These Dutch Guys were in Tokyo almost ten years ago, when the subprime crisis broke out at the moment Lehman Brothers defaulted. They were hardly aware of this event: only the huge headlines on a newspaper that was stuck between the doorknob and the doorframe of another hotel room made them stop in their tracks for a second.
Seven years later, they went to see The Big Short. In this movie, the subprime crisis of 2008 is explained. It was on that very day, that the first ideas were exchanged between them that would eventually lead to the start of this blog. Their first idea was to make use of momentum and being contrary: if you can recognize the patterns in the markets you can anticipate on upcoming waves. Buy when markets are about to go up and sell when they are about to go down. With the availability of huge amounts of data on stocks and stock markets and their programming skills, they were able to test those ideas on large data sets. It looked like they were after something.
They started testing their approach in real life and some fine trading results were achieved. The idea was born to share their strategy with the world. Initially, they considered waiting for a couple of years, to see what the results would be. But they changed their mind and decided to start this blog: to be completely open about their strategy, successes, failures, considerations, doubts, etc. The domain name thesedutchguys.com was registered, WordPress was installed, some artwork was created and the first of the 437 blog posts that were published until today saw the light of day. In each blog post, trading signals, the results of our models, a reflection on the markets and a personal note were included.
In the first one and a half years of existence, our model White Chapel had no trouble living up to the expectations that were created by the historical backtests. Danny Daredevil, our oldest flavor of White Chapel, was able to reach a return of more than 400% in May 2017, after 17 months of live trading.
But shortly after that, something odd started to happen: it seemed like stock markets became totally immune to bad news. Volatility remained at low levels for a very long time. It was a bit unusual and somewhat harmful to our models, most of which profit from swings in sentiment in the markets. Still, they were able to record a positive return.
But then last Monday, something unprecedented happened. It was not unusual that after a period of more than a year in which markets saw a strong rise of stock prices, a correction would occur. What was totally unprecedented was the magnitude with which volatility went up. It was even more remarkable that this all happened during the hours that the official markets had closed, in so-called after hours trading. As explained on the Do It Yourself page, These Dutch Guys had seen drawbacks of 75 percent in their data sets. But these usually occurred after a steady decline which took three to four weeks, as was the case during the market correction that occurred in August 2011.
Monday evening, something similar happened, but it now took place in three to four hours. This was of course in itself a dramatic incident. But history has shown that in most cases stock markets spring back during the next couple of days. Which in fact happened in the course of Tuesday. But the deathblow had by then already been given to XIV ETNs: Credit Suisse decided to stop the trading of these ETNs. It was not clear whether or not Credit Suisse wanted this, but the company seemed to be forced by circumstances: until the announcement came, markets remained very turbulent (with the VIX jumping above 50 points). The action by Credit Suisse not only dealt a blow to the price of XIV ETNs, but also diminished their chances of a recovery. After 21 February 2018, XIV ETNs will no longer be available for trading.
These Dutch Guys will dedicate tomorrow to discussing what to do with XIV ETNs. And to talk about the future of their trading strategy, their models and this blog. To be continued.
Yesterday, the major US indices bounced back. The Dow gained 2.3%, the NASDAQ closed 2.1% higher and the S&P 500 recorded a gain of 1.7%. Volatility eased: the VIX closed almost 20% lower. UVXY ETFs fell sharply and lost more than 33%. Normally, XIV ETNs would profit from this drop in volatility, but due to the so-called acceleration event which happened in after hour trading last Monday and on which we reported yesterday, XIV ETNs lost more than 90% of their value.
Since all of our models were in the possession of XIV ETNs, they all suffered heavily. Danny Daredevil, Adventurous Anny, Solid Suzy and Lazy Larry now all have RSS’s which are close to -90%.
None of our models gave a trading signal at the end of yesterday’s session.
RSS = Return Since Start | YTD = Year-To-Date | QTD = Quarter-To-Date | AAR = Average Annual Return
Bankers taking one last look at the bull.
Picture taken at the foot of the Marunouchi Trust Tower North Building in the central commercial district of Tokyo, located in Chiyoda between Tokyo Station and the Imperial Palace.
Marunouchi is also Tokyo’s financial district – the headquarters of Japan’s three largest banks are located there.
The date: 12 September 2008.