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Market Timing

Sunday, November 25 2018

All investors want to know which way the market is (and will be) moving.  But, most do not care "why" the market is doing what it is doing.  On the other hand, some investors are trying to figure out why the market is doing what it is doing.  Some concentrate on "fundamentals" and others on "technical analysis".

"Fundamentals" include things like the condition of the economy, corporate earnings growth, employment, consumer confidence, international relationships, politics, etc.  Of course, you have no trouble getting inundated with info about these from talking heads, advisory services, emails, etc.  However, once you get all of this "stuff", you still have to determine which way the market will move given all of the info above, and when !!!

At MIPS, we concentrate on "technical analysis" which means that we are calculating which way the market will move going forward compared to today's movements.  Since we are using hundreds of technical indicators, applied mathematical equations, artificial intelligence, pattern recognition, volume weighting, etc., we can project the market in the near future based on the outcome of the above. For example, our "volume weighting" algorithms tells us if a big price change in the market on any given day (like in the S&P 500, SPY) was caused by trading from "the pros" or from us "little guys".  Along with hundreds of our other algos, the MIPS models are highly successful in calling directional changes in the market (like with 65-70% accuracy), and the winning trades are over three times more profitable than the losses on losing trades. 

Given the above, the question "what kind of market" are we in takes the front row.  So, "what kind of market" are we in?  The short answer is that we are in what is called a flat, sideways, horizontal, or trendless market, which means a market that has gone up and down in a tight trading range of something like plus or minus 3-6% around a meanline (or mid-line) for several months.  See "example" below.

Flat/Sideways markets can be very dangerous to trade in, especially those that change direction every few days (like every 4-7 days).  We call these High Frequency Directional Change (HFDC) patterns, and this is where most non-suspecting models get whipsawed badly.  In 2015, the Dow changed direction 29 times in the first 9 months, which caused most models bad headaches (like that below). Since that time, we have built in multiple algorithms to limit trading with the MIPS models in flat markets.


What is going on in the market now?  Let's look at this from both a long-term and short-term view.

Long-Term View
When looking at the SPY with a long-term view (immediately below), the flat/sideways pattern is obvious, as it was in 2015. The flat market in 2015 ultimately broke to the upside, but we will have to wait to see what happens now.


Short-Term View
The graph below shows the "mess" that we are in now. This market has crushed many timing models, because it has no predictable "direction".  Fortunately, the "Blaster Series" algorithms that we implemented in 1Q'16 have protected the MIPS models from trading in markets like this. Now, the MIPS models either stay in the position they were in when the flat market started, or they go to cash when the market movements make no sense at all (like now).

In the graph below, you can see that the SPY has traded between $253-278/share since Jan'18 (approximately plus or minus 5%, between resistance/support #2).  And, if you look closely at the smaller trading range that we are in now in the right side of the graph below (with support#1 and resistance #1 between $260-280), you will see no trend or meaningful pattern (which means that the next market move is highly unpredictable).  However, a break of the #1 support/resistance lines will at least deserve immediate extra caution. 

The MIPS models haved remained Long since Apr'18 and issued a "Cash" signal on 11/13/18, to have been executed on the open on 11/14/18 at $274.16/share.  Remember, the cash position can change at any time.

So far, our last signal is a profitable one, and the future remains unpredictable now.  But, that can change on any given day, so be careful and watch for MIPS Signal Change emails.

And remember, when tradiing actively, "Money not made is NOT the same as money lost" ...
- so, it is better to sit on the sidelines than to trade and lose.

Good trading...

Paul Distefano, PhD
CEO / Founder
MIPS Timing Systems, LLC
Houston, TX

Posted by: Dr. G. Paul Distefano AT 04:45 pm   |  Permalink   |  Email

MIPS Timing Systems
P.O. Box 925214
Houston, TX  77292

An affordable and efficient stock market timing tool. Contact MIPS
281-251-MIPS (6477)