The Secret of Oz

It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow evening.

~Henry Ford

If our nation can issue a dollar bond, it can issue a dollar bill. Both are promises to pay, but one promise fattens the usurers and the other helps the people.

~ Thomas Edison


I guess you can tell where the 'The Secret of Oz' is going by the above quotes. Agree or disagree, it's still worth taking the 1 hour and 53 minutes to watch.

...and I'm not just saying that because of the flying monkeys.


http://www.youtube.com/watch?v=D22TlYA8F2E

Serendipitous Saturday

ser•en•dip•i•ty
noun \-ˈdi-pə-tē\
: the faculty or phenomenon of finding valuable or agreeable things not sought for.

Competitive Signal Generators



The market has given some extremely useful feedback during this post-April volatilityfest. Is the monkey chasing another Rosetta Stone mirage or did he bump his head on something real this time? Sometimes I have the need to refer to myself in the third person.

The ability to ride the various market oscillations during accumulation, consolidation, and distribution phases requires a system with either well timed flexibility, or a steadfast approach using the longer term trend. The latter requires the ability to ride deeper drawdowns. The current CMI revision uses two competing, but friendly, signals generators (so to speak) in an attempt to match the market 'rhythm'.

Secondary benefits to the Cheetum Market Indicator revision may include a greater win percentage, and one-third less trades, although this is only a best guestimate.
Enough with this propaganda. The proof will be the future gains...and maybe a smoother line on the historical trend chart.

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Stepping It Down?

Even with the market moving up yesterday I am glad to see I am in agreement with the CMI. Sure seems like the market is marking it up only to sell it down.



No need yelling "Fire!" in a theater when you can achieve the same result in an orderly fashion. There is plenty of time to drive the market down all at once a la Fat Finger Thursday (May 6th).
You can see I spared no expense on the chart graphics.

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Book Review 40 Years Late

I don't do many book reviews. I'm a chimp. The last book I picked up made absolutely no sense until I realized I was holding it upside down.

Anyway, I still find the books written by Richard Ney fascinating. This guy did his best to inform the public of the underhanded nature of the stock market with particular emphasis on the specialists. His books are out of print but you can always find one somewhere. Most likely the specialists had a book burning party several years ago.

"Har come that Ney feller stirrin' up trouble agin."

It's no wonder he was banned from the Tonight Show, and the NY Times refused to review his book. How dare he expose the truth! Marc Courtenay wrote about this not too long ago. Check it out here at Seeking Alpha.

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Reading the Comments

If you clicked on the last Seeking Alpha link, scroll down to the comment section. Ivan Kitov commented regarding an expected market downturn in May 2010. This was posted last August. I don't know if these comments can be backdated, but if not...nice call. According to Ivan's profile, he is "a Doctor of Physics and Mathematics, Lead Researcher at the Institute for the Geospheres' Dynamics, Russian Academy of Sciences."

Here's a link to his mechonomic blog. I already feel smarter saying the word "mechonomic". Take a close look at the predicted direction of the S&P through 2011.

Ivan uses nine year olds and three year olds in his equations. Really! Apparently there are no child labors laws in his country.

A Random Walk with the Grim Reaper

I'm sure it's too early for Halloween. That must have been the Grim Reaper giving the CMI 2.0 the "stink-eye" last night. Looks like preparations are already being made to send it to the Great Beyond.

I reminded the "hooded one" that the deal was to allow the CMI to run through the end of the year regardless of it's occasional bad signals. I also reminded him that I know where the Bat Cave is. That's right, I said Bat Cave.

In true monkey tradition, I worked tirelessly through the night and flipped the final switches on the CMI, now complete with independent confirmation signals. That's as far as I can go without doing a complete overhaul. The CMI is now purring like a Pygmy Marmoset and is ready to step up and outperform.

There are four months and one week left before that scythe-wielding hood reviews the year end results. Can someone order a prolonged trend in either direction?

Weak Signal Disease

The QLD signal that appeared a couple of days ago dealt a severe blow to the CMI. The good news is that all signals get fed back into the database and then get filed in the "if it doesn't kill you, it will make you stronger" folder. Actually, the more data points, the better. The CMI continually evolves and seeks perfection...and some serious seeking is needed. Still, these costly "glitches" should not overshadow the bigger picture...



