S&P Buy Signal

Off the Grid wrote:

Got in ~100, it has paid a buck.

You're bragging about a 1% gain? The bond market sucks.

Off the Grid wrote:

Got in ~100, it has paid a buck.

Earth to nimrod wrote:

You're bragging about a 1% gain? The bond market sucks.

and its at 118-119 now. Fixed income has done better than equity 1981-2011.

If all the money put into hedge funds over the past 10yrs had instead been put into fixed income, they would have realized double the hedge fund returns.

Um....equity does not necessarily imply hedge funds.

It seems quite a few technicians have all recently gone constructive on the market, which is not necessarily constructive. The Fed put is still firmly in place and the promotion of "risk on" is unquestionably a bullish force. However, I would recommend reading John Hussman's "Leading Indicators and the Risk of a Blindside Recession" put out today.

just passing by. wrote:

What was your final opportunity cost of selling in August?

Assuming you mean, what was the change (including dividends) in SPY since the August sell signal? 11.73

agip2 wrote:

Is "Understanding MACD" by Gerald Appel and Edward Dobson a good book on the subject? The chartist stuff is foreign to me.

Haven't read it. I've found the books by Alexander Elder, Jack Schwager, and Van Tharp to be most helpful, plus "Technical Analysis of Stocks and Commodities" magazine.

Off the Grid wrote:

Fixed income has done better than equity 1981-2011.

Of course, there are other time frames where the opposite is true. Touting a 30 year buy-and-hold strategy for bonds may be fine or you, but I think most investors are not quite that patient.

Big Game Hunter wrote:

What the heck is SPY? I am generally a stock/mutual fund guy but bonds have outpeformed equities since 1980 - also - picking individual stocks is fruitless - you really don't know that?

SPY is the SPDR S&P 500 Index ETF, it trades like one stock, but mimics 500.

TLT is iShares 20 Year T-Bond ETF, following long treasuries.

I also mentioned SSO which is Proshares Ultra S&P 500 ETF. It moves twice as much daily as the S&P 500 Index, but it has unusual behavior if you attempt to use it in a buy and hold strategy, therefore it should only be used in a trading strategy.

Off the Grid wrote:

We went to long bonds TLT in early August, ended 2011 +18%.

Good on that trade! I shorted EWZ (Brazil) in June and I'm up 16% right now, but it's getting close to a buy signal.

I'm also keeping a close eye on UNG (Natural Gas). It's down 95% from it's high in June 2008. I plan to pile into this one when I get a buy signal.

The sell signal is a combination of the 10 week EMA - 40 week EMA Cross, plus a 40 week Bollinger Band (0.8 standard deviations) used as a buffer to weed out premature sell signals. As we saw with the last sell signal it doesn't weed them all out. The 19 week EMA - 39 week EMA Cross, described by Coach D, also gives roughly the same sell signals.

The sell signal is premature 50% of the time, meaning you will miss out on part of a bull run when it's wrong (6% on average). When it's right you avoid 16% of a bear run before the next buy signal. You never lose money by selling, in fact you earn interest, but will avoid fairly large losses half the time.

Sagarin wrote:

It seems quite a few technicians have all recently gone constructive on the market, which is not necessarily constructive. The Fed put is still firmly in place and the promotion of "risk on" is unquestionably a bullish force. However, I would recommend reading John Hussman's "Leading Indicators and the Risk of a Blindside Recession" put out today.

If I based investing decisions on fundamentals, I wouldn't buy now. The economy, while growing, is anemic. Housing is about to get slammed by a new wave of foreclosures. Europe is a mess. China has the potential to get ugly. I agree with you that the market is a bag of crap.

However, the number of morons who are willing to buy a bag of crap in the hope of selling it to another moron at a higher price is enormous. That's why markets will keep going up when the only reasonable direction is down. That'll keep happening until we run out of morons, as happened in 2000 and 2008. Shortly after the last moron is caught holding the bag, I'll get a sell signal. Then I'll earn interest while reading Flagpole's posts about how happy he is that the market is crashing.

