Visual Understanding of Sector Surfer Strategies

Are classical visualization tools useful in understanding SS

Stephen Lundstrom

Process

• Download .csv file from SS• Perform (manual) 11 year backtest (VV)• Capture 10 equity curves from backtest• Prepare more detailed charts using TC2000:

• Vertical lines indicate trades• Equity symbols indicate what was owned during

each period• All equities owned during chart time frame shown –

provides Sector Surfer context.

VV Backtest• Settings

– Account • initial investment $100,000• No commission, no margin• No interest on cash (SS includes some interest)

– Automation• trades entered manually

– Dates + Equities from Sector Surfer .csv download– Closing prices from VectorVest

» No dividends» Trades following morning

– Test Period• 1/2/2002 to 12/31/2012

TC2000 equity comparisons

• Used SPY to show overall market behavior– Green dashed line; chart scale applies to SPY

• Can compare up to 10 equities– Chose only those equities selected by SS during the

timeframe depicted– Comparisons used to show trends, not values

• Annotations – Vertical bars depict where trades were made– Equity owned in each period shown– Primary drawdowns shown

• (in red – matches backtest annotations)– Yellow areas highlight possible better choices

Two Hall of Fame strategies selected as case studies

• #1 ETFs: SectorVarious1• 634933549324271250-3961-3-38782 • ZROZ not supported in VV

– Manually entered ZROZ gains per SS .csv file

• #1 Top Dog Stocks: Recent Yield• 634891329763437500-3017-1-32874 • Dropped some stocks (TC2000 limitations)

General Observations

• Equity selection within portfolios studied generally quite good.

• Yellow areas on CLOSER LOOK charts highlight better choices – (with perfect hindsight)

• Not all ETF equities available over entire study periods (mine or SSs)

• Use of stop losses or other techniques might be needed to reduce max. drawdowns.

Strategy: SectorVarious1

• Current top SS Hall of Fame ETF– SectorVarious1

• 634933549324271250-3961-3-38782

• ETFs: (study period 1/2/2002 – 12/31/2012)

ITB 5/23/06

EEM 4/25/03

EWW

ZROZ 2/14/11

GLD 11/24/02

PPH

REZ 1/17/08

XLE

IWM

BAL 7/31/08

QQQ

IBB 6/29/01

Stormguard ON

From From From

14 Year Chart

10 Year Chart

Summary Statistics:SectorVarious1 ETF Strategy

Sector Surfer Backtest

10 yr annualized return 42.9%10 yr CROR (w/o dividends) 33.2%10 yr Max Drawdown 25% 25.9%Sharpe Ratio 0.98Score 195Safety 41.0Alpha 39%Beta 0.81

Count of % Gains Reported(does not take holding period into account)

0123456789

10

-4.0 --7.9

-2.0 --3.9

-1.0 --1.9

+0.9 --0.9

+1.0 -+1.0

+2.0 -+3.9

+4.0 -+7.9

+8.0 -+15.9

+16.0-

+31.9

+32.0-

+63.9

>+64

47 trade pairs: 1/1/2002 – 12/31/2012% Winners 77%

%Gains

Smallest Gains: -7.2% (twice)Largest Gains: 32.6%, 76.0%

SectorVarious1 Strategy

What SS Has to Work With (only 10 of 12)

