System update 12/31

The system remains firmly in sell mode. Remember you can check out the systems preference by clicking on the links to the right that will take to Marketocracy.

I wish everyone a happy and prosperous new year!

System update 12/27

Markets traded higher yesterday on very light volume. I expect trading to be light, and no major moves to occur until the first week of January when most of Wall Street comes back from vacation.

The system remains in sell mode.

System update 12/24

U.S Stocks suffered their biggest weekly losses in 5 months this week. The S&P 500 fell 1.1 percent, the Dow was down .8% percent, and the Nasdaq fell 2.3%. Where do we go from here? Well topics that will be on investors minds will include interest rates, housing market, consumer spending, and inflation. Most of these topics are very ambiguous at the moment, which should worry investors.

The system remains in sell mode. Below I've posted two links to Marketocracy where I'm tracking the performance of the system. I will also place these on the side of my blog so you can check it out when ever you want.

Aggressive:
http://www.marketocracy.com/cgi-bin/WebObjects/Portfolio.woa/ps/FundPublicPage/source=FhBeCeOoEfFmJfNjMaKiAbDc

Conservative:
http://www.marketocracy.com/cgi-bin/WebObjects/Portfolio.woa/ps/FundPublicPage/source=GdIdGmEeEfGcJiLbMaKiAbDf

Happy Holidays!

Just wanted to wish everyone happy holidays, and a happy new year.

I'll post some market thoughts sometime over the weekend.

The state of the economy

Below you'll find commentary on the state of the economy from Dr. Scott Brown. An economist who I have followed for a number of years now because of his accurate calls.

"The economic data have remained mixed in recent weeks – and if you like this trend, you’ll probably be pleased as the figures roll in, still varied, in early 2007. The data suggest moderate growth overall, but there’s no sign that the economy is spiraling down. In fact, much of the weakness in housing and autos is likely to be transitory. The recent softening in growth does leave the economy susceptible to negative shocks, but for the most part, the outlook for 2007 is promising (although not outstanding). The Fed should remain on hold.
The retail sales figures for November were stronger than expected, but the data have been subject to some distortions in the last few months. Specifically, gasoline prices (down sharply in September and October, firming somewhat in November) have whipped gasoline service station sales around. Sales of autos and building materials also tend to be choppy. Ex-motor vehicles, building materials, and gasoline, the underlying trend in retail sales appears to be moderately strong.

The early reports on the holiday shopping season have been mixed, but generally moderate – although a little disappointing. Mild temperatures have been a drag on apparel sales, but while consumer traffic is up, spending is relatively cautious. However, retailers still expect a late surge ahead of Christmas. In addition, the trend toward gift cards appears to be growing. A fair portion of sales that would have previously occurred in December appear to be shifting to January. Consumers are conditioned to expect heavy discounting ahead of December 25 and generous promotions after (ironically, retailers ship in plenty of new merchandise for these “clearance” sales). January and February, which have always been considered “transition months,” are being supported more and more by gift card redemptions.There was some encouraging news on the housing front. Mortgage purchase applications were down about 3% from a year ago (vs. -20% y/y in August and Sept.).

Mild weather may have played a part in the relative firming of mortgage purchase applications. Low mortgage rates, rising incomes, and declining prices (in some areas) may also be factors. One shouldn’t put too much weight on any one week’s worth of data, but at face value the figures do support the view that the worst part of the housing decline is behind us (although, admittedly, there is likely more downside to go).

Industrial production edged up in November, in line with the consensus forecast. However, the figure was boosted by a rebound in auto output. The increase in auto production appears to be a statistical fluke (the seasonally adjusted data are choppy) – it certainly was counter to the anecdotal evidence. Production of technology goods remains moderate (aided by adjustments for faster processor speeds). Ex-tech and autos, factory output remained lackluster, consistent with related weakness from autos and housing, but also likely reflecting a moderate inventory correction.

