Market Mercy

The market opened up higher this morning so I took advantage and got out of the false signal trade with barely a scratch. A 1.6% loss is a victory here. The mechanical system got out with a 1.2% loss. Year to date results are posted in the left sidebar. I'm almost certain that when the market chooses a direction, this system will catch fire and be off and running. As annoying as these false signals can be, the losses have been kept in check for more than 18 months. That is the main reason I did not hesitate to take the loss and realign with the CMI. We are all in cash again but the CMI is already buzzing and will no doubt send another buy signal very soon.

The January effect says that there is now a 61% chance that the market tanks for the next eleven months. The Dow target of 8776 was not even close to today's close.

Since it is the end of the month and Superbowl weekend, the monkey throws the dart at gold finishing the year between $1200 to $2000 per ounce.

No Superbowl dart throwing although everyone in the rainforest loves an underdog.

The Best-Laid Plans...

of monkeys and men often go awry. The very signals we were trying eliminate came back to haunt the CMI today. CMI will close this quick, unprofitable trade at Friday's opening price. I'll continue to hold this position only if the market looks like it wants to reverse direction to the upside tomorrow; otherwise I will be out before 10 a.m. Better to keep aligned with the CMI. Remember that half of last years trades were not profitable but the end result was worth the small losses during the year.

I'll update the YTD results Friday or this weekend after the dust settles. Most traders could use the practice taking small losses. Apparently my coconut is still half full.

Looks like the January effect will be pointing to another bearish year unless the market goes bullistic in a big way tomorrow. (See the post from a few days ago). If that is the case, all the QID trades will be given a little more 'latitude' than the QLD trades.

Sudden Buy Signal Triggered

Today's run up caused the CMI to flip to a QLD buy so tomorrow's open will signal the beginning of a new trade. I'm unsure of the strength of the market to run a strong bear market rally but I am a chimp of my word and will put my money where my mouth is and follow the signal. One positive here is that all the primary and secondary signals agree on this upward move.

Another double digit padding to the first 10% trade would be a great way to start the year. As stated in a recent post, only seven signals were generated last year so two in one month either means additional opportunity or a false signal. This is the third QLD buy in a row. Interesting that the CMI is picking up the bull moves rather than the bear moves in this shaky market.

I've been swinging from this branch with nothing but my laptop for a few weeks so this surprise signal is much appreciated.

Reminiscing About Reminiscence

Even though I am about ready to pull all my remaining long holds and mutual fund purchases, the compulsion to trade on a daily basis is still strong. Looking at the profits from seven simple trades of the CMI last year keeps me focused on the goal of making money...not the thrill of daily trading. Waiting for the next buy signal can test the patience but remembering Jesse Livermore's words puts it all in perspective...

The market does not beat them. They beat themselves, because though they have brains they cannot sit tight. Old Turkey was dead right in doing and saying what he did. He had not only the courage of his convictions but also the intelligence and patience to sit tight.

I'm re-reading Wall Street, A History by Charles Geisst, but no book quite compares to Reminiscences of a Stock Operator by Edwin Lefevre. Although this fictionalized biography of Jesse Livermore might make the reader question whether or not Jesse was a great trader, the lessons and quotes from this book are apparently timeless, or at least still very useful to those smart enough to realize that human nature does not change.

Technical Refinement of the CMI

Word of warning...this post mainly serves as a reminder for me. It is devoid of any entertainment value. The second to last paragraph may be more interesting because the 2008 CMI results are posted there.

The signals used for the CMI are called P1 and P2. These are the primary signals (hence the P) that have been used from the start. During this ‘no trade’ period, while swinging from the vines, I was thinking that there must be a way to reduce the noise resulting in a few false signals during the last year and a half. One of these false signals generated a 5% loss. The largest loss, 6.8% and not due to a false signal, was during the very volatile period at the end of the year. Keep in mind that this 6.8% loss could easily have been traded with stop losses and a gain would have resulted. I am purposely disregarding any potential trades and back testing only the actual signals generated from the CMI.

Rather than just using the P1 and P2, I have included in the calculation a set of secondary signals that I call S1 and S2. S1 is a QLD/QID specific signal that supports the P1 signal. If S1 does not agree, the trade or ‘buy’ signal is still ‘on’ but closer stops may be warranted. The S2 signal is considered an inverse of P1, P2 and if S2 does not agree, the trade, or ‘buy’ signal is not confirmed and will wait until there is agreement between P1, P2, and S2. This ‘disagreement’ is rare and had occurred only once in fourteen trades. This resulted in the 5% loss in 2008. If both S1 and S2 do not confirm the primary signals, no buy signal will be given. This occurred once in 2007 for a 0.6% loss. Interestingly enough, after the sell signal was given only a few days later, the market dropped severely.

