Portfolio Manager & 2017 Charles H. Dow Recipient Talks Volatility, 2018 Markets, & More.
We had a portfolio manager, CMT, and the 2017 Charles H. Dow winner answer questions on cryptocurrencies, reflect on 2017 and share thoughts on what might be coming in 2018.
Andrew Thrasher, CMT is a portfolio manager for a private wealth management firm located in Indianapolis, IN. He also holds a Series 65 securities license. He manages portfolios of individual stocks and ETFs for the firm’s clients using primarily technical analysis. Andrew serves as a member of the investment allocation team, which manages 2 long/short strategies and 5 long-only strategies. He focuses on looking for momentum-type setups and occasionally mean-reversion opportunities as well as sector rotation and trades in volatility. Andrew is a Chartered Market Technician through the CMT Association and recently received the Charles H. Dow Award for his research on market volatility with his paper, Forecasting a Volatility Tsunami. Andrew writes regularly on his blog, athrasher.com as well as for SeeItMarket.com. What follows is a recap of the Q&A. For the full transcript please GO HERE.
I’m going to have a few for you, but: What is the chart or stat you are most focused on right now? 2018 outlook? — michaelbozzello
Right now I am interested in the relationship of small to large cap stocks as small caps typically do well at year end. I’m not one to make forecasts for a full year, but seeing some volatility come back to the market would make sense.
Were you surprised by the lack of volatility this year? Thoughts on volatility heading into 2018? — Nirbush
Yes, I made a few vol posts on my blog that lead to spikes or at least lows in spot $VIX, but it’s been truly amazing how low volatility has been this year. While I think equities will stay in an up trend in ’18, seeing volatility come back would be normal
What do you for-see as the hottest sectors 1H 2018? Where do you see Biotech/Pharma falling on that list? — StockTrader21
No idea what the hottest sector will be, I’ll look to relative performance to see what begins to move. There’s been a lot of great developments in biotech, but it can be a very high beta sector. Government legislation will also matter.
What are the best ETFs or Index funds for long-term investment (10–15 years) ?— StockTwiitz
I can’t make a specific recommendation but broad-based funds with low fees are where i’d be looking along with some international diversification and mid/small caps, which when looking out 10–15 years.
There is no history to predict cryptocurrencies future, what is your opinion on where they will go in general? — MoneyMiner
I’m by no means a crypto guy, but just like stocks there is supply/demand that can be analyzed in price charts. Many have had success with technical analysis principles applied to crypto in these early days of its trading.
How does one’s thinking about valuation adapt over time, especially given technological change? — danlevitan
I do think adaption occurs. we can see that with semiconductors vs. copper. which I’ve written about a couple times. As technology has become a bigger share of our economy and market.
I have a Consumer installment debt question. Please see below. Thanks in advance. — Sapientrade
My take on what I wrote is that consumers decreasing debt isn’t a bad thing in general. can it persist forever? obviously not. As you said its correlation to the market trending up. Beyond that I’d need more time to think and look at it to give a full answer.
What types of symptoms do you look for with your mean reversion technique? Do you use indicators? — coverthecall
I’m a a big believer in momentum, so for mean-reversion I look for momentum divergences in indicators like RSI. I also look at volume and if volume has begun to dry up during a re-test of a low & if relative performance has improved at all.
As a young investor, what stocks would you purchase when you’re first starting out? — Adonis21
My advice to a young investor is to spend more time reading than investing. Really get an understanding of what investing is and what kind of investor they are. Read about technical analysis & fundamentals. the Market Wizard books are a great place to go.
What’s your opinion on the rapidly expanding crypto markets? — Studyhalltrader
It’s really interesting to see the birth of crypto. where it’s headed is anyone’s guess but I don’t see it disappearing. I think a lot of money will be made and lost as we figure out what crypto is and its utility. not there yet.
Why do you think wage increases have been so muted with the unemployment rate at a muti-decade low? — Matt__Simone
No idea. I don’t involve wages or the UR in my decision making, it’s constantly revised each month. I’d much rather look at the actual supply/demand of the market and stocks to get my info on trade decisions.
I read there’s a shift away from long/short hedge funds (to long Quant&Index)- do you see this trend continuing? — Lonesome
With the under-performance of Hedge Funds they have to do something. The flavor of the month right now is qaunt/smart beta.and it’ll get cannibalized eventually like everything else. I think the use of computers in trade decisions will continue.