The higher highs, and the left side y-axis % gain numbers cannot be ignored. The red vertical line represents the start of actual trading. To the left of the red line are the back-tested results. Not much has been proven regarding actual trading but losses and plateaus have always been part of this method.

The CMI will most likely switch back to the QID at tomorrow's open if the QQQQ's remain below 44.20 at today's close.

A Decade of Best and Worst Months

As we approach the end of August, the question asked most often is how will the dreaded worst months of the year perform. Bad times in the market have been associated with September and October for decades. Recent history ("recent" meaning since the year 2000) tells a slightly different story. Does late Summer and early Fall always spell doom and gloom for the stock market?

Take a look at the monthly charts below. Using price data from the S&P 500, three charts are displayed; a ten year history, recent five year history , and a 2010 year-to-date for comparison.









The recent five year chart is overshadowed by the disaster of 2008 so let's focus on the ten year chart at the top. You can easily see the obvious strengths and weaknesses during certain months, but the poor June performance and the flat October performance, overshadowed by September, is a little surprising. Surprising only because the 2008 loss for October dwarfed the September loss by -7.4%. Knowing this, let's look at the frequency of annual gains over the last ten years.



This chart shows how many years out of the last ten that each month stayed out of negative territory. August, November, May, and December have racked up respectable records of achieving gains at least 70% of the time over the last ten years. Notice the poor performance of June and February. September and October do not look so bad here. Combined, both months provided gains just over 50% of the time.

The final chart, below, shows how September retains it's reputation as a "difficult" month. Using an 8% loss as the benchmark, September has provided losses in excess of 8% during three of the last ten years. Notice that February is not far behind. Since this chart only shows frequency rather than magnitude, October's one loss over 8% (-16.8% in 2008) goes to show that even with good behavior 60% of the time, a bad month can be a really bad month.

CMI Says...

...back to the QLD. Surprisingly, with the help of Friday's afternoon comeback, a weak signal to buy the QLD was triggered so at Monday's open the QLD will replace the QID. I say weak signal but that is only my interpretation and doesn't mean much in terms of a final result. Maybe 'early' is a better word...or timely. With this system, you are either in or in. The CMI 1.0, which had some ARMS index computations in the mix, tended to sit out during key trends. I made the decision when overhauling the system to always hold a trade even during consolidation or range bound periods. This can be frustrating but I'd rather be set up for the next big move...and I like to help keep my broker driving to the office in style.

Actually, this will be the eighth trade of the year. The average number of CMI 2.0 trades since 2005 has been 9.2 so we are not deviating from the norm. Also, winning trades have averaged 40 days and losing trades have averaged 32 days. Winning trade percentage sits at 50% not including this last trade. This all good news because these numbers fall right in line with what is expected. This year reminds me of 2006 in some ways. The final result for the CMI 2.0 for that year was just over 35%.

Does anyone else hear the ghost of Don Ho in the background. Must be the Director of Marketing celebrating statehood for Hawaii.

Any excuse to imbibe in the 'tiny bubbles'.

Stars of August...So Far

If August is supposed to be a slow month in the market, someone forgot to tell these companies. Looking at the charts, it's almost as if someone hit the "GO" button at the start of the month for this list of ten best. Each of these summer gems gained between 12% and 50% since the start of the month. I've included the sector for each stock. It's not hard to notice the 'mining sector' slant.

It may seem unwise to pile jump at this point, even if the market continues it's bullish attitude, but as Jesse Livermore once said, "Remember that stocks are never too high for you to begin buying or too low to begin selling." Thanks, Jesse, but rather than climb the wall of worry, I think I'll wait for a pull-back. The bulls are welcome to pile jump.

BORN, China New Borun, +49.1%, Consumer Goods
GGAL, Grupo Financiero, +34.9%, Commercial Banking
SVN, 7 Day Group, +33.5%, Hotel Motel
CAGC, China Argitech, +32.4%, Agri. Chemical
AZK, Aurizon Mine, +27%, Mining
JAZZ, Jazz Pharma, +19.1%, Pharma Prep.
TTM, Tata Motors, +17.7%, Motor Vehicles
IAG, Iam Gold, +16.1%, Mining
NGD, New Gold, +15.3%, Mining
EGO, El Dorado Gold, +12.6%, Mining

*Parameters for this list include stocks between $5-$50, volume > 500,000, gain > 12% for the month.

