Monday, August 26 2019
Do you want to make money or lose money in the stock market ??
Before you start investing (NOT trading) in the stock market, you need to determine (or at least understand) how you want to invest in the market. The "high level" choices are mainly:
1) What % of your total assets are you going to invest in the market ?
2) What type of gains are you shooting for (excessive, high, moderate, low, etc) ?
3) What type of losses can you tolerate (losses are one-to-one tied to your aggressiveness in #2) ?
In the above, #1 should be easy to determine; #2 is directly tied to #3 (the more money you risk, the more you can make or lose); and #3 is where most "would-be investors" lose their shirts. Somehow, most "investors" think that they can shoot for high gains, without larger potential losses... Not true !!! The trick is to learn, and plan, how you are going to "play the game" (and some people do almost make their investing a game).
All things considered, you will do much better if you learn how to "read the market". You should learn how to do this yourself, or have quantitative analysis algorithms to help you thru the process. The worst place to get your inputs on the markets is from "the press". They simply print what they think will get them the most traffic, right or wrong.
To that end, let's look at the recent market try to ascertain if you see it the way that I do.
Short-Term Market (see attached)
In the graph below, the market (SP 500) in August has been what looks like a disaster, and is now in a very volatile sideways trading pattern between $2945/share to $2824/share (a 4.1% drop in one month). One month is sometimes important but not so much now for intermediate-term investors (like us). This is mainly because the market can go anywhere from here fast (no indication so far when/where that might be).
See attached file... May'19-Aug'19
Intermediate-Term Market (see attached)
Just like almost everything in life, stepping back for a more complete view helps us to better understand what we are looking at. In this case, see the Intermediate term view below. As you can see, the damage in August is not nearly as devastating as the press and the pros want us little guys to think we have. They want us to sell so that they can "buy on the dip".
See attached file... 2016-2019 ytd
Long-Term Market (see attached)
To see what is really going on for the long term, let's now step back even a little further (kind of like looking at a forest fire from a helicopter or airplane instead of from where we are standing). For longer-term investors (and MIPS members), it can been seen from this view that they have been in a strong up market since March'09 and should have accumulated massive gains. From that standpoint, this month's losses are basically minimal.
See attached file... 1192-2019 ytd
That said, this is still a very dangerous market. The most danger now would be in trying to trade the short-term ups-and-downs in the market (as in swing trading). This is the kind of market where "traders" get whipsawed. Remember, to prevent this MIPS rarely trades in the sideways market and either stays with the current signal (Long of Short) or goes to Cash until the coast is clear.
And remember, the press only publishes true or false news that will bring them the most traffic. Usually that results in a somewhat large short-term move in the market that recovers in the following few days/weeks.
Actual MIPS Performance (2016-2019 ytd)
Model No Leverage 1.5x Long / 0.5x Short
MIPS3 +27%.......................+41%
Nitro +35%.......................+57%
Stay tuned and let MIPS tell us what to do next ...
Paul Distefano, PhD
CEO / Founder
MIPS Timing Systems, LLC
Houston, TX
281-281-MIPS(6477)
Monday, July 08 2019
Short-Term View
Looking at the "relatively flat" market over the last 1.5 years (see graph below) and knowing about most of the economic fundamentals in the US economy (revenue growth, high corporate earnings, low unemployment, high positive sentiment, etc.), one would think that this market (which just broke out into "new high" territory), would have a long way to go up from here. And, most likely, without any major screw-ups by the Fed, the White House, Congress, China, etc., that should be the case for the rest of this year. But, that’s not all to this story. READ ON…
MIPS Performance in 2019 (thru 7/5/19)
MIPS44 (+7.5%) and MIPS/Nitro 55 (+8.3)
Long-Term View
As shown above the MIPS models have done "OK" in the short-term, with a current "sky-is-the-limit" outlook for the remainder of 2019. But the long-term outlook is another story. According to my analysis and what most indicators show me, sometime in the next 12 months we should expect a hefty market drop. This is mainly because of the "abuses" from the "big guys" like the Fed, Goldman Sachs, Morgan Stanley, major financial institutions, large banks and mutual funds, etc. (aka "fat kats"). I say the ‘big guys’ are to blame because we "little guys" do not have nearly enough money to move any of the markets or financial components.
Below are "some" of the major ramifications from these abuses that have disrupted the normal workings in many areas of the financial/economic world:
1) Trade tariffs – Very disruptive, without well thought-out consequences.