SectorVarious1 Strategy

Backtest 10 yr Equity CurveShowing VV Confirmed Calls

MaxDD-25.9%

$2M

Jan 2002 – July 2003

EWW+4.2%

$CASH

6/02 – 4/03

IBB

+28.7%

$95K

$125K

Jan 2003 – July 2004

IBB

+28.7%

$CASH

6/02 – 4/03

XLE

+7.6%

EWW

+6.0%

EEM

+10.5% EWW

-4.5%

IBB

-2.8%

$110K

$160K

Jan 2004 – July 2005

XLE

+7.6%

EWW

-4.5%

IBB

-2.8%

XLE

+7.8%

EEM

+26.7%

EWW

+6.8%

XLE

-7.2%PPH

-1.8%

$150K

$200K

Closer Look

Jan 2005 – July 2006

EWW

+6.8%

XLE

-7.2%

PPH

-1.8%

XLE

+10.1%

GLD

+5.8%EWW

+13.7%EEM

-1.8%

IWM

+0.3% GLD

-5.9%

$200K

$250K

21.7%drawdown

Closer Look

Jan 2006 – July 2007

EEM

-1.8%

IWM

+0.3%

GLD

-5.9% PPH

+9.0%

EWW

+32.6% XLE

+14.8%

$250K

$350K

Closer Look

Jan 2007 – July 2008

EWW

+32.6%

XLE

+14.8%

EEM

+16.5%

GLD

+18.2%

$CASH2/08 – 5/08

$350K

$500K

XLE

+3.2%

Closer Look

Jan 2008 – July 2009

$CASH2/08 – 5/08

XLE

+3.2%

$CASH7/08 – 6/-09

$460K

$560K

Closer Look

Jan 2009 – July 2010

$CASH7/08 – 6/-09

EWW

+10.7%

ITB+1.7%

REZ-2.1%

XLE

+2.8%

GLD

-7.2%

ITB

REZ

ITB

REZ+6.2%

REZ-4.8%

ITB+10.0%

$500K

$640K

19.5%drawdown

Closer Look

Jan 2010 – July 2011

+6.2%ITB+10.0%

ZROZ*+14.9%

BAL

+76.0%

IBB-0.7%

$600K

$1.4M

25.9%drawdown

25.9%drawdown

Closer Look

Jan 2011 – July 2012

BAL

+76.0%

IBB-0.7%

ZROZ*+6.8%

GLD

+12.3%

ZROZ*+26.0%

$CASH9/11-11/11

ZROZ*+6.9%

ITB+28.7%

25.9%drawdown

$1.0M

$2.1M

Closer Look

July 2011 – Dec 2012

ITB+28.7%

ZROZ*+0.9%ZROZ*

+6.9%ZROZ*+26.0%

GLD

+12.3%$CASH

9/11-11/11

ITB+17.0%

$1.2M

$2.2M

Closer Look

SectorVarious1 - Trades

Date Sell Buy Gain%

12/31/12 ITB 17.0%

8/31/12 ZROZ ITB 0.9%

5/31/12 ITB ZROZ 28.7%

12/30/11 ZROZ ITB 6.9%

11/07/11 $$$$ ZROZ 0.0%

9/30/11 ZROZ $$$$ 26.0%

8/31/11 GLD ZROZ 12.3%

7/29/11 ZROZ GLD 6.8%

6/30/11 IBB ZROZ -0.7%

4/29/11 BAL IBB 75.0%

9/30/10 ZROZ BAL 14.9%

5/29/10 REZ ZROZ 6.2%

3/31/10 ITB REZ 10.0%

1/29/10 REZ ITB -4.8%

12/31/09 GLD REZ -7.2%

Date Sell Buy Gain%

1/31/06 EWW EEM 13.7%

11/30/05 GLD EWW 5.8%

10/31/05 XLE GLD 10.1%

6/30/05 PPH XLE -1.8%

4/29/05 XLE PPH -7.2%

2/28/05 EWW XLE 6.8%

12/31/04 EEM EWW 26.7%

8/31/04 XLE EEM 7.8%

5/28/04 IBB XLE -2.8%

4/30/04 EWW IBB -4.5%

2/27/04 XLE EWW 7.6%

12/31/03 EWW XLE 6.0%

11/28/03 EEM EWW 10.5%

8/29/03 IBB EEM 28.7%

4/30/03 $$$$ IBB 1.2%

5/31/02 EWW $$$$ -2.7%

1/31/02 $$$$ EWW 4.2%

Date Sell Buy Gain%

11/30/09 XLE GLD 2.8%

10/30/09 REZ XLE -2.1%

9/30/09 ITB REZ 1.7%

7/31/09 EWW ITB 10.7%

6/30/09 $$$$ EWW 1.8%

6/30/08 XLE $$$$ 3.2%

5/30/08 $$$$ XLE 1.0%

1/31/08 GLD $$$$ 18.2%

11/30/07 EEM GLD 16.5%

7/31/07 XLE EEM 14.8%

3/30/07 EWW XLE 32.6%

8/31/06 PPH EWW 9.0%

6/30/06 GLD PPH -5.9%

4/28/06 IWM GLD 0.3%

3/31/06 EEM IWM -1.8%

Strategy: 9-Stock Recent Yield

• Started with current best TopDog Stocks:– Recent Yield

• Limitation on charting Tools (compare 10 stocks, equity not supported)

• Eliminate laggards on the strategy chart (APOL, NFLX)

• Eliminate equity not supported with tool (TC2000): PDC

9-Stock Recent Yield Strategy634955286436756250-3808-8-37784

• PCYC• MCHP • IIVI • AMGN • SWN • AMZN • L • GMCR• SRPT

Stormguard ONAll equities available for entire backtest 1/2/02 – 12/31/12

24 Year Chart

10 year chart

Summary Statistics:9-Stock Recent Yield Strategy

Sector Surfer Backtest

10 yr annualized return 85.6%10 yr CROR (w/o dividends) 67.3%10 yr Max Drawdown 59% 58.9%Sharpe Ratio 0.45Score 390Safety -0.5Alpha 92%Beta 2.51

Count of % Gains Reported(does not take holding period into account)

0

1

2

3

4

5

6

< (4.0) (3.9)-(2.0)

