Four Things to Watch for Warning Signs

April 7, 2017, 12:01 pm

≫ Next: It’s Soon or Never for Bonds

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First things first: I am primarily a trend-follower (this is based on, a) the relative long-term benefits of following trends and b) my lack of ability to actually “predict” anything – but I digress).

As a trend-follower I love the fact that the stock market has been trending higher and the fact that there is so much “angst” regarding the “inevitable top.”  Still, like a lot of investors I try to spot “early warning signs” whenever possible.  Here are the four “things” I am following now for signs of trouble.

Fidelity Select Electronics

In Figure 1 you see, a) the blow-off top of 1999-2000 and b) today.  Are the two the same?  I guess only time will tell.  But the point is, I can’t help but think that if and when the bloom comes off of the electronics boom, overall trouble will follow.  Here is hoping that I am not as correct here as I was here.

Figure 1 – Ticker FSELX (Courtesy AIQ TradingExpert)

Just asking.

Transportation Index

As you can see in Figure 2, the Dow Transports has a history of making double tops which is followed by trouble in the broader market.  Are we in the process of building another double top?  And will trouble follow if we are?  Dunno, hence the reason it is on my “Watch List” rather than on my “OH MY GOD SELL EVERYTHING NOW!!!!! List”.

Figure 2 – Dow Transportation Index (Courtesy AIQ TradingExpert)

I guess we’ll just have to wait and see.

Ticker XIV

Ticker XIV is an ETF that is designed to track inverse the VIX Index. As a refresher, the VIX Index tends to “spike” higher when stocks fall sharply and to decline when stocks are rising and/or relatively quiet.  To put it in simpler terms, in a bull market ticker XIV will rise.  As you can see in Figure 3 one might argue that XIV has gone “parabolic”.  This is a potential warning sign (assuming you agree that the move is parabolic) as a parabolic price move for just about anything is almost invariably followed by, well, let’s just say, “not so pretty”.

Figure 3 – Ticker XIV (Courtesy AIQ TradingExpert)

Let’s hope not.  Because if it does qualify as  parabolic that’s a very bad sign.

Ticker BID

This one may or may not be relevant but for what it is worth, Sotheby’s (ticker BID) has on several occasions served as something of a “leading indicator” at stock market tops (for the record it has also given some false signals, so this one is more for perspective purposes rather than actual trading purposes). Still, if this one tops out in conjunction with any or all of the above, it would likely serve as a useful warning sign.

Figure 4 – Ticker BID (Courtesy AIQ TradingExpert)

Summary

There is no “urgent action” to be taken based on any of this.  Bottom line: Nothing in this article should trigger you to run for the exits.

Still, it might be wise to at least take a look around and “locate the exit nearest you.”

You know, just in case.

Chief Market Analyst at JayOnTheMarkets.com and AIQ TradingExpert Pro (Courtesy AIQ TradingExpert) client. http://jayonthemarkets.com/

Disclaimer:  The data presented herein were obtained from various third-party sources.  While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.

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It’s Soon or Never for Bonds

May 3, 2017, 2:13 pm

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There is great trepidation in the bond market these days. Most investors seem to have the “interest rates are sure to rise” mantra playing on auto loop in their head.  And this is not entirely unwarranted.  Given the historical tendency for bond yields to move in long, slow trends (20 years or more essentially in one direction is not uncommon), I for one am pretty confident in believing that interest rates will be higher 20 years from now than they are now.

But that is not the fear that is playing in people’s heads. The fear in people’s heads is that rates are rising soon (like immediately) and in a big way.  This however, may or may not prove to be the case.

Figure 1 displays a history of 10-year treasury yields through about 2012 (FYI 10-yr. yields are roughly in changed since that time).  Note the long-term nature of interest rate trends and that while there are “spikes” here and there, most major moves play out over time and not in “here today, sharply higher tomorrow” fashion.

Figure 1 –

10-year treasury bond yields; 1900-2012(Courtesy: ObservationsandNotes.blogspot.com)

Also, you can see in Figure 2 – one can make a compelling argument that bond yields are not “officially rising”, at least not yet.