2) Corporate buy-backs – All corporate giants have spent fortunes buying back their own stocks instead of using their money to make better products, expanding their territories, sharing with their employees, etc. Of course, their object is for the company to lower its number of shares outstanding, so that even with no other improvements, their earnings/share ratio can go up even without "earning" going up at all. This makes the top management look good with no contributions/improvements coming from them. In fact, every year the execs of many large companies "earn" large bonuses for obtaining higher earnings/share ratios even though their earnings for the year were lower, but the number of outstanding shares (after buy-backs) were even "more lower". The fat-kats are the big winners from buy-backs in the long term.
3) Interest Rates – Out of desperation, the Fed in the US and the European Committee overseas, have kept interest rates very low in order to protect their jobs. It seems that they are almost always out-of-sync with their countries’ economics. In fact, in some countries the interest rates are "negative" meaning that bond buyers pay the bond owners (the lenders) some annual % to own their bonds instead of getting annual yields for themselves, as per the norm.
4) Inverted Bond Yields – At this time, we are experiencing a situation that rarely occurs, but when it does happen, over 80% of the time a "recession" comes within the next 12 months. This is when the yield on 10-year Gov’t bonds drop below the yield on 3-month Gov’t bonds ("Inverted"). This means that investors are comfortable with short-term bonds but NOT with long-term bonds (not comfortable with the future).
5) Country Debt vs Gross Domestic Product (GDP) - Because of mismanagement in many countries throughout the world (even in Europe), their countries’ debt is several times greater than their GDP. In some, their debt is over 3 times higher than their annual production. That sure makes it tough, if not impossible, for them to pay back their national debt. This will ultimately lead to these countries either going bankrupt or having to devalue their currency, either of which could lead to a worldwide financial meltdown. Sadly, even in the USA today, our country’s debt is over 75% of our GDP.
6) Margin Debt – Driven by greed, investors will buy (or short) stocks "on margin" (i.e., with borrowed money). Too much margin debt can be very dangerous, as in the Crash of 1929 (when margin debt was extremely high). Margin is dangerous because, with 2x margin, if what you buy drops 40%, you would lose 80% of your original investment. At this time, margin debt in the USA is near its all-time high in the last 50+ years.
7) Shift from Stocks to Bonds - In the last 2 years, there has been a major shift by the fat kats in the money they are investing in bonds that is coming from their stock holdings. That is a bad sign for the stock market in the near future because when the big guys bail out on high volume at the top, they ‘cause’ market tops (just like their high volume buying near the bottom "causes" market bottoms).
The above could surely result in a market correction or crash in the next 12 months.
Stay tuned in and let MIPS guide you like it did in 2008 !!!
Good Trading…
Paul Distefano, PhD
CEO / Founder
MIPS Timing Systems, LLC
Houston, TX
www.mipstiming.com
281-251-MIPS(6477)
Sunday, June 09 2019
We have had questions about the recent MIPS two trades that went to CASH on 6/3/19 and back LONG 4 days later.
- Read on...
All mathematical models fail under certain circumstances. For example, Auto Pilot software can fail in flight in some very "stormy" weather conditions, and the software must call for the pilot to manually take over. And recently, we have heard about Boeing's software fail in one of the 737 MAX alerts (that they have not yet fixed).
In timing software models, an obvious problem is when a model uses daily data (say for the SPY ETF), and the market keeps changing direction every 3-4 days. Without intervention, this could lead to getting whipsawed because it can take at least 2-3 days for the model to identify a market change (like a new trend)..
And, there are times when the model is not working properly, but the developers do not know why (so they can't fix it). For situations like this, a good model will have built in STOPS. In general, STOPS are activated when the model is not working properly, but it does not know why. There are no hard rules for when STOPS "trigger", nor when the investor should come back in. For example, a common STOP is to go to cash when the SPY has dropped more than 5% from its most recent top (and the investor has lost 5%). Problem is, it is easy to get out, but no popular rules exist on when to come back in. Using STOPS without effective rules can lead to large losses.
This is why MIPS has 6-8 built in STOPS (depends on which model) that have cut the "average loss on losing trades" by over 60% (see graph below or attached)
Back to Ground Zero...
We have had questions about MIPS' recent signals that went to CASH on 6/3/19, and went back LONG 4 days later....
The signal to go to cash on 6/3/19 came from a STOP in the MIPS model.. That particular STOP requires that the model does NOT issue a new signal for at least 4 days following the STOP signal. Normally, this would prevent large losses or at least go unnoticed, but in this case the market had 4 large back-to-back daily gains since the STOP (somewhat rare). Even though that hurts, it can and does happen. But, normally it makes very little difference in the model's performance in the long-term (see 3+ year graph attached to put this in perspective).