I own too many stocks. I need a better way to build and balance a portfolio. What % should each holding have? — BobbyBlockchain
That’s a great question & something we all must figure out but it’s dependent on your style of trading and risk threshold. Some traders can hold 30% positions while others risk tolerance needs just 1–2%. Minervini does a good job discussing this topic in his book, Think & Trade Like a Champion.
What is your estimate of the probability of a correction of at least 10% in the next 3 months? — alexsimonelis
There’s always a chance of correction. a 10% down move used to be normal, we just haven’t seen one in a while.historically, what we’ve seen this year isn’t normal behavior. 5–10% corrections are part of a healthy bullish market. Not something to be afraid of. but can’t know ahead of time when we drop 10% that it’ll bounce or go down another 20% we just have to manage what the market gives us, using the analysis of supply/demand to manage risk.
What industries do you see going far in 2018? — Michael_Stock
There’s a lot happening in the tech space, so I believe there are plenty of catalysts that make some tech names look good.
Did 2017 surprise you more than most years? How did you shift or evolve your habits or indicators? — bearcharts
Anyone who says they weren’t surprised by 2017 and lack of downside volatility is lying. One shift I made was a greater focus on momentum stocks as that’s where leadership seemed to be and understanding the type traders that are working in different environments allows you to fluidly adapt and be successful.
Any advice on AAP in 2018? Thinking about dumping it all. — ldc0973
Definitely a down trend. the bounce in Nov. filled the Aug gap but has pulled back since then. There’s not a lot I see on the chart that makes me excited, it appears to gap-fill and head lower several times this year.
What does balanced portfolio look like 2018? — wondercuriosity
Well it would depend on the persons risk tolerance. A basic balanced portfolio is often described as 60%/40% stock/bonds. Now that may not be right for every investor, it all depends on their own personal goals and risk threshold.
When you look at the stock-market and algo-trading- what do you think the average turnover is for a stock in days? — Stocks4thought
I believe I read somewhere the average hold time was like 22 seconds. But, you can’t get bogged down by that. The algos trade with each other and aren’t really something I worry about in my analysis.
What are some noticeable mistakes that retail traders are making?—
danipod
Not having a defined strategy for how they are making decisions. The moment something stops working throws them completely off when they don’t have a well defined plan. If you cant write it out and explain it to a child, then you don’t fully know the answer what you’re doing and how to make decisions. Learning from others and using platforms like @stocktwits can help, but you must define it for yourself at the end of the day.
Regardless of all the hoopla, digital transfer of wealth means the end to Western Union and Moneygram.. thoughts? — gwik
It would seem like it. Just like brick & mortar retailers, money transfer firms must adapt to new tech or die.
How do you pay less Tax at end of year? :) — JamyJar
Hire a good accountant and do the required planning THIS year. After Dec. 31st you can’t go back. We do a lot of tax planning work with my firm’s clients. Implementing several strategies to help lower their tax bill. There are tools out there, it’s just a matter of knowing what to do. Which having a competent advisor and CPA can be important.
What is the outlook for value investing in the future? Is it dying? — Rashar10
I wouldn’t say its dying no. Different styles of investing have their good and bad periods. Buffett writes a lot about this. This year momentum was very strong. Value did well in 2016. neither will become nonexistent.
Are your momentum style setups based purely on price or do you factor in volume or sector relative metrics also? — patrickrooney
I do look at volume & relative performance. I wan’t to see strong volume on up days as a sign of the stock being accumulated. Using sector metrics can be useful as well in finding opportunities.
What do you think about bitcoin and its impact to the financial markets? Do you see this as a passing or a shift ?— McCarthyWill
I don’t think it’s going to disappear. We’re still figuring out what it is as a society. It may not look like it does today in its final form, a lot of money will be made and lost during its discovery process.
Hi Andrew. Love your work. While you were studying for your CMT level 1, what were the main areas of study you’d recommend to an aspiring CMT. What books or resources do you suggest for the pursuit? Thanks!— alistair_chart
I focused on the topics The CMT gives, it’s a lot different I believe now than when I took it as far as reading material. I think it’s important for all 3 tests to truly understand the concepts and tools vs. just memorizing definitions. Practice using them, if studying candlesticks for instance, maybe youtube it and watch someone visually explain it. Whatever method helps you better understand it will help with the exams and also after the exams in the ‘real world’. I like Minervini’s books, Market Wizard series is excellent, TA for the Trading Professional is a great book too.
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