S&P Sell Signal

Chinese Chicken wrote:

Dow Jones, NASDAQ, and S&P are all up over a percent to start off over an hour in. That's good for me!

Up a percent today gives you a woody??

What about the 1800 point drop in the Dow when measured over the last 4 weeks?

FAZ is flying again... Ominous.

All its going to take for a bank to go under is 1 large counter-party to unwind their swaps w/ BAC etc and they then have to refinance at +300 (current CDS), and they are screwed.

e.g $1trn notional in swaps, at 3% is $30bn. That's a steady bleed of $30bn/year. And JPM and C are 80% of the $700trn in notional swaps out there. So BAC could easily be $100trn, and just 1% of its book could take it down.

Not.Good

selective breeding wrote:

Up a percent today gives you a woody??

What about the 1800 point drop in the Dow when measured over the last 4 weeks?

Nope, but I didn't own any stock until last Friday when I bought all in, so I couldn't give a hoot about the 1800 point drop leading up to it - just more easy money for me to make once it gains it back. However, I am glad to see the market didn't shit the bed as a result of this S&P Sell Signal right after I bought in and the ensuing speculation was all wrong.

DontFeedTheTroll wrote:

Why do these signals always seem to appear *after* the market has lost a lot rather than *before*?

Right.

I started a thread last month when the Dow was at 12,700 about selling.

Now it is at 10,800 or so.

I bought back in at 11,800 when I should have stayed out, but I'll admit it was all just a hunch and I didn't use any models or programs to determine this.

The system is interesting and we may go down from here and stay down a while.

Anyway, the sell signal seems a bit late.

Off the Grid wrote:

There is an enormous amount of academic and institutional bias directed against technical analysis. Even though there are many research papers coming out concluding that trend following delivers outsized returns e.g. +8% vs FTSE-100 over an 80yr period.

I've got a CFA, 20yrs experience on the sell-side etc. And my conclusion is that all the research in the world doesn't mean anything unless others start buying/selling. And when they do that, the price moves, and people respond to that price move in fairly predictable ways.

The primary factors that made technical systems untenable 20yrs ago - commissions and market friction - have been eliminated through technology. So while the majority of money uses, "fundamental principles" for investing, technical investing/trading is wide open with many uncrowded trades.

Maybe we should have a separate thread about trend following versus buy and hold. This is one of the papers showing trend following having double the returns in the long term:

I do trend following as described in my post above with real money, I make far more money these days trend-following futures than working as a D1 assistant (I retired from high-tech--early--in 2000).

I see both sides of the argument as basically wrong. I think the buy-and-hold side is basically not smart enough for technical analysis, or won't make the time commitment for doing their own analysis, or has simply been indoctrinated by people with an incentive to amplify every error of technical analysis. Remember that mutual fund managers are often not buy-and-hold themselves--non-indexers often have rather large turnover rates--but they want YOU to believe buy-and-hold is the only way because it is more profitable for THEM. I think a totally rational person would look at the last 15 years and say that buy-and-hold simply doesn't work as advertized, but I think there's a lot of the old IBM fear, uncertainty, and doubt marketing at play here. It's people's life savings, remember.

Part of the reason technical analysis in general has gotten a bad name (besides the mutual fund propaganda as mentioned above) is that it's often applied or promoted by short-term traders, and at least 95% of short-term traders lose money. There was a well-publicized study by the FED 10-20 years ago that showed chart patterns were barely better than flipping a coin, and chart patterns are what a lot of people associate with technical analysis.

The people I know who have been investment advisors over the last 3-5 years--and are still alive in the field--are trend followers like me. Anyone who wants to claim that a system like 5-10-20 DOESN'T badly outperform buy-and-hold over any reasonable time frame is an idiot--and that includes Malkiel.

Off the Grid wrote:

Not.Good

Pay attention wrote:

Also, not likely.

Why? The market thinks you should pay 300bps over treasuries for BAC risk. Last time I looked at a Bloomberg screen, that was where BBB risk traded. So the market is saying BAC is close to being junk.

and if the market thinks they are going under, they will. Just ask Lehman, Bear Stearns, WAMU etc.

coach d wrote:

I use somewhat similar methods, but the fact that you claim to be using a 10wk/40wk EMA says to me that have not been doing this with real money. It is actually barely better than flipping a coin, and if you had used this method last summer without any hysteresis, you also would have had a sell signal and you would have gotten whipsawed.

If you'd gone both long and short with the 10-40 system using SPY from 1/2/2001 to 12/31/2010, you're net gains would have been $130.27 per share versus $14.95 for buy and hold.

Going long only from the beginning of 1960 until the end of 2009 using the S&P 500, the 10-40 system racked up 1,689.03 points versus 1,055.20 for buy and hold. Neither one of these performances can be described as coin flipping.

Regardless, I am using (and making) real money. My modified 10-40 system does incorporate hysteresis (via Bollinger Bands). Also, my entry depends on a weekly MACD signal.

System Trading works, as long as you follow the system.

I do not think it is a coincidence that the majority of people I have encountered who have had success with system trading are 40 or over. You need to not "over-think" things, and commit to following your system. This is easier to do when you know that, "the truth" is a slippery idea, on which nobody has a monopoly (something that occurs to you often when you hit ~45).

Most people still say it is all bollocks, which makes it that much more likely that these methods will continue to be profitable.