SEE ATTACHMENTS BELOW
Paul Distefano, PhD
CEO / Founder
MIPS Timing Systems, Inc.
tond Zero...
have ha questions about MIPS' recent signals that went to CASH on 6/3/19, and went back LONG 4 days later....
The signal to go to cash on 6/3/19 came from a STOP in the MIPS model.. That particular STOP requires that the model NOT issue a new sat least 4 days following the STOP. Normally, this would prevent large losses or at least go unnoticed, but in this case the market hadback dewhat rare). hurts, it does happen. But, normally it makes very little difference in the model's performance in the long-term (see 3+ year graph below (or attached) to put this in perspective).
Wednesday, May 29 2019
We have had lots of MIPS members ask us "Why is MIPS Still Long?" The answer to that is complicated, but here is a sky-high view.
As we all know, ultimately the stock market is driven by fundamentals (booming economy, sales growth, higher profits, etc.). On the other hand, the worldwide press prints exaggerated news and professional day traders follow the good and bad news (also exaggerated). If individual investors try this they will most likely get cremated.
At MIPS, we run our hundreds of indicators, mathematical equations, pattern recognition, etc. each and every day, with the outcomes being one of those below:
1) Strong up or down trends across the board - Keep existing signal or issue a new one,
2) No consensus up or down across all algorithms - Go to Cash, or
3) No strong up or down consensus, but the current signal is the strongest of the bunch - Keep the
existing signal.
See the graph of the S&P 500 below (SPY) or attached:
- note that MIPS has been Long since 2/12/2019
- this graph shows why a good trading system like MIPS would not try to change signals and get whipsawed.
You can see that the SPY broke resistance in mid-Feb'19 and has been above its strong resistance and 200-Day moving average since then. Hence, there has been no real reason to change direction yet.
Also note that the market is now at a critical point in relation to the resistance level and its 200-day moving average. Any breach here would not be good.
Sit tight and wait for MIPS to tell you what to do.
Sunday, April 28 2019
After the big dip in December 2018, the S&P 500 (SPX) followed the "V-Bottom" all the way back up to hit the new high levels at about $2,940 this Friday. See the Graph immediately below.
Along the way up, you can see that the SP500 "waffled" for about 5 weeks (2/25/19 - 3/39/19) before breaking above its upside resistance at $2815.
What happens next? Read on...
From its resistance level at $2815, the SPX ran up to and closed on the current new high at around $2940. Does the waffling start again? Even it does, the market will eventually "break out" and move up or down from here. Yes, but which way will it go?
My opinion is that, waffling or not, the market (SPX) will "melt up" for the next 4-5 months, at least. Of course, this new "run" does not have to be, and probably won't be, a smooth ride to get past the $3000-$3300 level.
To stock investors, "melt up" is a term that investors use when the market goes up for no one reason, and maybe for no recognizable reason at all. For example, economic indicators like interest rates, earnings, tariffs, etc., can be just "OK" but not great, and in spite of all of this, the market may go way up anyway (melts up) because investors continue to buy stocks instead of putting their money in bonds, precious metals, real estate, etc. Therefore, since most investors HATE to be sitting on cash, stocks are the "lessor of all evils", and the bulls "push" stock prices up.
On the other side of this, "something unsettling" could come along (and it does not have to be something terrible) that could upset the upside trend, and send us into a big correction.
MIPS navigates us through these nightmares with its hundreds of indicators and mathematical algorithms that it calculates each day to predict the market direction (which would take us 3-4 months to calculate ). Stay tuned...
Paul Distefano, PhD
CEO / Founder
MIPS Timing Systems, LLC
Houston, TX
281-251-MIPS(6477)
Support@mipstiming.com
www.mipstiming.com
Sunday, April 07 2019
As you know and can see in the graph (or attachment) below, the S&P 500 Index has soared in a record pace from Dec 24, 2018 to where it is today. In fact, the SP500 is now only about -1.5% below its "All-Time High". As all know, the Index will most likely have a heck of a time trying to cross above this threshold (which is more like the "front-line" in hand-to-hand combat between bulls and bears).
Once the Index gets closer to the All-Time High, crazy things happen and they happen fast. If the Index breaks above and holds for a week or so, the sky is the limit. But, if the SP500 fails at that price level, all hell may break loose and lots of "investors" could lose big money fast. Of course, the media pundits will tell us what is going on, but only after it happens !!!
I sure don't know what will happen in the very shout-term. My gut is telling me that the market is headed up from here, but "my gut" is not enough. And, regardless of what I think, I am depending upon MIPS to tell me what to do !!! You should be doing the same...
 
Good Trading...