For the year 2008, straight CMI buy signals occurred eight times with an average gain of 8.6%. This resulted in a 69% annual gain. Adjusting this with our new secondary signals resulted in seven trades with an average gain of 10.6%. This resulted in a 74% annual gain. The 5% annual increase is not that impressive but could prove to be a good defensive play in the future.

It’s no easy task swinging from tree branches with one hand and typing with the other so I’ll take the rest of the weekend off. Keep in mind that all this P1, S1 signal stuff happens behind the scenes. No need to do anything but watch the CMI signals on the left side of the screen with one eye and read the almost daily commentary with the other.

Forbes Love Only One

Forbes magazine put out its annual 'Love Only One' contest results last December. They ask several investment experts to pick only one stock that they think will go up or down. If these experts beat the S&P, they are invited back the next year.

Richard Jandrain of Fort Washington Investment Advisers picked Pharmion last year. This stock rose 50% during 2008. This year he has picked Eresearch Technology, Stock Symbol:ERES. Let's see if he can duplicate last years results and remain in the contest for three straight years.

On the bear side, Harindra de Silva, president of Analytic Investors in Los Angeles picked Catapillar, Stock Symbol: CAT. With six years in the contest, his pick should not go unnoticed. Mr. de Silva chose Yahoo last year which tanked to the tune of -59% last year.

Next Signal Around the Corner?

It would be a gold mine if you were on the right side of the market today. After this giant drop in the market, the CMI is giving up signs that another trade is just around the corner. Most likely it will call for a buy of the QID. Smart money might just stay there for the year but I will hold out and stay aligned with the signals as they come. No point in anticipating here, or jumping on the downward spiraling bandwagon since many of the deep drops have been followed by a strong move upwards soon after.

Dow 8776

Jay Kaeppel explains the January Barometer in this article at Optionetics.com. He points out that if the Dow Jones Industrial Average finishes the month of January with a gain, the market, too, will post a gain by year end 91% of the time. If the month of January is not so kind and the Dow posts a loss by month end, the market will tend to be bearish and post a loss 61% of the time.

Knowing this, 8,776 comes into play since that is where the Dow closed on the last day of 2008. Currently, the Dow sits at 8,212 so there is some ground to make up if we want to take advantage of this method where it has been most accurate. Always the gambler, I will predict a close of under 8,776 on January 31st. As I always say, I'm not here to predict, but I'll do anything to keep my fingers off the trade button while I wait for the next CMI signal.

Comfort on the Sidelines

Days like this prove that an oversold market can get even more oversold...fast. I'm sitting on my CVS trade from yesterday. This stock was the only buy a couple of years ago when the summer market was dead in the water and I think it will prove to be one of the few winners this year.

The Cheetum Market Index said, "no trade" and following that advice today was worth every cent. It would have been easy to buy into this oscillating market but patience in these volatile times trumps all. It will be several days before a new signal is generated unless the market swing right around to the other side in a big way. I'm not willing to bet on that, nor do I necessarily want to enter the market at the moment. I'll be content with sitting on my CMI generated 10% gain for now. Is the extra cash burning a hole in my pocket? Yes, but this slo-mo trading method is a welcome change from the scalping methods of past trading years.

Impulse Buying CVS

Since the CMI is 'suggesting' no trade right now, I've decided to have a little patience and follow along. If there is a convincing move up tomorrow, I may try to get in the QLD prior to the 'buy' signal which would most likely be triggered if the bulls turn out in force. That is a strong maybe.

In the meantime, I satisfied my itchy trading fingers by putting in a buy on an old and steady trading staple...CVS. With a price at $26.75, I couldn't help myself since I do believe $30 is possible if the market gets a litle momentum.

The first complete cycle of the CMI finished with a 0.2% gain but gave me a nice 10% jump start to the year. See results over on the left sidebar. A double digit gain every month would be more than I could ask for.

One Step Forward, One Step Back

The 'no trade' signal was triggered at the close today leaving the CMI with a +0.2% gain although the actual result will be based on tomorrows open. The good news is of course that trading and timing this well left us holding a 10% gain. Chalk one up for trading. Also, true to form, the method did not show a loss. The over-bought condition last week and the low volume were the key to selling off early enough to take a nice profit.

I will now keep aligned with the CMI by sitting and waiting for the next signal. This could flip right around for another QLD buy or reverse direction over the next few days and set up a buy into the QID. Only time will tell and anticipation of either move would not be justified.

Best Day to Trade?

Here is one of my previous posts from another site. The data referenced below was accumulated through February 2008. At some point I will add another year of data and see if the trend continues. I do know that the recent market upheaval during the fourth quarter of 2008 wreaked some havoc on the these results. Even so, the information below could provide useful in day to day trading decisions.

If you know the little girl's name you are a true t.v. trivia buff. For an extra bonus point, what is the headless doll's name? For two extra bonus points, what was the name of the little girl's mother? If that was too easy and you would like status as the king of all jungle media, what was the name of the doll owned by the little girl's mother? Get the feeling that there is not much going on in this monkey's jungle this weekend?