The Copbalticburg Syndrome

Has the perfect storm of market-crash leading indicators arrived? After studying the Coppock Curve last month, then dissecting the Baltic Dry Index for clues of market prognostication, the recent articles on the Hindenburg Omen have redefined the term indicator overload. Let's take this eclectic group and create an ultimate indicator called the Copbalticburg Syndrome. Of course the word 'syndrome' in medical terms means nothing more than "we don't really know what it is, so lets call it a syndrome".

Getting back to the Copbalticburg Syndrome, two events must happen to complete this perfect storm. Someone has to add some fresh eye of newt to this stew, the Hindenburg Omen must repeat it's delicate balance of events in the coming days, and then panic must ensue. If this happens, look out below. All indicators are pointing south, and it won't take much to push the whole kit and kaboodle (yeah, I said kit and kaboodle) off the cliff.

Uncle Fester can handle the first part but the rest is up to you.

Praise that Great Monkey in the Sky that I am fully bearish at the time of this writing. That could change but in the meantime, when you get a chance, maybe on your break, spread the word...the Copbalticburg Syndrome may have arrived, or as the pharmaceutical fellas would say...the market may have developed a bad case of CBBS.

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WSJ article - Hindenburg Omen
More Hindenburg at Safehaven.com 1985-2005
Coppock Curve
Wikinvest explains Baltic dry Index

Recovering From A One Day Meltdown

Looking back on history, Wednesday's sell off was the 19th worst one day drop since January 2009. It doesn't seem all that bad when you put it that way. The question that comes to mind after a day like that is how soon will the market make up the loss, and how does the current market trend affect this short term recovery?

A typical reaction by some traders to a really bad day in the market is to sell everything, or trade in the opposite direction. But is that sort of knee jerk reaction warranted?

First things first. I will define a one day drop as the close of the previous day to the close of the next day. History in this case will only go back as far as January 2009. Since markets recover eventually (they do, don't they?), let's use a two week maximum time period for the recovery to occur. Also, I will use data from the NASDAQ Composite and look at only those days where the market fell more than 2.5%. Ouch!

To keep things simple and to define a trending market, I will use the ugly, but useful, stepchild of the 50 and 200 day moving average...that would be the 100 day moving average. (Daily prices above the 100 day MA...uptrend; daily prices below the 100 day MA...downtrend). Moving averages are used in the calculations and are not shown in the post.



As you can see by the incredibly wordy chart, one day losses greater than 2.5% occurring during uptrending market cycles (identified by the green bars), were recovered or exceeded 62% of the time within five days (8 out of 13 occurrences), and 69% of the time within 10 days (9 out of 13 occurrences). The recovery of losses during the first week were held or exceeded during the second week in all but one occurrence.

One day losses occurring during downtrending market cycles (identified by the red bars), were recovered or exceeded only 19% of the time within five days (3 out of 16 occurrences) and 44% of the time within 10 days (7 out of 16 occurrences) .

Remember that the historical data used only goes back to January 2009, and history does not necessarily predict future events. That being said, last Wednesday's 3% loss occurred under the 100 day moving average which would be considered a downtrend. In this case, I'll let history be my guide.

QID Returns

The CMI couldn't stand the heat of the recent market action so the QLD will be sold and the QID will be bought at tomorrow's open. It would be ideal if the CMI would switch trades before these significant moves but trend-following, rather than trend leading, is how the CMI rolls.

A larger trend is the CMI's only friend.

Best and Worst Day to Trade

Looking at the see-saw action over the last few months, I decided to check how each day of the week compares to the others in terms of cumulative gains and losses. Since I had some QQQQ data handy I checked the percentage change from one day to the next, then sorted each day of the week and summed the gains and losses. The three resulting graphs are below. As a comparison, three time frames are used: 2006 to present; 2009-present; and year-to-date data.