Paul Distefano, PhD
CEO / Founder
MIPS Timing Systems, LLC
Houston, TX
281-251-MIPS(6477)
Thursday, April 04 2019
The market (S&P500) in 1Q’19 was a relatively unique ride to the upside; and some of its main accomplishments were:
(1) completing the backside up-leg of a big V-Bottom,
(2) breaking the last topside resistance on the wat to a new all-time high,
(3) nearly breaking above its long-term trend, and
(4) performing as one of the top eight first quarters in the last 40 years.
In 1Q’19, there were many reasons “planted” by the press and newsletters about the market stalling and running out of steam. For example, the market took a big hit near the end on the quarter on the news that the yield curve had inverted (that is, the 3-month yield had surpassed the 10-year yield); and this is supposed to be an indicator that the USA is facing a recession. The day that “news” came out, the market took a big dive as many traders (and quantitative models) got sucked in. But, even though this “indicator” has a relatively good record at predicting recessions, these recessions are predicted to happen 6-24 months in the future, NOT now. And, we all know that THIS short-term yield came from decisions made by the Fed, NOT the overall economy.
Right now, and in the near future, I believe that US companies will do well and continue to grow at rates much higher than the last half of the last decade. And, when companies and their earning go up, their stock prices go up also.
The performances of MIPS3, MIPS4, and MIPS/Nitro models were all positive and this continued through 1Q’19 (see the graph for MIPS/Nitro below). Note how Nitro avoided the big -13% dip at the end of 2018.
MIPS/Nitro Performance (2018 – 1Q’19)
- see below
MIPS +7.5% SPY +5.2
Good Trading…
Paul Distefano, PhD
CEO / Founder
MIPS Timing Systems, LLC
Houston, TX
www.mipstiming.com
281-251-MIPS(6477)
Tuesday, March 26 2019
I rarely do this, but I have a included below a copy of an article that explains the fallacy of last Friday's drop as a "tip" to what is coming a lot better than I can. The article explains how traders and algos can almost immediately move the market dramatically, and can come and go like the wind. They react to recent news almost immediately; even to events that may not happen until 6-18 months in the future, or not at all. They can easily trade a very high number of times each and every day. BUT, US "LITTLE GUYS" CAN'T TRADE LIKE THAT WITHOUT GETTING SLAUGHTERED (so, don't chase your tail).
|
Does #GrowthSowing Subbenly Matter?
By Dave Moenning on Mar 25, 2019 07:20 am (slightly modified)
One of my favorite sayings on Wall Street is:
"Things don't matter on Wall Street until they do. But then they matter a lot."
For example, the dueling issues of slowing growth and the flattening yield curve have been with us for quite some time now. In fact, we've known that global growth has been slowing for more than a year. We've known that the torrid pace of growth in the U.S. economy and corporate earnings would have to slow for almost as long. And we've been watching the yield on the U.S. 10-year fall steadily for the last 6 months.
On Thursday, March 21, 2019, the stock market appeared to make a meaningful break above an important resistance zone as the S&P 500 and NASDAQ both stepped lively to their highest respective closes since last October. To the bulls, this meant that investors were ignoring the current data (you know, the slowing growth stuff) and focusing on better days ahead.
After all, the Fed has reversed course and is now on hold, and the trade deal - the deal that the bulls hope will spark a resurgence in global economic activity - is expected to get done. All good, right?
Lest we forget, the stock market is a discounting mechanism of future activity. So, the bullish premise actually made some sense.
But then it happened.
On Friday, the yield curve (as defined by the spread between the yield on the U.S. 3-Month T-Bill and the 10-Year Treasury Bond) inverted. Meaning that the yield of the longer-dated bonds fell below that of short-term T-Bills.
Yep, that's right; what is known as the nearly infallible predictor of U.S. recessions flashed a sell signal on Friday. And apparently the algos knew what to do with that (yea, right).
Suddenly, the concept of #GrowthSlowing mattered. No one had given it a thought the day before. But now that the predictor of the last seven recessions here in the good 'ol USofA had flipped from green to red, this was suddenly a problem (as in a drop of -2% in one day kind of a problem).
The impetus for the rather sudden concern about the yield curve was the nasty manufacturing data out of Germany and the Eurozone. In short, Germany's PMI, as calculated by IHS Markit, fell to the lowest level since 2012 and the New Orders component hit it's lowest reading since, wait for it... 2008. Ouch.
This report was accompanied by the fact that Germany's official GDP for Q4 came in at 0.0% and the PMI for the Euro area was the weakest since 2013. Now couple this not-so-hot news with some recent weak data in the U.S., the yield curve inverting, and word that the Mueller Report would be delivered imminently and well, things started to unravel pretty quickly Friday.
