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Market Timing

Sunday, 07 January 2018

There is one (and maybe only one) economic fundamental condition that dictates, with almost 100% accuracy, if the market is going to move up or down in the intermediate-term future (months).  That one fundamental condition is CORPORATE EARNINGS (of course, markets move up on increasing profits and it moves down on declining profits). 

In fact, the market starts its move up or down before us little guys even have a clue as to which way profits are moving.  The reason for this, of course, is because the largest institutional investors know in advance (at least 60-90 days) if their "clients" (the largest companies in America) are going to announce increasing or decreasing profits at the end of the current quarter.  The fat kats also know the "outlook" for the future long before we do. They should know, because in most cases the fat kats are helping these large companies (their clients) to prepare these numbers for release at the end of the current quarter.  Of course, the fat kats would not use that knowledge to their advantage over the little guys like us, right?  Yeah, right!!!

We all know now that corporate profits are stronger than what they have been in the last 10 years. Most of us anticipated this with Trump's election, and traded accordingly.  Since then, every quarter has been better than the previous quarter, and the outlook for 2018 is pointing in the same direction.

The MIPS models use hundreds of market indicators, mathematical equations, and artificial intelligence feedback to track the market and to decide the direction of the intermediate-term trend and the signal for each day.  And, we follow the trend daily.  Remember, "do not bet against the trend".  In this market, as MIPS has correctly reported, the trend has been Long for over one year...

The MIPS models are still highly positive, but this does not mean that we could not have a smallish correction on the way to higher levels in the market (like from some of MIPS "reversion to the mean" algorithms).  Stay tuned daily... 


IMPORTANT... please read...

I am writing this for five reasons:
I.)  to explain how and why a MIPS trading signal (which gets to our subscribers in a “Signal Change” email)
      can last for a really long time (so-called “signal life”),
II.) to clarify how MIPS issues new signals and how we make our subscribers aware of the “Signal Status” for
      each MIPS model EVERY DAY,

III) to show that more (unnecessary) trading usually yields worse results,
IV) to show the MIPS performance over the last 12 months, with and without leverage, and

V.) to show how MIPS3 performed in 2008
 

-------------------------------
 


I.) All good timing models have a foundation upon which they determine if investors should be in a Long, Short, or Cash position.  Some of the underlying “foundations” of these models are trend following, reversion to the mean, momentum, relative strength, rate of change, etc.  In general, the MIPS models are Trend Following models.  But, believe it or not, they contain some of all of the above foundations (the MIPS models contain up to 165 standard technical indicators, artificial intelligence, pattern recognition, and applied math algorithms).

MIPS’ strength lies in its ability to determine when the market has “turned over” from up-to-down or from down-to-up (mathematically called “Inflection Points”). 

We all know that the market basically moves in “cycles”; from short-term (days to weeks), to intermediate-term (weeks to months), and to long-term cycles (months to years).  And, an intermediate-term cycle basically ignores short-term cycles and a long-term cycle ignores both short-term and intermediate-term cycles. 

MIPS tracks intermediate-term cycles.  “Cycles” in the stock market move from tops-to-bottoms, and then turn around and move from bottoms-to-tops.  An up-trend is a series of higher highs and higher lows, and the up-trendline is a line along the bottoms (and the inverse for a down-trendline).  See graph below.

A good trend following model will rarely change position unless the market breaks the trendline with force, and which has the support of a strong majority of the other technical algorithms confirming a market breach in the current direction.

With enough strength in a strong up-market, an intermediate-term cycle can turn into a long-term cycle. As can  be seen in the graph below, in the last 12 months the market has moved up on what could be called a “near-perfect” up-trend, AND all of the MIPS models have remained LONG during this entire period (a new record of time for a MIPS “signal life”).

Remember, a good timing model not only needs to know when to trade, but it also needs to know when NOT to trade.




BTW:
The S&P 500 just set an all-time record for the number of consecutive days when the S&P 500 did not have a 3% loss. As of today’s date (10/30/2017) that would be very close to one year (247 trading days) !!!  Of course, this usually means that it is very difficult for most timing models to “trade the dips”.  It would be better to stay long with some leverage (like 1.5x leverage).

 

.

