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Market Timing

Saturday, September 28 2013

It is not really whether or not a market crash is coming, it's when. How do we know this? Because the big-bad-bear ALWAYS comes.

The very same "evidence" that Buy and Hold pundits (liars) use to prove that buy and hold works, actually proves that it does not!!!  Their basic evidence is the "100 Year Dow" graph below. Upon close examination, starting with 1900-1920, you will see 20 good years followed by 20 flat/down years, over and over.  BTW, being flat or "even" after 20 years is really a tremendous loss, because one would have doubled their money over 20 years with bonds paying only 3.6% !!!

From the graph below it would seem that, if people lived 100 years or more, the Buy/Hold liars may have a point. But most investors' prime "equity" investment years are from the time that they are, say, 45 years old (bought house, kids in college, career sound, etc.) until they are 65 years old (approaching retirement, need safe investments, more money in bonds, etc.) So, the prime time span for investors having a large portion of their portfolios in equities is about 20 years.

In the last 110 years, the 20-year good/bad periods were:
Good    1900-1920    1940-1960    1980-2000
Bad      1920-1940    1960-1980    2000-????



Almost everyone knows that the stock market in 1920-1940 experienced the biggest crash in the last 110 years, and we have personally "lived" through the market up/downs in 2000-2013. But, what about the market in 1960-1980? For that, see the graph below. One could say that the graph speaks for itself.



It should be obvious by now that this leaves the time period 2000-???? to dissect. Will we have another big drop? If so, when? And, how fast will the market turn down, and will MIPS catch the turn?  My experience has shown the market crashes that result from bad fundamentals change slowly (long bubbles like housing, etc.), whereas, crashes that come from surprise "events" (like Lehman Bros.) change quickly.

See the graph between 2000-2013 below. We all know (unfortunately) that we have had two big market drops of over 50%. You will probably be relieved to see that, at the top, these markets traded in a range of (+ and -) 5% of their market tops for 8-9 months, before they headed down fast !!!



How did MIPS handle the market crash of 2008? Well, it started with a short call on 12/12/07 (+12%), followed by another short on 6/11/08 (+10), and then the mother of all shorts on 9/04/08 (+27%). What, me worry?

Posted by: Dr. G. Paul Distefano AT 01:44 pm   |  Permalink   |  Email
Saturday, September 21 2013

See the Annual Returns for the MIPS/Nitro model from 2003-2013 YTD below.

It is interesting to see that, in 2008, Nitro was up almost 90% when the SPY was down over 40%.
You might ask "How can that happen?"
- It happened because: (a) Nitro was not short the entire year, and
  (b) the SPY did have some up periods in 2008, and Nitro was long in these up periods.
So, Nitro caught most of the up and down trends in 2008 (see Nitro signals and performance on the MIPS website).

Posted by: Dr. G. Paul Distefano AT 07:14 pm   |  Permalink   |  Email
Saturday, September 21 2013

See the Annual Returns from the MIPS4/MF+ Model for 2003-2013 YTD below:

Posted by: Dr. G. Paul Distefano AT 06:52 pm   |  Permalink   |  Email
Wednesday, September 18 2013

Our Beloved Ben did it again !!!
- when he stood up and said "No Tapering," the markets went wild immediately.
- the SPY easily broke its all-time upside resistance at $171.1 and closed at $173.05 (see the 1st graph below).

With liquidity coming from (a) Brother Ben, (b) mom-and-pop coming back in the market, (c) a mass exodus from bonds to stocks, etc., how could the markets go anywhere but up?  [Bonds are such a bad investment now, we have read that even bond funds are buying stocks!]

We see more upside (and maybe even much more upside) in this bull run, but the market does not always follow my direction.  Because of this, when the time comes to hold-or-fold, we rely on MIPS to tell us what to do.

More on this later...

Posted by: Dr. G. Paul Distefano AT 11:27 pm   |  Permalink   |  Email
Saturday, September 14 2013

MIPS Members:

In our previous blog from 9/9/2013, we showed the SPY's breakout from a several week, tight trading pattern.  For the last several weeks, the SPY has been very volatile.

In the graph below, we can see that since 8/8/13:
   1) the SPY broke its long-term trendline (top green line)
   2) the SPY gapped down twice (orange circles),
   3) it bounced off of the 100-day EMA and turned up (inflection point) on 8/28/13,
   4) the SPY then broke above its 50-day EMA and closed both gaps,
   5) it has held above both gaps (above 168.6) for 4 days now (purple rectangle).
From here, of course, the SPY could challenge (and hopefully surpass) its all-time high at 171.1 or it could fall back significantly.  I'm glad that we have MIPS to detect and tell us what we should do (see the MIPS Market Strength Indicator below).




The MIPS Market Strength Indicator (MSI) has improved significantly in September.  See graph below:

Posted by: Dr. G. Paul Distefano AT 01:21 am   |  Permalink   |  Email
Monday, September 09 2013

In our previous blog from last Thursday, we showed that the SPY was ready for a breakout from its tight sideways trading range between its 50-day and 100-day EMAs. On Friday, the bulls pushed the SPY up above its 50-day EMA (and above the trading range), but the bears sold it back down to close just slightly above its 50-day EMA.

Today, however, the SPY make a nice, solid break out of the range and well above its 50-day EMA (orange ellipse). This would normally mean a run up, but we never know for sure.  That's MIPS' job.

Posted by: AT 08:01 pm   |  Permalink   |  Email
Thursday, September 05 2013

The SPY is stuck between its 50-day EMA and 100-day EMA, but not for long (see graph below):
   Green Line = 50-day EMA
   Red Line = 100-day EMA
   Straight Black Lines = Trend Lines
   Blue Box = Trading Range

In 2013, we have lived through meager gains in the economy, small setbacks, the Fed's QE3 and hints at "tapering" its purchasing of Treasury bonds, and the crisis in Syria, with the recent U.S. markets going nowhere.  Sometime soon, we believe that the market will establish a new trend (up or down). It is difficult to digest all of this activity, but a technical analysis of the SPY's performance offers some insight.

The SPY broke its 6-month "primary" trend to the downside on 8/12/13.
- Then, on 8/15/13, it broke its 50-day EMA.
- In the last 3 weeks (15 trading days), the SPY has formed a trading range between the bottom of its
  50-day EMA ($165.8) and the top of its 100-day EMA ($163.4).
- This is a "tight" trading range, with the top and bottom being only 0.7 of 1% around the mid-line of the trading range.

We believe that the SPY will break this range soon (up or down) and MIPS will instruct us to go long or short in due time to make money on this new trend.

Posted by: Dr. G. Paul Distefano AT 09:00 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)
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