Time to look at the big picture

This is a chart of my long-time favourite, QQQ3. I have said before that an entire investment strategy can be built around this amazing stock. It is not working brilliantly for me so far but then I started buying when the price was over $200. Even so I have great hopes and my average entry price is now around $100 and is going to come lower because I have decided to buy some more today.

My latest purchase has taken my average price down to just below $90. One way I can justify it is by referring to my buy on a green strategy. The idea here is that you make a purchase every time the month ends with a green candlestick and the candlestick for October was green. If November ends with a green candlestick I should buy some more using this strategy. If it is red I wait, which sounds a good idea given that the shares are already down 76pc from the peak.

These can only be bought in a share account on IG because they already have built in leverage. At one stage I was going to buy QQQ on a leveraged account because there I get five times leverage, which is a high figure but works for me. However when I did the sums I realised that QQQ3 moves more than QQQ times five and the reason why is because QQQ3 is rebalanced daily which gives it incredible momentum. It is already up 36.6pc from the lows.

There is another strategy which you could follow with this chart, which is to buy on a red. This works well. If you had invested an equal amount on every red candle since QQQ3 was launched you would have $4.25 for every $1 invested and every prospect that gain would increase dramatically with the next bull market.

What that really tells us is that if you have a volatile security which moves higher over time any steady investment programme will produce great rewards. £-cost averaging is especially good because you buy more shares at lower prices.

The beauty of an ETF, even a leveraged one, is that it should not go bust. As it happens QQQ3 could theoretically go to zero if the index fell 33.3pc in a day. Multiply that by three and QQQ3 goes to zero. Against that the US stock exchange has a circuit breaker system so trading is suspended if the index falls by 10pc in a day and QQQ3 has a restrict system so that even at zero there is a price and then the fund keeps rebalancing so it would presumably arise from the dead as it were.

There have been examples of the restrict price being needed but I think only for funds leveraging going short where the potential losses are unlimited. Long funds should not have the same problem.

The effect of being rebalanced daily is that QQQ3 works like an incredibly aggressive momentum fund. It is a big effect. Since December 2012 when QQQ3 was launched the Nasdaq 100 index is up trough to recent peak by 6.3 times. Multiply that by three for the leverage and the gain goes to 18.9 times. But the reality is that over this period QQQ3 rose by 92 times.

This explains my theory that if you buy into this fund you may rack up short term losses but at some point it is going to move dramatically higher and produce large gains.

There is another advantage of daily rebalancing. I have not been able to find out exactly how this works but QQQ3 tracks the Nasdaq 100 on a daily basis. A reasonable assumption is that daily rebalancing means that every day it is rebalanced for the 100 biggest shares by market value in the Nasdaq 100 and this list is changing all the time.

What that means is that as new shares move into the list they are tracked by QQQ3 so if new leaders emerge in the next bull market this will be immediately reflected in the performance of QQQ3. It seems to me that this gives a powerful can’t lose element to the performance of the fund. Hopefully those are not famous last words.

Investment advisers keep saying that QQQ3 is not suitable for long term investment but that seems to me to be contradicted by the evidence. If you had bought on day one and were still holding you would have multiplied your investment by over 20 times. If you had pursued some form of £-cost averaging programme you would be up say four times, even though the fund is down over 70pc from the peak.

QQQ3 looks to me like a classic win in the end investment and because it is so strongly leveraged when you win you win big. You may also decide to lock in some gains whenever the fund gives a sell signal.

There is also Coppock to consider. On my calculations the Coppock curve will turn up in March 2023 and it will turn up from a huge minus, the lowest figure recorded since the fund was launched. Coppock buy signals have been sensational in the past but there have only been two which is itself significant. These Coppock buy signals are rare opportunities. I am expecting to at least double my position when Coppock says buy.

The other ETF in which I have become even more interested is OGIG, which is a proxy for the QV portfolio and has endured a bruising bear market. It is actively managed but as far as I can judge it is not very active. The portfolio looks much what it was a few months ago, which explains why the shares have taken such a beating in the bear market. There is strong support around the current price and the shares are fighting to hold around this level after an earlier attempt at a rally failed.

If we think in terms of the big picture the shares have had a huge run up between March 2020 and February 2021 and then an equally dramatic collapse. What struck me about OGIG is that the Coppock indicator looks set to change direction next month, which came as a big surprise. OGIG is like an index based on the QV portfolio which is why I watch the shares so closely. A Coppock buy signal would be an exciting event and because of the short share price history would be the first one ever given by this share.

The thing I have noticed across a wide range of investment instruments including indices, ETFs, shares and cryptocurrencies is that holding the instrument while Coppock is rising is nearly always a good idea. In the case of OGIG we started getting Coppock numbers in May 2020 and the indicator climbed from then until February 2021. Over that period the shares more than doubled.

I have the feeling that an initial purchase of OGIG could be made right now as the first step in a buying programme. So I am making an initial purchase with a view to making further purchases on buy signals including, hopefully, a Coppock buy signal next month.

Strategy

I have the feeling that the mood is changing. We have had a massive sell-off in US shares especially the high momentum 3G shares that performed so well in the preceding bull market. Investors have absorbed a great deal of bad news with widespread lay-offs in technology after years of aggressive hiring.

The pressure is starting to bite with a major cryptocurrency business going bust. There may well be more pain to come.

We have had a fierce spurt in inflation and a dramatic surge in interest rates. We have had mid-term elections in the US which at least make it less likely that Trump is going to be able to run again for the presidency but who knows what Trumpty Dumpty may decide to do. If Trump does not run and the Republicans field a younger man that is going to make it hard for Sleepy Joe to run again unless America is ready to be led from a care home.

There is always the possibility that a few things could start going right in the world. I am thinking this because my daughter’s family bought a weeks old whippet puppy a few days ago. My son-in-law was walking Disco in the common and he suddenly vomited, choked, had convulsions, went limp and was barely breathing.

They rushed him to the vet where amazingly there was another older dog with a similar problem. The older dog died. Disco was put on oxygen to keep him alive and the vet warned my daughter to prepare for the worst. I found out what was happening when I rang her and she was sobbing so much she could hardly speak.

Happy Ending guys. Disco made it. He is back home, overjoyed to be there and especially excited to be reunited with my daughter and he is OK. Such a relief!

In a world where miracles can happen maybe we can have a new bull market. Remember what Warren Buffett says – when thinks look dark he believes in the energy and ingenuity of the American people and so do I.

Nothing has changed on my charts but we are getting closer to a new year and the strong likelihood of my Coppock indicators turning higher from massively negative positions. I don’t have the figures for the Nasdaq 100 for 2009 but I do for the Nasdaq Composite which turned up from negative in July 2009. I anticipated that turning point and turned bullish in my publications in March 2009 when the moving averages changed direction.

Coppock flickered into negative in May and June 2016 before turning higher in July, which was again an excellent time to buy US shares. Now my table is forecasting the Nasdaq Composite reaching minus 256.4 in January 2023 before turning higher in February 2023. Before that Coppock turned higher from negative in September 2001, the same month as the planes crashed into the World Trade Centre and another great moment for buying US shares. I feel bad about saying that remembering how many people died but it is what happened.

This chart of the Nasdaq Composite index makes the long term case for buying US shares. It spends most of its time going up and opportunities to buy after a sharp decline don’t come that often. The turn of the millennium saw an incredible boom and bust but even after that US shares picked themselves up, dusted themselves down and carried on climbing. There is something very special about America.

Meanwhile there are plenty of negative charts out there including many important ones. This is still a time to be cautious and we don’t yet have any buy signals for important benchmarks like the indices.