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Market Timing

Monday, November 25 2013

We have recently received several questions regarding the trading frequency of the MIPS models.  Of course, the motivation for this is that the MIPS3/MF model has only traded twice in the last 12 months (and MIPS4/MF+ model has only traded 4 times in the same time period).

Over the last 11 years, these two MIPS models have traded an average of 10-15 times/year.  But, what does that mean?   It certainly does not mean that they trade once a month.  A model that trades an average of 12 times/year can trade 2-4 times in some years and 18-20 times in others.  And, when it does trade 12 times in one year, it can trade 3 times in one month and only once in the next 4-6 months.

The number one criteria that dictates the number of trades in any time period for a "trend following" model (like MIPS) is, of course, the time duration of the intermediate-term trends in said time period. 

So, how does the above apply to MIPS3 and MIPS4 for 2013?  To answer this question, let's look at the graph below of the SPY price action in the time frame of Nov'12 through Nov'13.  In this graph, one can see the nearly perfect 12-month trendline of the SPY, and can hence understand why the MIPS3 and MIPS4 models have been long for the vast majority of this time period with very few trades.  Remember, the MIPS models are following intermediate-term trends.  A faster acting model would have tried to ride the shorter-term waves in the graph below, and would have traded much more often with no guarantee of better returns (but with a good chance of getting whipsawed).
                                                                                        SPY


 

LAST 12 MONTH'S PERFORMANCE (all graphs from TimerTrac.com)

So, how did the MIPS3/MF model do in the last 12 months. We report most of our performance reports with MIPS trading the SPY long/short (or SPY long and SH short). But many of our MIPS members (including myself) trade  "combos" like 1/4 each of SPY, IWM, QQQ, and SSO.  See the performance of these ETFs below.

MIPS3 Trading SPY long/short



MIPS3 Trading IWM long/short



MIPS3 Trading QQQ long/short



MIPS3 Trading SSO long and SH short

 

PAST BEHAVIOR
Please understand that a signal with a "life" of several months (not days) is normal behavior for the MIPS models. The models will follow the intermediate-term trends (up or down) for as long as these trends continue in the same direction. The red dots in the graph below show trades for the MIPS3 model during the time period of 2003-11/20/13.  It can be seen that, in this time frame, there were at least 7 times in these 11 years when a trade signal lasted 4-6 months. And, you can see that ALL of them were winning trades (long and short).

MIPS3 Trading SPY long/short

Posted by: Dr. G. Paul Distefano AT 08:27 pm   |  Permalink   |  Email
Thursday, November 14 2013

In a previous blog on April 8, 2103, we wrote about how the stock market is basically being controlled by (the actions of) one man - Ben Bernanke. This, of course, has everything to do with his printing more and more of your money, to the tune of $85 Billion every month (that's over $1 Trillion/year) !!!  And, the Fed continues to do so. The point of the previous blog (and this one) was that it is very hard for the market to go down with this kind of money working to keep interest rates low. Remember the #1 rule in stock investing - "Don't fight the Fed."  Of course, with low interest rates, money naturally funnels its way out of bonds and into stocks (and there is a lot of money in the bond market, like about 5 times that in the stock market).

At any rate, after trading in a tight sideways pattern for over 3 weeks, the SPY broke to the upside yesterday (Wednesday) and again today.  See graph blow.



Also, as expected, the long-term upside trend continues from all the way back in November 2012 (see the long trend lines in the graph below). Again, this is no surprise with the Fed's extensive QE3 "program" (if you want to call it that).  When (and if) this comes to an end, it most likely won't be pretty. 

Of course, this long, relatively smooth up-trend is the reason that the MIPS models have not traded very often between late 2012 and thru Nov 14, 2013. We will wait for MIPS to tell us when the party is over.

Posted by: Dr. G. Paul Distefano AT 09:41 pm   |  Permalink   |  Email
Sunday, November 03 2013

When trading double leverage ETFs (like for the SPY, IWM, QQQ, etc), we recommend:
    (1) trading double leverage on long signals and single leverage on short signals, or 
    (2) simpy trading double leverage long only.

Here is how MIPS3/MF performed trading double leverage SPY (SSO) long only over the last 12 months.      

                   SPY   +23.4%                SSO Long Only  +50.5%

Posted by: Dr. G. Paul Distefano AT 08:49 pm   |  Permalink   |  Email

MIPS Timing Systems
P.O. Box 691047
Houston, TX  77269

An affordable and efficient stock market timing tool. Contact MIPS
281-251-MIPS (6477)
E-mail: support@mipstiming.com