Ever wonder what day is best to trade? Many traders like to jump in on Monday after spending the weekend researching new stocks. Others tend to stay away from Fridays since holding over the weekend could be risky. Well, take a look at the chart directly below.



This chart represents the historical annualized percent change in price percent for the S&P for a sixteen year period (1962-1978). While this data seems rather dated and insignificant, I decided to compile my own data to see if I could draw any noteworthy comparisons. Amazingly, the standout day appears to be Wednesday even after all these years. See the two charts below. One represents the NYSE % cummulative gain or loss for each day of the week from May 2007 to
February 2008. The other chart is for the NASDAQ during the same time period.




Although the most recent Wednesdays have not been that impressive, the historical evidence is overwhelming. So, what is the best trading day? I'll go with Tuesday...just before the close!

Winning the Battle, Winning the War

After seeing the early plunge today, I decided to stay out of the fray and come back another day. Trading the CMI is currently 6.0% ahead of blindly following the Cheetum Market Indicator. The daily comparison between the CMI and trading the CMI is alot like playing chess against myself. I've won the battle this week, but I am hoping that the method starts to show it's true profitable self as we continue through the year. Knowing that the method is solid provides a good foundation and safe positioning. This is critical because it lessens the need to make decisions and prevents overtrading. At this point I would not jump back in until the stochastics give a firm oversold signal, and there is some sign of support in the price chart.

Aligning with the Trend

The QLD made a 2.2% jump today. Depending on the early action tomorrow, another buy into the QLD may be on my to-do list. A gap down could convince me to re-align myself with the CMI since the short term trend is still up and historically, sticking with the trend did pay off.

The Cheetum Market Indicator is still showing the bull silhouette so the play is to be in the market if your a indicator 'purist'. Makes me wish I could back test this method over the last five years rather than just one year. Come to think of it, a few hours of data input may be worth doing.

Higher Than Average Volatility

A two or three percent swing in the market used to be a rare occurance. Over the last few months it has become common. That is one reason I chose to pull the trigger and take the profits. This gives trading the CMI an advantage versus the the straight mechanical system although I believe when in doubt follow the signal and you won't get burned too badly. I'll hold and will try to stay with the up trend when the market sells off a little more. No need to over trade since the year just started. Six more trades like the last one and I'll call this method a success.

A move over the last swing point on significantly lower volume, a volatile market, over bought conditions, and the need to start this method on the right track were the main factors when deciding to set the stop just under the current price yesterday.

Trust or Trade

Thinking that the market is due for a little retracement and still using swing trader mentality, I jumped ship and moved my stop up to the + 10% area and was stopped out in no time at all. Look to the left under 'CMI Trades' and you can see that the mechanical system overtook my 10% gain at least in the short term. Anticipating the initial buy day three weeks ago, and selling early today caused this divergence. We will see if the price comes back down a little or if we continue upward. I am expecting the former. I would have trusted the system more if it was more responsive during the September to December volatility but no sense in complaining about making money.

The plan now is to wait for a small retracement and dive right back in to the QLD if the bull signal is still there.

Price and Volume Anomalies

Take a look at the Nasdaq Comp chart below.



Price and volume analysis would indicate that this market is going to fall back due to the breakout over the two swing points of the 9th and 17th of December. Price action was strong but the volume was more than 30% lower than the previous swing highs. These are marked by the two arrows.

My intent is not to predict Monday's price action but it is interesting to watch the result of this set-up. A contrarian may disagree for the simple reason that yesterday was the Friday after New Years Day and the volume tends to be lower anyway. Using that reasoning, and due to the fact that the bulls seem to want to give 2009 a kick in the pants, my guess would be a continuation of the upward trend. If there is still weak volume on Monday, a change in direction is more probable.

This is merely an exercise in price/ volume analysis and has no real bearing on my current position with the QLD. Guessing daily fluctuations is not our objective. Trend following is, and it will provide a more sound trading foundation. Of course that is only a half truth since a reversal, or a signal of a reversal, would make me more inclined to run a stop a little closer if the market gives the opportunity. Old (short term trading) habits are hard to break.

While on the subject, if yesterday's price did not break the swing high, and also had low volume, a continuation of the upward move would be probable as would low volume and a close below the swing points.

Volume is often overlooked but technical analysis would not be complete without it.

Right Side Positioning

The end of the year 'buy' signal was very timely especially after an 8 and change % gain today. The impulse is to take the profits but I will have to get used to holding while on the right side of the trade...to a point. A buy in the QLD at $26.45 yields a 10.6% gain as the market held up all day driving the QLD to $29.26. Of course, letting it ride takes too much will power so I had to use my mechanical stop after + 8% was reached. This locks in 4% which may be a little tight with these 2X exchange traded funds. Remember that I was holding an earlier buy at $27. I'll try to give this big fish a little more line and hope for the key +20% level at which point I would reel it in.

It's OK to hope when you're on the right side of the trade.