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Steve, your morning call is on target. Good show!
That's a shame, because the public has been fed a bunch of lies about investing for years.
- Diversification is the only way to minimize risk
- Market timing doesn't work
- Technical analysis is voodoo
- Dollar cost averaging & buy and hold is a sure bet
- Mutual Fund managers can pick stocks
- $24 commissions per trade are reasonable
- Trust us, our analysts know what they're doing
- Shorting stocks is unAmerican and risky
Nothing in particular. Do you know of an online resource that lists ETFs by US DJ industry groups?
Are there sector ETFs that mirror the US DJ Industry groups?
Agreed. Better still, I wish I could use ProFunds or Rydex for my 401K. Mutual Fund managers suck at picking stocks, why doesn't someone in the industry just admit it? Their freakin index funds even have a hard time matching the market! Not only do my timing models need to outperform the market, they need to compensate for the underperformance of some over paid dope from Wharton.
Wouldn't a leveraged ETF be difficult to manage if you wanted to achieve specific targeted daily returns (i.e. 200% of an index) while allowing intra-day trading? Seems like Futures would be the better option.
I have no idea what the market is going to do today. We are entering a seasonally favorable period starting tomorrow. It will be interesting to see how things pan out given the recent decelleration in upward momentum.
Because the 10 EMA crossed above the lower Bollinger Band & the PPO looks like it bottomed and is turning up.
In the last post, I meant to say 1000 basis points - 10% in excess gains above buy and hold per annum.
Nasdaq Intermediate Index performance
I've been tracking the performance of this model real-time since 10/31/02 through timertrac.com . This is an equity asset allocation/timing model, so positions are percentages of long, short, and cash. Unfortuately, timertrac doesn't provide COMPQ data, but I've listed the performance of the model against the available indices. I think the performance is pretty solid considering the low risk approach; seldomly 100% long or 100% cash, rarely short with the max short position being only 20% for very a brief time. The goal of this model is to outperform the compq by 10 basis points per annum throughout a complete bull-bear cycle.
Real-time performance of the Nasdaq Intermediate Index from 10/31/02 to 5/19/03
Buy & Hold NII Model Difference
S&P 500 +3.95% + 9.12% +5.17%
NDX 100 +12.42% +10.04% -2.39%
RUT 2000 +9.32% +14.65% +5.33%
DJIA +1.15% +7.31% +6.16%
VIX triggered an all out bearish signal today - according to the way I interpret the indicator. Absolute VIX is meaningless to me, relative is the only whey to go.
All my intermediate charts look a little TOO PERFECT - signaling the top is either in or close at hand.
The skeptic in me makes me believe this is too easy (get into cash or load up on shorts). I have to believe the market will bounce around up here for a while [weeks] frustrating the bears before we get any meaningful retracement.
Nasdaq Intermediate Index for 5/20/03: -.33 (MILDLY BEARISH) EQUITY ASSET ALLOCATION: 50% Long, 50% Cash, 0% Short
http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID368318
Note: This is the first time this model has been in negative territory since 3/10/03
Nyse Intermediate Index 5/20/03 5/20/03: -.47 (MODERATELY BEARISH) EQUITY ASSET ALLOCATION: 30% Long, 70% Cash, 0% Short
Steve, three reasons why Monday COULD be a downer:
---------------------------------------
1. Mondays suck
1/31/85 - 12/20/00
Mondays Total for all days
NASDAQ Composite -39.0% +591.6%
NASDAQ 100 -51.0% +423.9%
NASDAQ Industrials -62.4% +373.9%
NostraDAYmous says tomorrow will be a green day. Weakest signal yet, but has been correct 7 out of 8 so far.
Sorry 'bout the late post.
NostraDAYmous as currently constructed is calling for a down day tommorrow. Same indicators are driving it: NYSE volume is sub-par given the extent of the gains today, another poor seasonality day tomorrow, OB levels on trin and P/C. The trend is still bullish but everything else points to profit taking.
Note, this model is totally experimental. I won't follow the signals it gives until I do a lot more development and several months of real time testing.
Thought for sure we'd close down today
Working on a new short-term model (calling it NostraDAYmous) to forecast next day close (up or down). Batting .1000 for four days until today.
Friday Indicators:
Trend up: Bullish
Volume - $NYA closed higher, volume below 60EMA = Bearish
Trin - below .5 = Bearish
Seasonality - May, Monday, Mid-month = Bearish
Other indicators = Neutral
NostraDAYmous for 5/12: DOWN
Looks like NostaDAYmous has been snookered!
Thanks for posting Tom. I always find your work interesting.
Apparently Fosback updated his Seasonality system a couple years ago (I just found out about it!). Here's a description if you're interested. I'm thinking about incorporating it into a new one day forecasting model I'm working on.
http://www.keystonefin.com/planseason.htm
WinLoseOrDraw, I'd look into getting this published somewhere.
I love it!
My indicator mix was based on three things: 1)Available data on Stockcharts.com 2) Ability to develop historically meaningful intermediate term indicators and 3) a reccommendation by NDR to use at least 50% tape indicators for any stock market timing model.
To answer the second part of your question, my model is heavily weighted with price and breadth indicators. I was 100% in stocks until 4/18. The model began falling when several breadth indicators moved into overbought territory, I reduced exposure accordingly.
