Path of Most Resistance?

Since the beginning of this year I have thought that I had created the best market timer ever.  The only problem was that it could only make a profit on the planet Htrae, better known as Bizarro World.  That's the place where good is bad, up is down, and right is wrong.  That must mean that on planet Htrae, their Federal Reserve must actually promote a free market and work for the good of all primates.
 
The MensaMonkey 2013 may be the greatest market timer ever, you just have to reverse all the trading signals.  In MM's defense, there was one lively QLD trade that resulted in a small profit.  I bring that up now because MM has hit the accelerator pedal, dropped the PSQ and has gone straight for the 2x QLD after too many hits on the support level du jour...and didn't even wait for a new S&P high.

I could simply reverse polarity, and hope for the best but I'm not quite ready to throw out the logic baby with the logic bathwater quite yet.

Now it looks like I have to find some good reasons to promote the sudden bullish inclination and "dumb money" position of the MM.  But in Bizarro World, dumb is really smart, right?

Waiting for QLD Separation

Here's a chart showing the performance of the QLD versus the SPY since MensaMonkey jumped form XLI to QLD back on September 4th.

No major advances that separate the QLD from the major indexes has been seen but these things can take a little time. MM feels that the best place to be is on the bullish side even though a less cautious, and more profitable play would have been to launch the QLD back in June. But MM is way too cautious and his programmed logic combined with price action kept him sidelined holding the XLI and XLU. "Whatevs" or "evs" or "whateverevs" as the young Aussie monkeys say. Hindsight, even for a chimp, is 20/20.

While I'm sort of on a space theme here, you may want to know when the space station or other satellite is flying over your head.

 Go here and find out.

The ISS (International Space Station) is quick, bright and always on time, unlike myself who is usually slow, dull, and fashionably late.

MensaMonkey Goes All In

Based on the scatter diagram below, the MensaMonkey has moved into the QLD with timing that has captured fairly large gains since 2009. MM stealthily switched from the relatively safe confines of the XLI to the all or nothing 2x QLD ETF today at the open.

Those pieces of bright green "confetti" on the chart represent the gains of each QLD position (vertical axis) and the days in trade (horizontal axis). The legend at the bottom of the chart identifies all of the other positions since 2009.

The last position in XLI was closed for a loss of 1.2% which brings the winning percentage since 2009 to 63.4% with average gains exceeding average losses by a little over 2 to 1.

Soothing the Savage Beast

The CMI's decision to buy the QLD at exactly the wrong time doesn't do much to inspire confidence in the 'faster signal' approach, but I'll chalk the loss up to a few growing pains and continue to look at the longer term rather than buying into the daily play-by-play noise-fest, especially in this highly volatile atmosphere.

With only 16 weeks left in the year, it's do or die for the dart throwing monkey. A flip back to the QID (wish I never left) is inevitable next week if the market spirals downward.

Time to rock the beast to sleep with the Whipsaw Song.

Running With the Bulls...and Lions

The good news is that the last QID trade resulted in a gain. The bad news is that the slightly more nimble Cheetum Market Indicator has been watching too many highlight reels of the great running back, Barry Sanders.



I'd much rather stick to the plan and hold a QID position, but the CMI is calling the shots. Let's hope that the CMI can turn on a dime if necessary.

Closing QID, opening QLD at tomorrow's open.

Who knows? Maybe a repeat of September 2010 is in the works, or QE3 has started and the CMI read it in the tea leaves, or in the AstroTurf.

CMI is Alive, Older and Wiser?

I can only hope that the CMI has assimilated more data provided by the market over the last month or so. I get the feeling that a tighter stop will be in place this time, but that may still require a double digit gain to trigger the initial setting of a stop. It's the CMI's call, of course.

A little knowledge can be a dangerous thing especially in the hands of a Cyborg-Franken-like market timer. Even so, the CMI thinks that a new trend is in the works so it's time to jump back in and watch the market head higher. That's the plan anyway.

The CMI will buy the QLD at the open tomorrow. Let's hope it runs through the summer.