Blowing.Rock Master wrote:

I'm also keeping a close eye on UNG (Natural Gas). It's down 95% from it's high in June 2008. I plan to pile into this one when I get a buy signal.

NG has been a great short. People keep trying to call the bottom. The Qatar terminals as well as new fracking have created a lot of extra supply. Its unlikely to rally, but who knows.

Blowing.Rock Master wrote:

I'm also keeping a close eye on UNG (Natural Gas). It's down 95% from it's high in June 2008. I plan to pile into this one when I get a buy signal.

I think a buy signal came in recently on NG. Did you buy?

Btw, regarding your buy signal on SPX on 1/8/2012 using MACD(25,90,9), i seem to get the buy signal earlier using that indicator, like at the end of December.

Oh, i figured out why we deviate. You are using weekly data and i use daily data.

I haven't seen a buy signal on the weekly chart for UNG, however I did sell some July 5.00 puts on it about 6 weeks ago. It had a reverse 4:1 split today, so the price is now above 21. I think the puts are going to be converted into 20.00 strikes with 25 share deliverables.

If I do eventually buy Nat Gas, I think I'll switch to UNL because that fund uses long term contracts instead of front month.

Off the Grid/Blowing Rock.Master/Any other professionals,

I've often followed a similiar path to Flagpole, consistent investing ($1700 per month) into 5-6 different mutual funds. I feel I'm doing well for my age, as I have $81k in mutual funds at age 25, however, am curious as to your strategies.

My thoughts were that if you were always buying and selling to time the market, then you'd have to pay capital gains taxes on each of those transactions. If you buy at 100, sell at 115 over say 2 months, wouldn't you have to pay taxes on that at your ordinary income tax rate (potentially 25-35 depending on income levles)? Then it goes back down to 110 and you buy again and sell at 120, you pay higher short term taxes again. Now say I buy at 100 and sell 10 years later at 140, i just pay long term capital gains taxes (15%) one time.

Am I correct to think that over time, you're just burning up your gains through continually paying higher taxes and more often on your gains. Jut trying to understand a bit better.

Implement this strategy in an IRA, and you do not have to worry about cap gains until 59.5 or later.

If you do it in a regular account, you pay roughly 20% of your additional gains in STCG tax. So a system that purports to deliver 10% actually delivers 8%, as you do not get the compounding.

If you have a foreign spouse, you can avoid this altogether.

Even outside an IRA you should come out ahead over the long run. Quick example:

Buy and Hold:

Buy 100 shares of a stock at 100 = $10,000

Over the next few years the stock rises past 110, then falls below 100, then recovers to 110 at which point you sell. You make $1,000 profit and pay 15% tax on it leaving you $850 in profit.

Final equity = $10,850

Trend Follow:

Buy 100 shares at 100 = $10,000

Stock rises past 110 then starts to fall, so you sell at 110 for $1,000 profit. Taxes take $200 giving you equity of $10,800.

The stock continues to fall under 100 (while you earn interest) then begins to rise again, so you buy at 100. Since you have $10,800, this time you get to buy 108 shares.

Once the stock gets back to 110 again you sell (just like Buy and Hold) for a profit of $1,080, but you lose $216 to taxes, so your final equity is $$11,664.

So Buy and Hold = $10,800

Trend Following = $11,664

If the market only ever goes up, Buy and Hold will beat Trend Following, though not by much. If the market goes up and down, which is more typical, Trend Following beats Buy and Hold, even though you pay more in taxes.

You can never beat the THEORY behind trend following, but the problem is it's VERY HARD and I say really impossible to buy and sell regularly at the right times or even close to the right times.If you want to try that, I suggest you continue to invest the money you have been as you are and then take extra above and beyond that and play around with it a little if you like. Normally I would recommend a person do this only after they are 100% debt free and own a home outright, but if you're investing $20,400 a year and continue to do so, then you can go ahead and play around with a little bit more each year if you want (as far as I'm concerned).