I score breadth trend indicators in a manner that takes into account their ability to identify trends AND OB/OS areas. For example, if the bpcompq is rising (above it's smoothing), I'll give it a +1. If it's overbought but still above it's smoothing, I'll give it a zero (neutral, because risk is high but a reversal isn't necessarily imminent. If the bpcompq is OB and begins to rollover, I'll give it a -1. If it's OB and falls below it's smoothing, it will get a -3 (high likelihood that a reversal has taken place - risk is high).
Obviously, the combination of breadth indicators going OB, volatility indicators showing complacency, and price momentum weakening were enough to bring the model down from extremely bullish to moderately bullish levels. In short, risks was rising. That's how I use the model. You might opt to be 100% invested when the model is above zero and 100% in cash or short when it's below zero. I'm not a black and white guy.
Tom K-- I was wondering about
10 year decennial pattern
Interesting charts from Ned Davis Research in this PDF. Note page 6 charts of the 10 year decennial pattern and the 2002 seasonality chart. These are basically trend predictions based on historical seasonal patterns, presidential cycles etc. Trend is more important than level when looking at these charts. Note how the seasonality/cyclical forces for 2002 were fairly accurate, look to be about a month early in identifying major bottoms.
http://www.perkinscapital.com/4Q01ltr.pdf
Looks okay to me.
Sure. Keep in mind I also keep a NYSE Intermediate Index (currently neutral at zero). I don't believe there is a way to link to it.
You're welcome. You should also check out the most recent printing of "Being right or Making Money" by Ned Davis. Chapter one is a must read. Chapter 2 basically warns of the impending bubble implosion. Also great chapters on a basic bond model, a momentum screening strategy for stocks, and investor sentiment.
What you have to love about NDR is that they test the hell out of everything but are very careful about data-mining or over optimizing indicators.
Maybe modal is the wrong word.
Tim Hayes of NDR talks about "mode indicators" or indicators with "modes". The 6 month ROC of $TXN is an indicator with modes. The higher the momentum, the larger historical gain per annum for the NYSE Composite.
My index has these modes:
1.00 and up = extremely bullish
.99 to .40 = moderately bullish
.39 to .01 = mildly bullish
-.01 to -.39 = mildly bearish
-.40 to -.99 = moderately bearish
-1.00 and below = extremely bearish
My weighting is somewhat based on what Ned Davis Research does for their stock models. NDR argues that stock models should be a minimum of 50% tape indicators. I assume the other 50% are sentiment, monetary, seasonal, etc. The reasoning is that the tape can't diverge from itself, so even if all your other indicators go haywire, the model will still hone in on the basic trend.
Excellent question. My index is a simple average, so you are correct - I overweight with breadth indicators. Here's the breakdown:
Price trend indicators: 3
Price momentum indicators: 1
Monetary indicators: 1
Sentiment/Volatility indicators: 3
Breadth Momentum indicators: 2
Breadth Trend + OB/OS indicators: 5 (50 and 200 day total/raw indicators are counted as one)
I'd wouldn't mind substituting another Monetary indicator for a breadth indicator, but I haven't found one that I like very much. Used the U.S. Dollar for a while but the relationship to stocks seems a little erratic.
Waiting for price and breadth trends to reverse, VIX and VXN to make decisive reversals.
Each indicator in my model gets a score (from +3 to -3) and my index is an average of all scores. Theoretically, you want to be long when the index is above zero and short when it's below zero. The index is modal, so the higher or lower readings warrant a more aggressive stance. I'm a bit more subjective when it comes to taking short positions, especially after periods of strong breadth, strong momentum. I'm very comfortable being in cash when the index is below zero and falling.
NASDAQ Intemediate Index
http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID368318
This chart says short term overbought, but bull market to me:
Oh how I hate to admit the vinyl I've ruined in my youth - through alcohol and drug induced recklessness, general neglect, and "low quality" audio equipment. Please forgive me O Lord!
Smaglito - here is a very important lesson I've learned from the folks at Ned Davis Research, who I consider to be geniuses of quantitative analysis.
"Because we can never know for certain how high is too high, our basic rule is that we go with the flow until it reaches an extreme and then reverses. It is at that point that it pays to be contrary."
-Larry Winer
Senior Research Analyst
Ned Davis Research
from the book "Being Right or Making Money"
TJParker - Couldn't have said it better.
"what's missing from the music industry is market forces: the price of any *particular* cd or song by band X is pretty much unrelated to the cost of producing and marketing that cd or song, or to the market demand for it."
You'll like this chart smaglito:
[J10799207,Y]>
The problem is, I have been getting out of the way - too early! My Nasdaq Model forced me to go from 100% long to 70% on 4/17. I feel cheated!
My model will start going negative when prices begin to fall and/or my breadth indicators rollover. I don't predict markets, but my guess is (based on studying historical charts) that we'll see a broader top this time before any significant selloff.
Fortunately, I don't have to worry about any of this. I'm a slave to my indicators - I don't want to be a hero.
Don't know how much absolute levels in claims matter in terms of using this as a stock market indicator. Would like to see a two month/two year PPO of this data.
Bearmove, maybe not, but the peaks in unemployment claims seem to coorespond closely with long term buying opportunities in stocks. Would love to do a long term PPO or MACD chart of this data series.
Unemployment claims back to 1967:
http://www.economagic.com/em-cgi/charter.exe/dol/day-ccunsa+1967+2003+0+1+0+350+780++0
kevinb - trend, range shift, whatever you want to call it, the point is that bpcompq has recorded higher highs and higher lows over the past six years.
Ned Davis says the best approach to using OB/OS indicators is to wait until they go to an extreme and reverse (because nobody really knows how high is too high and how low is too low) in advance.