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Market Timing

Wednesday, 28 June 2017

MIPS Members / Followers:
- please take 2 minutes and complete the SURVEY at the end of this email...

I am sure that all of you have heard the expression "Sometimes we can't see the forest for the trees".  Of course, this implies that in a thick forest one can only see 20-30 feet in any direction, and hence they have no idea what there is beyond that.  So, if a stranger was in the middle of a forest in a horrific fire, they would most likely think that this fire could consume many homes and even some small towns.  Hence, they would probably do everything that they could to alert the authorities in the area. 

However, if the person was in a "forest" that was only 50 yards wide in each direction, surrounded by 100's of acres of just grass/weeds, then this forest fire would not be a threat to anyone except the stranger in the fire.  Of course, another person in a small plane could immediately see the small size of the "forest" and completely understand that the fire was really no big deal.

Along this line, many people get bogged down in the very latest movements in the market without understanding how the market got where it is and what the underlying factors/movements mean.  With this only info, they have almost no significant data to help them understand where the market is going from here and when.

Like many other things in life (like the guy in the small plane above), sometimes we have to back away and take a look at what we are analyzing from a longer-term view.

In the two graphs below:
- Graph #1 is a daily graph for the last four months (Mar-June 2017), and
- Graph #2 is monthly graph going all the way back to 1997
 
GRAPH #1

In the graph immediately below, the straight black line is the long-term trend line, and
the gray, green, red, orange and blue lines are EMAs:
- the 
grey line is the 18-day EMA,
- the
green line is the 50-day EMA,
- the
red line is the 100-day EMA,
- the orange line is the 150-day EMA, and
- the blue line is the 200-day EMA

What we can see from this is:
(a) The trend is going up "slowly", but may be getting weaker (market below trend in late-June)
(b) The moving averages:
     - are moving almost perfectly "in sync" with each other,
     - are keeping their individual "slopes", and
     - are not getting weaker or converging with each another.
(c) The two observations above are bullish, but the market appears to be flattening out (bearish)    

Read on...



GRAPH #2

There is not enough in the above to make me feel comfortable, so lets "back away" and look at the market from a longer-term view.  The view below covers almost 20 years (1997-June'07) and, of course, it contains the big market crashes in 2000 and 2008.

Read on...


As you may know, real bear markets do not just happen immediately and out of the clear-blue sky.  Two things are usually required: bad economic fundamentals and a "catalyst" to bring it about (like the Lehman Brothers failure, etc).  Bear markets do not happen when the economy is booming.  Stock prices go in the same directon as profits, period.  That is, stock prices rise with increasing profits and stock prices fall with decreasing profits. 

But stock prices "lead" in this relationship, as the very largest investment firms (Goldman Sachs, Morgan Stanley, etc) start selling before bad earnings numbers are realized and announced to the world of investors.  Did you ever wonder how these big guys (aka Fat Kats) know when American companies are going to announce lower earnings (yeah, what a surprise).  Maybe, just maybe, it is because these big American companies are their customers and somehow the fat kats figure it out (haha) at our expense.

At any rate, in Graph #2 above, it can be seen that what I call "topping" takes 9-15 months to complete a "turn-over", and then a catalyst comes along and takes the bottom out.  The toppings in 2000 and 2008 were almost identical, and it appeared that the topping in 2015 (fake) would occur again.  But it did not, thanks to the Presidential election; which sort of acted like an "anti-catalyst".  This was because of the strong probability that Trump would strengthen the economy (lowering taxes, infrastructure spending, renegotiating or leaving foreign agreements, etc.).  Now, if that fails, this "anit-catalyst" could become the catalyst for a big drop.

Of course, anything could happen from here...
- and that is why we need MIPS...
- MIPS is 1,000 times more complex and accurate than the simple analysis herein.



SURVEY
-
WHAT DO YOU THINK???

We are asking all MIPS Members and followers to submit their opinions in an email reply, and we will share the results with all.

What is your opinion regarding market performance (S&P 500) in the next 18 months?
- please send us your best guesses for 12/31/2017 and 6/30/2018

------------------------------------------------Pick one for each year
Performance
.......................................Dec 2017....June 2018
#1) Grow greater than +15%
#2) Grow between    0% and  +15%
        x
#3) Fall between       0% and   -15%      
#4) Fall between     -15% and  -30%                           
x
#5) Fall more than   -30%

Example Answer.................................   #2 for Dec'17   #4 for June'18


Thanks
Best Wishes...