For manufacturing, the key question is whether the weakness is transitory or the beginnings of a broader downturn. Corporate profits and cash flows, which are strong drivers of capital spending, have remained brisk, but firms have been generally more cautious in their outlooks. The household sector will face some drags from the housing weakness, but continued job growth, combined with improvement in inflation-adjusted wages, should provide important support to consumer spending growth into 2007. The auto and housing slowdowns are likely to prove to be transitory (a move to a lower level of activity) – and as long as there isn’t appreciable contamination to other sectors (so far, so good), the economy should remain in good shape in 2007.

November’s benign core CPI reading is unlikely to push the Fed to lower short-term interest rates anytime soon. Some of the softness was due to special factors (prescription drugs, autos, etc.). The main factor driving Fed policy in 2007 is likely to be job growth – and job growth is likely to remain moderately strong."

System update 12/21

The markets gave back all of their gains yesterday closing in the red once again.

The headline story for today will be the gross domestic product for the July to September quarter. The number came in at 2 percent, off from the 2.2 percent annual rate estimated a month ago. Markets seem to be ignoring the number and are trading higher in early morning trade.

The system remains in sell mode.

System update 12/19

The Dow and S&P closed on the plus side Tuesday. The Nasdaq however remained in the red after Oracle earnings disappointed Wall Street expectation. Inflation worries are back on the radar, as the PPI and Housing starts numbers came in higher then expected.

The system remains in sell mode.

System update 12/18

The markets had their first loss in the past four sessions. All I can say is it's about time! It looked like it was going to be another strong say for the Nasdaq as it opened to the upside. The early gains vanished by mid afternoon, and in what is becoming a routine closed on their lows. Lets see what tomorrow brings.

I was wondering if any of you are liking the sectors to focus posts, if you do please leave a comment and I will continue to post them. If you dont think they belong here let me know as well. Thanks.

The system is still in sell mode.

Sectors to focus on part 2: Healthcare

There are gigantic changes starting to take place in the health care industry. I for one do not own any of the stocks mentioned below, I only try to time the market. I will add that the companies mentioned below are very high risk plays. Most of these companies have no products, and the chances of them generating any income could be years away. They are priced simply based on future development and research. Investors should due their utmost due diligence before investing a penny in these companies.

The first trend to look at in this industry is RNA Interference Next Generation Pharmaceuticals:

Big pharma companies are now beginning to contract with biotech companies that own the intellectual property rights to RNAi-based strategies. Rather than developing drugs that target specific proteins, the RNAi approach targets the ability of cells to manufacture those proteins in the first place. The approach is particularly promising in cases of viral or microbial pathogenesis (foreign proteins) and genetic diseases related to known protein mutations. Potential future applications are broad, as with conventional pharmaceuticals, ranging from the treatment of life-threatening diseases to cosmetic uses in hair loss remedies and wrinkle creams.

The best positioned companies are ALNYLAM PHARMACEUT and SIRNA THERAPEUTICS that own essential intellectual property rights. Look for them to sign big deals with big pharma in the next year.

The next promising trend in this big industry is Bio Pharmaceutical Manufacturing.

The bio pharmaceutical industry is moving away from contract manufacturing. Nearly all approved drugs are going to be manufactured at dedicated manufacturing sites.

Contract manufacturers like LONZA, Cambrex, will benefit the most from this trend.

System update 12/17

It can be frustrating to be on the wrong side of the market, you may get tempted to ignore your system and switch sides. That's exactly the emotional swings the market can put you through if your not strong enough. You have to trust your system, your research, and your methodology in order to succeed in this business.

The system remains in sell mode and actually gave another confirmation signal this Thursday.

YTD #s:

Conservative Portfolio- -0.5%
Aggressive Portfolio- -1.0%

The Water Indusrty! Yes I said the water Industry

This may sound starnge to a lot of you, but the water indusry is getting ready to blast off. Thanks to new goverment regulation, states will be forced to spend billions over the next couple of years to update their infrastructure. Here are some thoughts to think about. Again, as I stated in my previous post any company mentioned here should not be looked at as a buy, do your own research!

