Trading with Charts for Absolute Return

TRADING A DIVERSIFIED PORTFOLIO

Generally speaking, stocks move in positive correlation with the major market trends. Because of a noticeable correlation among stocks themselves, diversification becomes more difficult than in relevant cases that address uncorrelated products such as stock index futures, cash currencies, or commodities of different sorts. The investment industry suffered massive losses in 2008 in stock investments because the diversification in the key portfolios did not work—and will never work as long as the individual stocks in the portfolios are not analyzed by means of better timing instruments.

In strong bull or bear markets, all stocks move in the same direction as the general market trend, either up or down. The only difference is the size of the swing. No matter what Markowitz says, in these times just being diversified in different stocks does not give any protection against severe damage in the equity curve.

My business is based in Switzerland, and therefore, it obviously looks more at European stocks than stocks in the United States. However—as the results on IBM shares have shown—it does not matter in what country the analysis is applied to stocks. It works well and has a high chance of being profitable in upcoming years, because human behavior as the basis for analysis has been a constant factor for more than 150 years.

The portfolio analysis is based on 20 stocks from a universe of stock indexes, namely DAX, SMI, DJ Stoxx 50, and DJ EuroStoxx 50. ...