a correction and the market may continue its run for a while longer.  I would have to guess that, at the very least, this is a sign that something big is coming up in the not-to-distant future, in the way of a catastrophic market move.  Fortunately, I don't have to guess about these things, and no one knows for sure what is going to happen.  All I know is, the thing won't go up forever, and what happened last week is almost always one of two things:  the beginning of a larger down-swing, or a foreshadow of very rough waters ahead.

An Idea for a Hedge

This bull market just keeps cruising along.  Today is the first time in 4 months that I haven't sold some stock from my account when I was doing the monthly adjustment.  They haven't been big sales, but sales, nonetheless...
I started looking at ways to further hedge the AIM account without shelling out a lot of money, or putting my account in danger.  Option guys say, 'you'd buy insurance on your house or car, wouldn't you?'  I just don't want to be constantly paying for insurance as a market rises, not knowing how far it is going to go.  I figure I'm on a pretty tight budget.
I started looking at the VXX Index, which changes with the short-term volatility of the market.  The great thing about the VXX Index fund is that it is an ETF, or Exchange Traded Fund.  You can hold onto it forever...it's just like buying a stock.  Options expire...you have to constantly renew them or buy new ones.
The VXX is historically low right now, because this market just keeps rising without much correction.  We all know that this will not go on forever.  In 2009, when the market was completing its crash, the VXX rose to around 7000!  I look at this as a great opportunity to create more cash for when the market does make a serious correction, or worse.  I bought a few shares in my account and some in my son's, who has a bunch of cash built up.  I also set up AIM accounts for each of them, so if it starts to go up (as it would in a serious correction), AIM would indicate how much to sell, so if it keeps going up (as in something more catastrophic), you'd still be making money on the remaining VXX shares.
When the market goes back into a long-term bull mode again, then you'd be asked to by more VXX as the market became more docile, usually in the latter parts of a long bull run.  The same rules apply, and the way I figure, the worst case scenario, as far as the VXX is concerned is that it keeps going down, in which case the market would be continuing its way up.  To me, it's a no lose situation.  I'll continue this and report if there does turn out to be a hidden problem with this plan.  It just seems that it is the perfect hedge to use on the other side of an AIM stock account.