• Water infrastructure repair and replacement is the attracting the big money.

• Wastewater treatment is right behind it.

• Desalination will experience the biggest new technology breakthroughs over the next 12-24 months.

• Greatest growth likely to occur in Asia & North America.

• Well-Positioned Companies:
  GE
  Insituform
  Fluor

Sectors to focus on for the new year

Some people are just not comfortable following a timing system and prefer to research individual companies or sectors. They don’t like to switch in and out of the market and simply prefer a buy and hold strategy. While my research has shown timing the market is by far the best strategy to follow, if you have the time and the energy to research individual companies or sectors you can be rewarded handsomely for your efforts. Still, sometimes external events beyond the scope of your research can occur where even the top investors get burned. This includes things like accounting fraud, sudden change to the fundamental picture, or a downgrade by a brokerage firm that causes a stock to plummet. If you are one of these people who accepts the risks associated with buying individual companies I will be writing about sectors which I think have the most explosive growth potential ahead in the next year once a week here.

I of course still prefer to use my timing method. It’s proven itself to me, I don’t have to worry about corporate fraud, and most important; it’s a time saver with great returns!
Any companies mentioned should not be looked at as a recommendation to buy the company; rather it should be a starting ground for your own research.

System update 12/13

I think were going to see a huge pick up volatility after option expiration this week. The bulls seem to be defending S&P 1400, while the bears are holding S&P 1415. Next week should be a very interesting week indeed.

The system remains in sell mode.

System update 12/12

This afternoon, the Federal Open Market Committee decided to leave its benchmark federal funds rate unchanged at 5.25 percent and made little changes to its policy statement. The Fed repeated that, with core inflation elevated, "some inflation risks remain." The Fed acknowledged that recent economic reports have been mixed, but said despite this, the economy will likely grow at a moderate pace. The Fed also said that the cooling in the housing market has been "substantial."

The market gained back some of it's early lossed, the Nasdaq closed the down half a percent. The system remains in sell mode.

System update 12/11

Not much to add. All I can say is the market keeps getting close to giving us a buy signal, but manages to sell off in late afternoon trade. We are still in sell mode.

System update 12/10

Hope everyone had a great weekend. The system remains in sell mode.

Using Pink Sheet Speculation to Time the Market

The following article is written by Mr. Jason Goepfert of Sundial Capita Research.

One of the things we can almost always count on, sadly, is that when the smallest of traders get overly excited about stocks, they’re promptly about to lose their shirt. In April, I showed one measure of small trader sentiment, that being the share volume in pink sheet stocks, otherwise known as the Bulletin Board or Over-The-Counter market. At the time, volume in these highly speculative stocks had rocketed to 140 billion shares (billion with a “b” – more than the NYSE or Nasdaq exchanges). That was a clear warning that optimism for a further market rise was catching on, and as most often happens, those traders got burned. Oddly enough, we’re not seeing the same kind of behavior now, even though we’ve gone on to higher highs. The chart below updates the one I showed in April, and it’s evident that we’re seeing nowhere near the level of speculation we did then according to this indicator (the data is current as of the end of November).

Perhaps it’s just too soon after their last spanking to expect traders to jump on the pink sheet bandwagon again. I’m not sure why that would be – these traders have a tendency to try to take advantage of every uptrend. But it’s one suggestion that while traders have removed a good deal of their downside hedges (which is troubling enough), we’re not yet seeing the type of outright upside speculation that often accompanies a significant market peak.

Volatile day

After opening on the up side, trading sharply lower, the market have now rebounded back to the up side and are trading at their highs for the day. One explanation for all this volatility is option exportation for December which will be next week. There is a lot of open interest on the 1400 and 1415 S&P calls so those ares will most likely act as magnets for the time being. Should the market hold on to todays gains, the system will give a buy signal for Monday.

Lets see what happens.

Market selling off after Jobs report

This morning, the Labor Department announced that job growth continued at a steady pace. Nonfarm payrolls expanded by 132,000, higher than the 112,000 expected by economists. The unemployment rate ticked higher to 4.5 percent in November from 4.4 percent a five year low in the previous month.