-------------------------------
 


II.) Moving on to Section II in this Blog, the MIPS models send out “Signal Change” emails every time that any one or more of the models instructs MIPS subscribers to “change” position (like from Long-to-Short, or from Short-to-Cash, etc).  Of course, at MIPS we “run the models” EVERY DAY (in triplicate) to determine if any of the MIPS signals have changed.  If so, we send out a "Signal Change" email after the close that day.  If not, we send "Signal Status" emails to our subscribers every weekend. This way, if a subscriber missed a Signal Change email or forgot to trade it, they will be aware over the weekend that they missed a Signal Change.

A few market timers send out daily Signal Status emails.  But we (along with most others), do not do so mainly because most of our subscribers and RIA customers do not want to be inundated with emails from MIPS unless there is a Signal Change (remember, there are about 240-250 trading days each year).  Unfortunately, because we do not send out daily emails, some subscribers feel as if we are not paying attention to MIPS or the markets, which of course, is dead wrong.


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



III) Regarding trading frequency, no one should change a winning position (execute another trade) unless the trend that the model is tracking has changed direction (in other works, “Don’t Fight The Trend”).  And remember when you make a trade (like buy) you will ultimately need to reverse that trade (like sell or short).  So, on each new trade, you must be correct on when to buy AND when to sell.  A good example of this can be displayed by showing the performance of most of the timing models that were tracked by TimerTrac.com over the last 12 months (see Table below).

The table below from TimerTrac.com over the last 12 months shows (a) the performance (Gain/Loss %) with no leverage, and (b) the number of trades from over 75 of the models that it tracks.  The MIPS models are at (or near the top), with only 2 trades from MIPS3 and no new trades from MIPS4 and Nitro. 

Average:
Over the last 12 months

- the MIPS models averaged a gain/loss of 21.2%, with a average of 1 trade each.

- other models with over 80 trades averaged a gain/loss of  -13.3%, with an average 117 trades each.
PS – Of course, this does NOT mean that models that trade less perform better…


Long-Term trading
Since Nov’05, the MIPS models have averaged 12-15 trades/year, with the lower ones being 2-4 trades/year and the high end being 16-20 trades/year.   In the 18 months of the last market crash (Oct’07 – Mar’09) MIPS3 issued 18 trades.

 

 

 

 

 

 

 

 

 

 

 

 

 

Top Performers over the period from Monday, October 31, 2016 through Friday, October 27, 2017

The index SP500 gained 21.38% over this same time period.

 

 

Rank

Strategy Name

Gain/Loss %  

Difference %

Trades

1

 

21.40%

0.01%

6

2

MIPS Timing Systems MIPS/Nitro

21.38%

0.00%

0

2

MIPS Timing Systems MIPS4.sso

21.38%

0.00%

0

2

 

21.38%

0.00%

0

2

 

21.38%

0.00%

0

2

 

21.38%

0.00%

0

2

 

21.38%

0.00%

0

2

 

21.38%

0.00%

0

2

 

21.38%

0.00%

0

2

 

21.38%

0.00%

0

2

 

21.38%

0.00%

0

2

 

21.38%

0.00%

0

2

 

21.38%

0.00%

0

2

 

21.38%

0.00%

0

2

 

21.38%

0.00%

0

3

 

21.38%

0.00%

6

4

MIPS Timing Systems MIPS3/MF

20.93%

-0.46%

2

5

 

20.79%

-0.59%

31

6

 

20.47%

-0.91%

2

7

 

18.99%

-2.39%

17

8

 

18.37%

-3.02%

94

9

 

18.05%

-3.33%

99

10

 

18.01%

-3.38%

7

11

 

17.77%

-3.61%

7

12

 

17.63%

-3.75%

6

13

 

17.53%

-3.85%

14

14

 

17.36%

-4.02%

8

15

 

17.08%

-4.30%

7

16

 

15.95%

-5.43%

3

17

 

15.43%

-5.95%

5

18

 

15.29%

-6.09%

15

19

 

14.76%

-6.62%

23

20

 

14.63%

-6.75%

3

21

 

14.37%

-7.01%

132

22

 

13.81%

-7.58%

132

22

 

13.81%

-7.58%

132

23

 

13.75%

-7.63%

24

24

 