Good Trade Gone South

When actual volatility exceeds expected volatility, the trade profile (in red) is typical. In hindsight, it seems kind of ridiculous not to take a percentage of the gains off the table, but doing so using a systematic approach would result in reduced gains in longer trending markets. Multiple buy/sell signals would occur, in whipsaw fashion, as price swing tolerance decreases.

The white horizontal line represents the trigger area for setting a stop that would have occurred if the gains rose to that level. A 22% gain receives no more attention than 2% gain, in this example.

Domo Arigato, Mr. Roboto

As much as I would like to stay in this trade since this would make a nice market bottom, Mr. Roboto, I mean CMI 3.0, was pushed out of the current QLD trade. Who can blame him what with all the earthquakes, tsunamis, radiation and Dropkick Murphys blaring in the background at least until St.Patty's Day. And they say there is no such thing as an Irish monkey!

Actually, the last few weeks set the stage for the final push out of the trade so tomorrow's opening QLD price will be the official close of the trade. Due to the current volatility zone, there is no QID trade. Instead, the 'No Trade' signal is posted until the next signal is generated.

So why thank Mr. Roboto...I mean CMI 3.0? The last trade left alot on the table since the trade went as high as 15% before rolling back down and erasing the majority of the gain. The trade profile has a little too much downward curve. (I'll post the trade profile later) Even so, Mr.Roboto, I mean CMI 3.0, makes decisions without hesitation using logic rather than feelings, art, or emotion...even if the result isn't exactly spot on, or dead wrong 43% of the time. Arigato CMI 3.0, Domo Arigato. The longer trend is still the main focus.

With all these flashing lights and numbers whizzing by on the CMI dashboard, I know that the system is trying to communicate. Looks like the CMI is still leaning towards the bullish side and could send a buy signal in short order if the market makes a rebound. If the market sells off and goes deeper, the 'No Trade' signal will hold and the QID signal won't appear for a while. The buy signal is much closer to the surface, and the sell signal is too high risk according to Mr. Roboto, I mean...you know who. According to Mr, err, CMI 3.0, odds are 7:3 that a QID trade would result in a loss if opened tomorrow.

What about stops for the CMI 3.0? Well, they exist but are not even considered until gains exceed a certain level. In the case of the last trade, the level was close to 23% before any stop would be set. A 15% gain isn't even a thought in the CMI's CPU. That must be why they call them 'unrealized gains'. The CMI doesn't even realize they are there.

If the Dropkick Murphys haven't frazzled your nerves yet, let's go retro and check out the cool Styx video. Yeah, I know. I miss the 80's too.

Best Guess Put to the Test

The following is an excerpt from a Q&A session between Jack Schwager and Mark Ritchie from CRT in The New Market Wizards:

MR: Most people don't distinguish between drawdowns in open equity and drawdowns in closed equity. If I protected open equity [i.e., open profits] with the same care I protected closed equity, I would never be able to participate for a long-term move. Any sensible overall risk control measure could not withstand the normal volatility in such a move.

JS: In other words, in order to score the really large gains, you have to be willing to see those gains erode significantly before getting out of the market.

MR: I can't see any other way. If you get too careful about not risking your gains, you're not going to be able to extract a large profit.

________________________________________________________________


The CMI 3.0 apparently couldn't agree more. Due to price action and volatility, the CMI's long term buy signal overrides the short term sell signal (noted in the chart with an arrow on 2/25), and the trade continues until more convincing downside price action occurs. If the high of 2/16 represents 80% of the duration of this trade, using averages of previous trades, this QLD trade is approaching it's end. Keep in mind, this is just a rule of thumb.



Since the CMI is an unemotional beast, it uses the highest probabilities based on historical data and has determined that the high of 2/16 does not represent 80% of the duration of this trade. Just remember the dip in summer of '09 during the run up. The CMI ignored that too.

If correct, the trade should right itself and continue onward and upward. (A one-trade year is always possible, and extremely profitable). If wrong, a percentage of this trade's gains evaporate, and either a QID trade or a 'No Trade' signal will follow.

Gold, Frankincense, and QLD

The CMI can be a fickle beast, and after testing the downside waters with no success, the QLD will replace the QID once again at tomorrow's open. Santa will either bring us a dull whipsaw or a free ride on the Bernanke Express.