I find it very interesting the market is selling off here. This reaction to 'good news' is a warning sign in my opinion. One thing I've seen over and over in my career is when the markets sells off on good news it's usually an ominous sign of future weakness, on the other hand when the market rallies after a negative news report it's a strong indicator that the market will continue to move higher.

I don't want to have a bias to one side or the other, just sharing my thoughts.

Market recap 12/7

System remains in sell mode.

Minyanville meet up notes part 2

The following is a continuation of the list I posted.

• For the first time in history, there are more hedge funds than stocks.

• The growth in hedge funds is not without precedent. We’ve seen this movie before in the mutual fund arena.

• The result isn’t imminent doom, it’s more likely mediocrity.

• Over 60% of hedge funds are less than five years old. Less than 20% survive more than eight years.

• Where else are you going to put your money with real interest rates negative?

• We’ve seen an unprecedented string of double digit earnings growth and all-time high profit margins.

• There’s been a stunning large cap underperformance.

• Historic “tails” (distribution of returns) have thinned massively.

• Individual investors have reacted rationally. Corporate America, however, is hoarding cash.

• Themes: Volatility will rise, the dollar should rally, “big cap over small,” the US is the most attractive major market, valuation spreads between “good” and “bad” will rise, the catalyst (for a potential decline) might be a busted LBO.

Some Thoughts 12/6

The systems remains in sell mode.

By using a system to time the market I become impartial, I’m not bullish nor bearish. If a buy signal is given I buy, if a sell signal is given I sell. It wasn’t always this way for me, and a lot of times I recall making very emotional investment decisions simply based on gut feel, not wanting to take a loss, not wanting to miss out on a big move etc….

I think it’s very important to separate emotion from investing or trading. When you have a methodology that allows you to make sound investment decisions, backed by a good record you can sleep much better at night, at least I know I do.

Not sure how many of you play poker, but I used to or I should say still do on a regular basis. One of the biggest leaks in my game and in fact it's probably a leak in a lot of peoples game is going on tilt. Going on tilt is when you lose your cool after getting out drawn on or taking a bad beat after you get the money in as a favorite. There is such a thing as investment tilt, and it happens when we miss a chance to take a profit too early, or when we refuse to sell and take a loss. A system allows you to bypass these issues and helps you keep your cool.

Small side note:
From time to time I will chime in with my own market commentary or bring an interesting article that I think we can really enjoy. If this is something you don’t want to read please ignore it and simply following the trade signals of the system. It’s just that the system does not give that many signals in a year so I would love to supplement that with some good articles/commentary when possible.

Minyanville meet up notes

One of the best sites to stay in touch with what's going on in the market is Minyanville.com . Last week they held their first "“Minyans in Manhattan" conference. Below you'll find some notes that one of my favorite market commentators published, Jeffry Saut.

• Almost 2% of the NYSE’s entire market capitalization has been taken private (read: LBO’ed) since the beginning of this year.
  
• So much money is sloshing around in private equity funds that we now have the Jessica Simpson model of investing – “I don’t know what it is, but I want it!”
  
• Private equity funds are looking to “lever” corporate America’s under-leveraged balance sheets and exploit them accordingly.
  
• There are now more hedge funds than there are stocks and 60% of those funds are less than 5 years old. This trend will end with mediocre performance by most hedge funds.
  
• Gold is going up against most assets. And, foreign energy stocks are making new all-time highs and “pulling” U.S. energy stocks higher.
  
• The U.S. has the highest “real” (inflation adjusted) interest rates in the developed world, implying capital should continue to flow here.
  
• If current profit margins, and free cash flows, are sustainable, then the equity markets can continue to levitate. However, a “mean reverting” world suggests we are long-of-tooth in this trend.
  
• Sam Zell is not stupid! Therefore, the recent sale of his flagship REIT (EOP/$48.30/Underperform) should be viewed as a watershed event.
  