13.08%

-8.30%

52

25

 

12.91%

-8.47%

49

26

 

12.71%

-8.67%

3

27

 

12.27%

-9.11%

42

28

 

12.16%

-9.22%

16

29

 

11.90%

-9.48%

12

30

 

11.64%

-9.74%

35

30

 

11.64%

-9.74%

35

30

 

11.64%

-9.74%

35

30

 

11.64%

-9.74%

35

30

 

11.64%

-9.74%

35

30

 

11.64%

-9.74%

35

31

 

11.41%

-9.97%

12

32

 

11.40%

-9.98%

16

33

 

11.32%

-10.07%

56

34

 

11.23%

-10.15%

50

35

 

11.16%

-10.22%

55

36

 

10.89%

-10.49%

10

37

 

10.71%

-10.67%

63

38

 

10.69%

-10.69%

81

39

 

10.66%

-10.72%

24

40

 

9.37%

-12.02%

17

41

 

8.83%

-12.55%

59

42

 

8.33%

-13.05%

90

43

 

8.00%

-13.38%

12

44

 

7.59%

-13.79%

4

45

 

7.32%

-14.07%

22

46

 

7.20%

-14.19%

10

47

 

7.10%

-14.28%

55

48

 

6.93%

-14.45%

7

49

 

6.88%

-14.50%

9

50

 

6.81%

-14.57%

21

51

 

6.60%

-14.78%

240

52

 

6.01%

-15.37%

43

53

 

5.75%

-15.63%

9

54

 

5.70%

-15.68%

152

55

 

5.69%

-15.69%

15

56

 

4.89%

-16.50%

49

57

 

4.88%

-16.50%

12

58

 

4.80%

-16.58%

10

59

 

4.64%

-16.74%

2

60

 

4.56%

-16.82%

12

61

 

4.31%

-17.07%

96

62

 

3.84%

-17.54%

234

63

 

3.59%

-17.79%

18

64

 

3.21%

-18.17%

14

65

 

3.17%

-18.22%

3

65

 

3.17%

-18.22%

3

65

 

3.17%

-18.22%

3

65

 

3.17%

-18.22%

3

66

 

2.35%

-19.03%

19

67

 

2.19%

-19.19%

23

68

 

0.00%

-21.38%

0

68

 

0.00%

-21.38%

0

68

 

0.00%

-21.38%

0

68

 

0.00%

-21.38%

0

68

 

0.00%

-21.38%

0

68

 

0.00%

-21.38%

0

68

 

0.00%

-21.38%

0

69

 

-0.53%

-21.91%

2

70

 

-0.81%

-22.20%

2

71

 

-0.85%

-22.24%

120

72

 

-1.65%

-23.04%

87

72

 

-1.65%

-23.04%

87

73

 

-2.78%

-24.16%

12

74

 

-3.60%

-24.98%

13

75

 

-5.60%

-26.98%

1

76

 

-15.28%

-36.66%

32

 


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



IV) MIPS performance over the last 12 months (from TimerTrac.com)
      - MIPS/Nitro with 2x leverage (blue line)  + 50%
      - MIPS4 with 1.5x leverage (gold line)       + 36%
      - MIPS3 with no leverage (green line)         +21%
      - SPY (red line)                                              +21%

 

.

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



V.) How did MIPS perform in 2008
    
The graph below is:
       (a) to prove that MIPS not only performs well in up markets, but also
       (b) to show how fast MIPS3 actually responded to the market crash in 2008.
            - MIPS3 issued its first short signal in 4Q’07 (verified by TimerTrac.com),

  
         MIPS3 – 4Q’07 thru 1Q’09

             - MIPS3 - blue line   +106%

             - SPY - red line           -48%

             Red dots indicate actual signals …     
   .  

In summary, it seems that many “investors” get such a big “kick” out of trading, they lose track of the objective of making money.  Many will not tolerate a lower frequency trading model, but seem to love higher frequency trading models that do not perform nearly as well as MIPS. 
You tell me why…
 

.
--------------------------------


Best Wishes…

Paul Distefano, PhD

CEO / Founder
MIPS Timing Systems, LLC

Houston, TX
281-251-MIPS(6477)

Posted by: Dr. G. Paul Distefano AT 02:58 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