Pay attention wrote: The Kniefling ratio for both Bloomberg and S&P is outrageously mediocre. 300 basis points is meaningless in these terms. Bottom line...it's a huge longshot. You can relax.

What is, "The Kniefling ratio", and what does it have to do with a data terminal and a rating agency?

the market is saying BAC is in trouble, and that it is close to junk. wishing it were otherwise will not make it so.

Off the Grid wrote:

I do not think it is a coincidence that the majority of people I have encountered who have had success with system trading are 40 or over. You need to not "over-think" things, and commit to following your system. This is easier to do when you know that, "the truth" is a slippery idea, on which nobody has a monopoly (something that occurs to you often when you hit ~45).

It's like you just wrote my biography.

Off the Grid wrote:

System Trading works, as long as you follow the system.

I do not think it is a coincidence that the majority of people I have encountered who have had success with system trading are 40 or over. You need to not "over-think" things, and commit to following your system. This is easier to do when you know that, "the truth" is a slippery idea, on which nobody has a monopoly (something that occurs to you often when you hit ~45).

Most people still say it is all bollocks, which makes it that much more likely that these methods will continue to be profitable.

Just curious - do you have a large enough sample size to say that what you're doing is really working? Lots of negative EV systems can appear to work in the short term due to the somewhat random nature of the market.

Blowing.Rock Master wrote:

[quote]coach d wrote:

If you'd gone both long and short with the 10-40 system using SPY from 1/2/2001 to 12/31/2010, you're net gains would have been $130.27 per share versus $14.95 for buy and hold.

Going long only from the beginning of 1960 until the end of 2009 using the S&P 500, the 10-40 system racked up 1,689.03 points versus 1,055.20 for buy and hold. Neither one of these performances can be described as coin flipping.

As trend following systems go over the long term, that isn't very good. I believe the 5-10-20 system mentioned above is in the library for both Trade Station and Metastock and it produces double the results of buy-and-hold with ~4 trades/yr. If I could not beat this, I would use it.

These are the actual results of the 19wk/39wk EMA cross that I use as the primary system since 1995:

Date===Price==SP500 point gain

Jan-95 464.78 000.00 LONG

Oct-00 1365.98 901.2 SHORT

May-01 988.61 377.37 LONG

Jan-08 1401.02 412.41 SHORT

Aug-09 1023.93 377.09 LONG

TODAY 1123.82 99.89 HOLD LONG (so far)

SP500 Point gain since 1/1995 == 2167.97

buy-hold point gain since 1/1995 == 659.04

I was actually straight long tech stocks (MSFT, INTC, ORCL, CSCO) during the 1990's and sold in Oct 2000 when the weekly MACD went into total sell mode (basically, I got to the position of retiring early by doing everything that Flagpole recommends against) and wasn't following trend-following until late 1990's. And unfortunately, I didn't go short in 2000.

With real money (and keep in mind, this is with two full SP500 futures contracts, so you multiply the point gain by 500):

May-05 1152 000.00 LONG

Jan-08 1401.02 249.02 SHORT

Aug-09 1023.93 377.09 LONG

TODAY 1123.82 99.89 HOLD LONG (so far)

SP500 Point gain since 5/2005 == 726

buy-hold Point gain since 5/2005 == LOSS OF 28.18

Off the Grid wrote:

What is, "The Kniefling ratio", and what does it have to do with a data terminal and a rating agency?

the market is saying BAC is in trouble, and that it is close to junk. wishing it were otherwise will not make it so.

Pay attention wrote:

Your tunnel vision regarding BAC is preventing you from seeing the forest for the trees. The suits they face have nothing to do with the ratio calculations or the primary derivative figures. You're relying on the shaman's words instead of honest, factual, and - most importantly - meaningful data. Today's numbers were not a fluke as your pseudo-science would have you believe. Follow the money, my friend.

If they have to rehedge 2% of their swap book at current rates (342bps over), they are bankrupt. How am I not following the money?

Pay attention wrote:

You're living in a fantasy world made up of "ifs". Instead of imagining these far fetched scenarios, take a look at the numbers. The ratio and market derivative both suggest your idea is nonsense. BAC is not WAMU. They have/had very different problems with very different solutions.

enlighten me....why would their counter-parties NOT try to unwind now?

what is, "The ratio and market derivative"?

This thread is pretty much everything that's wrong with the economy. A bunch of voo-doo schemers trying to get rich (and sometimes succeeding) by moving money around.

Is this what the American dream has come to? E-trade?

While we have this S&P sell Signal right now, insiders are buying.

The people that are actually looking at the companies health seem to be confident that they are now undervalued.

http://www.washingtonpost.com/business/economy/as-investors-panic-ceos-vote-with-their-wallets-for-local-companies/2011/08/17/gIQA1DpRXJ_story.html

So there is information to buy and to sell.

Take your pick.

Good article, but last 2 paragraphs from it are important:"But Seyhun, the University of Michigan finance professor who wrote the book on insider trading, isn’t ready to call August’s buying frenzy a full-blown “buy” signal.“If there is sustained buying at these levels for three to six months, that would be a very strong signal,” he said

X-Runner wrote:

While we have this S&P sell Signal right now, insiders are buying.

The people that are actually looking at the companies health seem to be confident that they are now undervalued.

http://www.washingtonpost.com/business/economy/as-investors-panic-ceos-vote-with-their-wallets-for-local-companies/2011/08/17/gIQA1DpRXJ_story.html

So there is information to buy and to sell.

Take your pick.