(1.9)-(1.0)

(0.9)-+0.9

+1.0 -+1.0

+2.0 -+3.9

+4.0 -+7.9

+8.0 -+15.9

+16.0-

+31.9

+32.0-

+63.9

>+64

29 trade pairs: 1/1/2002 – 12/31/2012% Winners 79%

Smallest Gains: -20.8%, -38.3%, Largest Gains: 279.5%, 457.2%

9-Stock Recent Yield Strategy

What SS Had To Work With

SPY

GMCR PCYC

SRPT

IIVI

MCHP

L

SWN

AMZN

AMGN

9-Stock Recent Yield Strategy

Backtest 10 yr Equity CurveShowing VV Confirmed Calls

Jan 2002 – July 2003

$170K

6/02 – 4/03

SRPT-20.8%

AMZN+29.3%

$CASH

AMZN+25.1%

Jan 2003 – July 2004

$300K

$CASH

AMZN+25.1% SRPT

+1.5% (?)

AMZN+13.6%

PCYC+13.1%

$150K

Jan 2004 – July 2005

$300K

$350K

$200K

PCYC+13.1%

SWN+89.5%

SRPT-10.4%

46.4% drawdown

Closer Look

Jan 2005 – Aug 2006

$300K

$500K

$1.1M

$600KSRPT-10.4%

SWN+53.0%

SRPT+8.7%

41.1% drawdown

Closer Look

Jan 2006 – July 2007

$600K

$1.1M

$1.0M

SRPT+8.7%

41.1% drawdown

IIVI+64.2%

GMCR+14.4%

Closer Look

Jan 2007 – July 2008

$900K

$1.3M

$1.1M

2/08 – 5/08

GMCR+14.4%

GMCR+3.3%

AMZN+28.9%

$CASH+1.0% (?)

SWN+7.4%

Closer Look

Jan 2008 – Aug 2009

2/08 – 5/08

$1.30M

$1.35M

$1.50M

7/08 – 6/09

SWN+7.4%

$CASH+1.0% (?)

$CASH+1.8% (?)

GMCR+19.1%

Closer Look

Jan 2009 – July 2010

7/08 – 6/09

$1.50M

$1.0M

$3.50MGMCR+19.1%

SRPT-38.3%

45.7% drawdown

PCYC

+279.5%

Closer Look

Jan 2010 – Aug 2011

$2.0M

$3.50M

$4.50M

PCYC

+279.5%

SRPT

-12.0%

AMZN-1.2%

IIVI-2.8%

GMCR

+62.1%

Closer Look

Jan 2011 – Aug 2012

$5.0M

$10.0M

$15.0M

$20.0M

GMCR

+62.1%

IIVI-2.8%

PCYC+2.7%

$CASH0%

PCYC+457.2%

Closer Look

July 2011 – Dec 2012

$5.0M

$10.0M

$20.0M

$30.0M

$35.0M

PCYC+457.2%

SRPT+78.8%PCYC

+2.7%

$CASH0%

GMCR

+62.1%

Closer Look

9-Stock Recent Yield Strategy - Trades

DATE SELL BUY GAIN

31-Dec-12 (SRPT) 78.80%

31-Aug-12 PCYC SRPT 457.20%

18-Nov-11 $CASH PCYC 0.00%

30-Sep-11 PCYC $CASH 2.70%

31-Aug-11 GMCR PCYC 62.10%

31-Mar-11 IIVI GMCR -2.80%

28-Feb-11 AMZN IIVI -1.20%

30-Nov-10 SRPT AMZN -12.00%

31-Aug-10 PCYC SRPT 279.50%

30-Nov-09 SRPT PCYC -38.30%

31-Jul-09 GMCR SRPT 19.10%

30-Jun-09 $CASH GMCR 1.80%

30-Jun-08 SWN $CASH 7.40%

30-May-08 $CASH SWN 1.00%

DATE SELL BUY GAIN

31-Jan-08 GMCR $CASH 3.30%

31-Oct-07 AMZN GMCR 28.90%

31-May-07 GMCR AMZN 14.40%

31-Jan-07 IIVI GMCR 64.20%

30-Jun-06 SRPT IIVI 8.70%

30-Dec-05 SWN SRPT 53.00%

30-Jun-05 SRPT SWN -10.40%

28-Feb-05 SWN SRPT 89.50%

30-Jul-04 PCYC SWN 13.10%

31-Dec-03 AMZN PCYC 13.60%

29-Aug-03 SRPT AMZN 1.50%

30-May-03 AMZN SRPT 25.10%

30-Apr-03 $CASH AMZN 1.20%

31-May-02 AMZN $CASH 29.30%

28-Feb-02 SRPT AMZN -20.80%

31-Jan-02 $CASH SRPT