So, Is It Time To Worry?
Another WallStreet-ism that might be applicable here is:
"One day does not a trend make."
In this case, it is important to recognize that the yield curve inverting for a single day isn't "the" signal that a recession is about to happen (yea, like in the next 6-18 months). Especially in the era of high-speed trading (across all markets, around the globe) where things can - and often do - turn on a dime.
No, the point is that the yield curve will need to stay inverted for some time before we should view this as a harbinger of bad things to come.
The chart below makes this point clear. On a monthly basis, the yield curve has inverted before the last three recessions. But it also important to note that the yield curve has inverted at least eight times since 1965. And yes, six times recessions did follow. But the key here is that the indicator isn't perfect. Nor has it even flashed a signal yet (although we are just a week away from the latest update).
In addition, those seeing the glass as at least half-full can argue that there is generally a pretty decent lag (months/years, not days) between the time when the yield curve inverts and when a recession begins. As such, there is still time for good things to happen. You know, like a tremendous trade deal. Or lower rates to encourage home buying and capex. Or action by the central bankers of the world. Or for the data to improve.
On that note, don't look now bear fans, but last week's Philly Fed report actually rebounded nicely in March.
In addition, the recent report from the Conference Board's Leading Economic Indicators came in above expectations. As did the latest data on Existing Home Sales.
Speaking of the data - particularly the U.S. data, that is - let's also keep in mind that the long government shutdown likely impacted the efficiency/accuracy of some of the numbers. So, there's that.
To be sure, the trend of a lot of economic data has not been going in the right direction. As such, it will be important to keep an extra close eye on the data in the coming months. Because in short, if the trend can turn (or at least flatten out) then the risk of recession in the U.S. declines.
The Key Point
My key point on this fine Monday morning is that from a macro point of view, nothing changed on Friday. There was no new information provided. That is, everybody knows that growth has been slowing.
The question we should be asking is if the slowdown is going to get worse. Remember, the U.S. economy is driven by the consumer. And the bottom line is consumers like to spend money. Unless, of course, there is a crisis that puts their jobs or the economy at risk. Then they tend to stop on a dime and wait to see if everything will be okay. But then it's back to the malls and to all those shopping sites.
So, will the inverted yield curve become reason enough for traders to move to a risk-off mode for a while? Sure, that could certainly happen. The big boys and girls on Wall Street do love a good bout of volatility to spruce up their trading returns.
But for most of this year, investors (the folks with an investing time frame beyond lunch that day) have been looking at the bright side. And unless something bad actually happens, I (Moenning) would expect to see this continue. Once the dust settles, of course.
---------------------------------------------------
MIPS - At any rate, we don't have to worry because we have MIPS to tell us what to do... Stay tuned...
Paul Distefano, PhD
CEO / Founder
MIPS Timing Systems, LLC
Houston, TX
281-251-MIPS(6477)
|
|
Thursday, March 21 2019
From the previous email below dated 3/15/2019, you can see that the SPY (S&P 500 Index ETF) has been trying to break above its tough upside resistance level at $281/share for several weeks. Today's graph immediately below shows that after trying for 18 days, the SPY strongly broke above this resistance level today and closed very near $285.
The All-Time High for the SPY sits at $294 (set in Sept'18). That is only 3.5% above today's level. I believe that it is almost a given that the SPY will move up in the next few weeks to test that level. And, if the SPY breaks above $294/share and holds for a few weeks, we can look for another good run up.
The MIPS1234 and MIPS/Nitro signals are all Long now, but stay close...
Let's hope for new highs in the next few weeks, but wait for MIPS to tell us what to do...
Good Trading...
Paul Distefano, PhD
MIPS Timing Systems, LLC
Houston, TX
281-251-MIPS(6477)
www.mipstiming.com
Friday, March 15 2019
This may be the "Breakout" for the SPY that we have all been waiting (and hoping) for:
- see purple box on the middle right in the graph below
1) The SPY climbed to and hit the Resistance 1 level at $281/share,
2) and it stayed around there for about 7 days,
3) then in the next 5 days the SPY dropped to the 200-Day SMA level for support, and
4) moving average support held, and SPY rebounded back up to (and slightly above) Resistance 1 again.
|
Let's hope for new highs next, but wait for MIPS to tell us what to do...
MIPS1234 and Nitro are sall till Long.
Good Trading...
Paul Distefano, PhD
MIPS Timing Systems, LLC
Houston, TX
281-251-MIPS(6477)
www.mipstiming.com
|
...