Results are not too surprising. I'll be careful how I use the terms "best" and "worse" since one monkey's nightmare is another monkey's dream. Looking at the most recent graph, the best days for the 'long' crowd would be Monday and Wednesday, or near the previous day's close. The best day for the 'short' crowd would be Friday, or Thursday near the close.

(I'd rather lick a poison dart frog than go long on Thursday night...at least for a day trade).

For years, based on some old S&P 500 data, Wednesday has always been king of the week for the long side. Recently, it appears that Monday is challenging " the king" for the crown.

This information has less value to those who expect to buy and hold, but may offer an opportunity to get in at better price.

A Hurricane Stock List? OK I'm In.

Hurricane season is here so I think it is important to do the right thing and put together a list necessities to weather the storm. This includes an emergency kit with a three day supply of drinking water and food that you don't have to refrigerate or cook; first aid supplies; a portable NOAA weather radio; some basic tools; a flashlight; clothing; blanket; important documents; a portable cage for the poison dart frogs; and a good list of hurricane stocks so that you can profit while the storm wreaks havoc on your dwelling.

There are countless trading sites that put out a list of stocks that could spike when tropical depressions get serious. I have waited a while longer since, luckily, the weather on the west side of Africa has been quite docile. But, in the name of gamesmanship, here is what I consider to be safe hurricane 'plays' during August and September. I say safe because the list, for the most part, eliminates any low priced lottery ticket type penny stocks. Most of these stocks also have a decent upward trend over the years during this time of year.


HRC, Hil-Rom Holding, Medical technologies and related services. Already kicking into high gear but plenty of upward momentum.

MTRX, Matrix Service, Construction services. Good volatility over the last several months.

BRS, Bristow Group, Helicopter services to offshore energy industry.

CHCI, Comstock Homebuilding. Weak volume but I like the parabolic looking six month chart. These can spike quickly in price and volume.

HD, Home Depot. We all know this one so I'll bite and put it on the list. A good play anyway over the next few months.

Timing is everything, and by the looks of the hurricane chart below, we are approaching the eye of the storm...at least on paper.

Banana Stew

A Sharper Looking Signal?

My Director of Marketing (the suit in the header) doesn't think there is any room for bulls and bears in a stock market blog. Hence the new Cheetum market indicator in the left sidebar. Strange how the picture seems larger now. Almost makes my photo look tiny in comparison. Stay tuned.

CMI 2.0 Update

The market is allowing some padding to the year-to-date gains. Seems like that is what is needed to protect that 20% gain from the first two trades of the year. Now approaching 30% for the year, and since I'm not superstitious, the high for the year was just over 40% before being crushed at the end of April. Some minor safeguards have been put in place to try to prevent "wrong directionitis". I'll stick with my earlier CMI end-of-year prediction since it wouldn't be fair to keep adjusting it up and down.



Banana Stew

As a young chimp, I spent several years creating stock screeners for swing trading...with no regard for market direction. I have a much greater interest in overall market direction now but still occasionally dabble in the black art of single stock selection screeners. Since the CMI is on automatic pilot right now, I have been working on a screener that I call "Banana Stew". Jokingly, I call a lot of other stock selection filters that contain a multitude of parameters, including the kitchen sink, banana stew. More is not necessarily better.

Although this is a work in progress, I'll do the wrong thing and post the two hits that popped up today. I'm not proud...or tired, as Arlo Guthry once said. The screener is supposed to pick stocks, at key market pivot points, that produce gains of 3 to 5% at minimum within five days or so. The idea is to take the small gain, and move on until the next pick, or get a stop underneath and let it ride. Frequency of usable picks is about one (or one group) per week, on the long or short side. The market dictates the frequency of picks and the direction. The recipe for the stew includes recent rate of change, 10 day history, and lower lows for long picks (higher highs for short picks). All this is supposed to allow the screener to pick the stocks that are ready to return to the path of least resistance after being pushed in the opposite direction for a few days.

The stew may be a little spicy since today's long picks were DPZ, Dominos Pizza, and BAS, Basic Energy Services. These look a little sluggish but I'll record tomorrow's open and let these two "not ready for prime timers" simmer for a few days. I'll wash it down with a slice of humble pie if they tank.