The Q's are sitting right at the $54 mark, and if I had to guess, I would say that this is resistance but opinions don't matter when following a mechanical system...whether off the cliff, or to the Promised Land.

The information in the current trades area in the left sidebar will be updated tomorrow.


Holiday Gift Ideas From Me to You


My last public service announcement was, I am sure, very helpful for those who needed some job interview refreshers to get you off the couch and into a new, life-draining, day job. Now, I am please to be able to give you my thoughts on last minute holiday gift ideas...

Time is running out, so get your bid in on the HMS Invincible at edisposals.com. She's a navy ship made of 10,000 "tonnes" of steel, The UK needs money so I am sure you can get this beauty for a real bargain price. Engines not included.











If I win the auction, I'm gonna need a lot of wrapping paper.



Don't know anyone who need a spare ship? How about this then? The complete series of the best show ever made...Kung Fu. The series aired in the early 70's but the wisdom and lessons taught by the Shaolin Masters are timeless. This should be required watching for all ages. David Carradine, in real life, may have seemed like a nut job to some, but he carried this series to the top and helped pull off the inconceivable...a western with an Asian-American priest as the main character.

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'.

Switch and Swap Week

In theory there is no difference between theory and practice. In practice there is.
~Yogi Berra


CMI Switching Camps

The CMI is switching over to the QLD at Monday's open. It is clear that the CMI would rather wait for the larger trend than play the short term oscillations that the market has been offering. I'm will put my faith in the words of Ed Seykota and hope that one good trend pays for them all.

COMING SOON - Market Friendly Stock Picking Screener?

While waiting for the CMI to put a trade in the win column, I have been writing and testing a few short term stock screeners that 'trigger' only when aligned with the larger market trend, all in the name of low risk, high reward. If I hold the code in the mirror it should offer some good shorting opportunities also. I'll keep picking away at this for a while and post a couple of symbols when they pop up...just to keep me honest.

"Don't Blink" Day Trading

A while back I had posted some stocks that consistently gained 1-2% intraday almost every day for the last month(s). It's amazing how well this works provided that you don't let the losing trades get out of hand. And they will get out of hand...even with a 86-91% success rate. Maybe a mandatory 10a.m. closing of the trade would keep things in check unless you happen to know the direction of the market during the first 10 minutes of trading. DRV, RBCN, and EXXI still stand out as top picks. (DRV is a 3x inverse ETF). A trading system that requires that you cut your winners short does require some serious discipline.

And That's the Way It Was...

I normally leave world news, or any other kind of news out of the jungle, but since Moscow and Washington orchestrated the biggest and least secret spy swap in decades this week, I just had to say that it will be great having "Moose and Squirrel" back in circulation.

I mean, what have Boris and Natasha done lately anyway?
До свидания! (dah svee-dah-nee-yah)

The QLD Struggle

Here's a quick snapshot of the cummulative gains and losses during the last 22 days of this QLD trade. It looks like 22 days of spinning your wheels in the swamp. The current 6% loss could be worse. We will see if the market propping will continue or if the market will show it's true identity. The fact that gold is at an all time high speaks volumes.

Another 'up' day would put the CMI in a position to possibly switch sides (QID) if the bottom falls out again, but is that where we want to be? Keeping the losses in the single digits would be a major victory.

Double Trouble

I think it was a long step forward in my trading education when I realised at last that when old Mr Partridge kept on telling other customers, “Well, you know this is a bull market!” he really meant to tell them that the big money was not in the individual fluctuations but in the main movements-that is, not in reading the tape but in sizing up the entire market and its trend.

~Jesse Livermore, Reminiscences of a Stock Operator


If it isn't GS creating toxic assets, selling them, and shorting for a profit, it's the Greeks spending like drunken sailors. I think the market is looking for any excuse to make a few $$ on the way down. Big swings like this are doubly painful when using a 2x ETF like the QLD. Regardless, the bull is still in the sidebar for now and we still hold a razor-slim gain for this trade.