Paul Distefano, PhD
MIPS Timing Systems, LLC
Houston, TX
281-251-MIPS(6477)
support@mipstiming.com

Posted by: Dr. G. Paul Distefano AT 09:41 pm   |  Permalink   |  Email
Sunday, 04 June 2017

It seems like all investors are getting very jittery about the recent market rally.  And, it seems like some MIPS members are crying for a signal change.  Why, because somehow they think if you trade a lot, you will do better.  In most cases (like now), the opposite is true.  There is no reason for a timing model to turn "investors" (who want to ride the trend) into "traders" (who want to attempt to make money on every blip in the market and end up getting whipsawed).

That is especially true at this time, when the "trend" is up-up-up !!!  - See graph below...
- BE HAPPY THAT YOUR MIPS TIMING MODEL IS KEEPING YOU LONG NOW !!!





COMPOUNDING EFFECT OF LONG/SHORT TRADING IN DOWN MARKETS !!!

Good timing models should keep you Long in up markets and Short or Cash in down markets.
PLEASE remember that, if you trade an index fund (like SPY) and the market goes up for 8 or 10 or 15 months, and your model keeps you Long, your performance will be equal to (or close to equal) that of the index.  One way to "better this" is to trade with a little leverage on Long signals (like 1.25x of 1.5x) and with no leverage on Short signals.

If you have a good stock market timing model (like MIPS) to tell you when to buy or short, and if you change your trading strategy from buy/hold to buy/short, you will most likely GREATLY improve your long-term investment performance. The reason, of course, is that you will be Long in up markets (making money) and Short in down markets (making money).  In other words, you should make money in both up and down markets.  Even though that might sound like "magic" to the average investor, the fat cats have been enjoying this type of trading (and the resulting performance) for over 100 years.  They call it "Hedging".

OK, so how does buy/short actually work?  Well, first you need a good stock market timing system (like MIPS3 or MIPS4) to tell you when the stock market is headed up and when it is headed down.  Then, you simply need to be in long positions when the stock market is going up; and either out of the market or in short positions when the stock market is going down (simply following the MIPS Signals).  That is a relatively safe market trading strategy if your timing model is a good one.

Hypothetical
Show me !!! 
OK, let's look at a sample chart of stock market movements and how you would make money with the buy/short strategy. Below is how the buy/short strategy would work in a perfect world.  Of course, stock market timing systems like MIPS are not perfect, but they are much, much better that going it alone.

Sample Market Performance (like in 2000-2010)



In the graphs immediately below, buy/hold  &  buy/short strategies would have resulted in the values at each breakpoint of those in the tables immediately below. You can see that at every breakpoint, the SPY value with buy/short "ratchets" up by being long when the market is going up, AND by being short when the market is headed down.  BTW, in this hypo-example, buy/short would have grown to $350K instead of basically ending up "flat" (no gain).


 
 

------------------------------------------------------------------------------------------------------------------------------


REAL MARKET Performance With MIPS3 (trading in 2006-2010)


Real Life Performance Using the MIPS3 Long/Short Strategy
Does the hypothetical "Buy & Short" graph above seem unbelievable? Do you doubt that this could happen in real life?  It not only can, it did happen in 2000 and in 2008 (and it will happen again).  For a real-life view of how MIPS performed in 2008, let's look at the period between 2006 and 2010 (using MIPS3 verified signals for this time frame from TimerTrac.com).

Buy/Hold SPY (1st Graph Below)
In this time period, the SPY
- started with $100,000,
- grew by about 27% to $127,000,
- took a nose-dive in 2008 of over 50% to $60,000, 
- and grew back to where it started ($100,000) by the edd of 2010. 
Big deal, 5 years and you would have ended up where you started (ie, you would not have made a penny). 
 
Buy/Short SPY (with MIPS3) (2nd Graph Below)
The numbers in the 2nd chart below are real numbers trading with the MIPS3 buy/short strategy, using signals verified by TimerTrac.com.  During the period between 12/30/2005 thru 12/31/2010, your portfolio that started at $100,000 would have grown steadily (almost no dips) over this five year period to $379,000 at the end (for a GAIN of 279%) !!!   AND THAT IS REAL !!!


 

THE MORAL OF THE STORY IS:
Trading long/short effectively means that you invest with the market when it is going up and you invest AGAINST the market when it is going down (making money in down markets).  Trading buy/hold means that you invest with the market when it is going up AND also with the market when it is going down (losing money in down markets)


Best Wishes !!!

Paul Distefano, PhD
CEO / Founder
MIPS Timing Systems, LLC
Houston, TX
281-251-MIPS(6477)

www.mipstiming.com
support@mipstiming.com

Posted by: Dr. G. Paul Distefano AT 03:38 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