• Bank indices are deteriorating against the S&P 500 Index (SPX). Since the Financials have roughly a 22% weighting in the SPX, this is troublesome.
  
• If the rumors about a Home Depot (HD/$38.97/Outperform) LBO were for real, the long-dated call-options on HD should have collapsed and that just didn’t happen.
  
• Volatility and Risk are currently being WAY under-priced by the markets.

Market recap 12/5

The market rallied for the second day in a row, although a strong opening rally fizzled by the close. The system remains bearish.

Market recap 12/4

Wall Street rallied today choosing to look past Pfizer’s disappointing news, and focusing on a new set of takeover deals.

Despite today’s rally, the system remains bearish. We are on the sidelines in our conservative portfolio and short the QQQQ in the aggressive portfolio. Today’s action actually gave a confirmation to the sell signal that was given on Thursday.

A little more info on the system

I don't expect anyone to follow a system blindly, let alone trade it. So, I want to give out as much info as possible without disclosing sensitive info about it. When I started out on this project, I wanted to minimize researching individual stocks or mutual funds because I just didn't have the time for it. I started brainstorming one day about a mechanical system I could trade, one that would beat the market while at the same time minimize risk. I researched a number of variables, MACD Histogram, Stochastic, moving averages etc...

None of them showed signs of consistent returns. I began my research all over again this time focusing on what sectors of the market are in favor right now. Although this system is not a short term trading system, I found that by knowing what sector is leading over an intermediate time period led to predictable returns for the market in the next 4-6 months. This is the stepping stone of the system.

I tested past performance, and was very excited when I saw the results. Now I'm well aware of the saying 'Past performance is not an indication of future results, however the time period I tested this on experienced so many extremes (1994-2006) a raging bull market, a devastating bear market, and a period of stagnation. I'm currently in the middle of testing the system back to 1990 and I will let you know results here once I'm done.

That's all for now, I should have more to say later tonight or tomorrow morning. Thanks for listening.

Sell Signal Given!

The sell signal that I felt was comming has finally been given. We are now in cash in our conservative portfolio and short the QQQQ in our aggressive portfolio. We have closed our positions in IWO at $78.73.

Trade summary:

Conservative portfolio- Sell position in IWO.

Aggressive portfolio-Sell IWO position we are short QQQQ at $43.98.

11/29

Yesterdays late comeback was very bullish for equities, however I think we need to see some follow through. Today's GDP report is doing just that, lets see if the market will be able to hold on to these early games.

The system itself remains fully invested in the Russel 2K growth ETF. We were getting pretty close to a sell signal but nothing has materialized yet.

11/28

Conservative Portfolio- The portfolio is 100% invested in the Russel 2K growth fund (IWO). The average price paid is $79.49

Aggressive portfolio- Also 100% invested in the Russel 2K growth fund. AVG price paid $79.49.

Welcome

My goal here is to show you how easy it is to time the market. My method is ideal for managing your 401K, IRA, or simply to trade the market. I will offer two portfolios in real time. The first is for the conservative investor which has returned 14% annualy since 1994, the second is for an aggressive trader who has the ability to go short. One highlight I'd like to point out from my method is the very low draw down of merely 17% over the 12 years which I've tested it. compare that with the S&P500 who had a draw down of 48%. Trading costs will remain very low,as only three options are available long, or cash in the conservative portfolio and we add short to the aggressive portfolio. My research has showed that the best trading vehicles for this portfolio is the the NASDAQ 100 trust, the Russel 2K growth ETF, and the Russel 2k Value ETF. In the aggressive portfolio we will be trading the same ETF's but we will be able to go short. Please note that the aggressive portfolio is for only those who are willing to take on added risk, draw downs for this have averaged around 27% for the 12 years I've tested it on and results have improved to 19% annual return.

I will be tracking the conservative portfolio on Marketocracy so everyone can view it's performance over time. If anyone knows where I can set up a portfolio that allows me to go long and short please let me know so I can track the aggressive portfolio.