QLD - The Guest That Won't Leave

"Suppose he buys his first hundred, and that promptly shows him a loss. Why should he go to work and get more stock? He ought to see at once that he is in the wrong; at least temporarily."

~Edwin Lefevre, Reminiscences of a Stock Operator




I'm a little hesitant to reverse direction from QID to QLD especially when the Dow hit resistance at 11,000. If you fear the whipsaw, or you enjoy the comfort of a 1.10% Savings Account, turn away now and run while you can.

Luckily for me, the CMI is making all the decisions. At Monday's open, the QID will sell (nice try QID), and the QLD will be bought...and I bury my cynical view of economic recovery deep in the tar pit once again.

I will forward some CMI propaganda in the form of chart and graph, as promised, just as soon as I finish some repairs on the hut.

Not So Fast

No two snowflakes are exactly alike. The same can be said for the three squiggly lines that buying and selling decisions are based on when using the CMI. This looks like the slowest transition from one trade to another in CMI history. The current QLD trade is hanging tough and has avoided extinction on a few occasions but a Monday close on the QQQQ's below 47.96 will be the death blow that I have expected for a week or so. Of course "rally is as rally does" as Forrest Gump used to say.

Planet of the QID's?

Sounds like Mr. Heston doesn't want the QLD trade to end either. Can't say I blame him. 22.6% in a month and a half speaks for itself. Let's not jump the gun yet since the bull is still in the sidebar. On the other paw, it will only take a 0.1% move down on the QQQQ's to force a swap of the QLD to the QID. The magic number tomorrow for the Q's is about 47.89. If we end the day there or below, expect the bear to appear and then we can all hope, watch, and wait for the market to fall apart, and see the QID rise from the ashes. Conversely, anything above 47.89 at tomorrow's close will keep the QLD trade afloat.

On the QLD Edge

After over a month, the QLD trade may finally be in jeopardy of going the way of the dodo bird. The expected results of this trade pale in comparison to the current result. It won't take much persuasion to switch to the QID since an end of Monday 47.39 on the QQQQ's will be just enough to pull the trigger. That's only about a 0.2% fall in price from where it is currently sitting. As always, I would wait to see the bear in the left sidebar until selling the QLD and buying the QID.

As a reminder, the CMI 2.0 differs from the original CMI because there is no 'downtime' between trades. With the CMI 2.0, you're either a QLD or a QID. No sideline sitting. This can have obvious drawbacks such as those dreaded (don't make me say it)... whi**aws. With that said, the CMI 2.0 has prospered even with this back and forth type of trading.

Who knows, maybe the Nasdaq will shoot for some new highs tomorrow. In the jungle, we follow rather than predict.

Compare with the "Pros"

While I was wringing out my keyboard, I came across a site that let's you get a glimpse of the "professionals" in action. (Yes, my quotations are full of sarcasm.) Check out TickerSpy if you are interested in the wheelins' and dealins' of the big $ funds.

Using the link above, you can go to the 'most watched' portfolios, sort by all-time change, and then look at the 'start date'. Those highest on the list by '% gain' with the longest time in are the one I tend to look at most closely since many of the biggest gaining funds just happened to have 'start dates' in 2009. Buying anything in 2009, and promoting those year-end results puts them in the dart-throwing monkey category.

Even though I do not partake in any mutual fund, some of the individual stock picks are thought-provoking to say the least.

_______________________________________________

The market action today gave the CMI a little push towards a possible, near-term QID buy, but as of this moment the CMI is extending the QLD trade until further notice. A couple days of light volume retracement would be just what the donkey ordered to push the QLD upward into the end of this quarter.

Read My QLD

Looks like I'm just a bull in a monkey suit...at least until the CMI 2.0 tells me to put on my bear costume. A gap down on Friday gave us a nice "out" of the QID and set up a low buy for the QLD. Today was just icing on the cake. I like cake...and grubs.

If this trade proves successful, it would be the 3rd winning trade in a row for the CMI 2.0. if you count that original trade from December. This is pushing the edges of CMI probability since two trades that result in consecutive gains or losses is more typical. Several years ago there were five winning trades in a row but that is an anomaly. I like anomalies...and grubs.