Figure 2 – Yields still “officially” in a downtrend

Bonds are Due to Bounce – But Will They?

One way to identify important turning points in any market is when a market doesn’t do something that it would normally be expected to do.  For example, here is a simple thought process:

1) The bond market is oversold

2) In the past 30 years, pretty much anytime it would get oversold a rally ensued

3) Therefore, bonds should rally soon

But will they – that is the question.  And in my opinion, the answer is important.

*If bonds rally soon (i.e., over the course of say the next several months) then “the status may still be quo”.

*If bonds do not rally soon, then it may be a sign that “things are changing”

Which Way Bonds?

Figures 3 and 4 below display ticker TLT (an ETF that tracks the long-term treasury bond) with an indicator I call UpDays20.  In this case we are looking at weekly bars and not daily bars, but the concept is the same.

UpDays20 is calculated by simply adding up all of the weeks that have showed a weekly gain over the past 20 weeks and then subtracting 10 (the AIQ TradingExpert Expert Design Studio code appears at the end of this article, after the disclaimer).

If 10 of the past 20 weeks have showed a weekly gain then the upDays20 indicator will read 0 (i.e., a total of 10 weeks were up minus 10 = 0).  If only 6 weeks showed a gain in the past 20 weeks then the UpDays20 indicator will read -4, etc.

What to look for: Typically (at least in the declining rate environment of recent decades) when UpDays20 rises by a value of 2 from a low of -2 or less, a decent rally in bonds has ensued.

For example, if UpDays20 falls to -4 then a rise to -2 or higher triggers a buy signal.  If it falls only as low as -3 then a rise to -1 or higher is required.  If it falls only as low as -2 then a rise to 0 or higher is required.

Figures 3 and 4 highlight signals since roughly 2004.

Figure 3 – Ticker TLT with UpDays20 weekly buy signals (2004-2010); (Courtesy AIQ TradingExpert)

Figure 4 – Ticker TLT with UpDays20 weekly buy signals (2010-2017); (Courtesy AIQ TradingExpert)

As you can see in Figures 3 and 4, most of the signals highlighted were followed by at least a decent short-term rally.

In 2017, buy signals from the UpDays20 indicator occurred on 1/13 and 4/14.  TLT is up +0.3% since the 1/13 signal and down -1.4% since the 4/14 signal.

Summary

Either:

1) This is an excellent time to buy the long-term bond (looking for at least a short to intermediate term rally) as a rally is overdue

OR

2) The “times they may be a changing” for bonds

So keep an eye on TLT over the next several months.

Jay Kaeppel

Disclaimer:  The data presented herein were obtained from various third-party sources.  While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.

AIQ Expert Design Studio Code for UpDays20

Up1 if [close] > val([close],1).
Up2 if val([close],1) > val([close],2).
Up3 if val([close],2) > val([close],3).
Up4 if val([close],3) > val([close],4).
Up5 if val([close],4) > val([close],5).
Up6 if val([close],5) > val([close],6).
Up7 if val([close],6) > val([close],7).
Up8 if val([close],7) > val([close],8).
Up9 if val([close],8) > val([close],9).
Up10 if val([close],9) > val([close],10).
Up11 if val([close],10) > val([close],11).
Up12 if val([close],11) > val([close],12).
Up13 if val([close],12) > val([close],13).
Up14 if val([close],13) > val([close],14).
Up15 if val([close],14) > val([close],15).
Up16 if val([close],15) > val([close],16).
Up17 if val([close],16) > val([close],17).
Up18 if val([close],17) > val([close],18).
Up19 if val([close],18) > val([close],19).
Up20 if val([close],19) > val([close],20).

UpCount is (Up1+ Up2+Up3+Up4+Up5+Up6+Up7+Up8+Up9+Up10+Up11+Up12+Up13+Up14+Up15+Up16+Up17+Up18+Up19+Up20)-10.

You can also download the EDS file for this at this link http://aiqsystems.com/Its_Soon_or_Never_for_Bonds.EDS

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Detecting Swings

May 8, 2017, 5:21 pm

≫ Next: This is What a Lack of Fear Looks Like (I Think)

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The AIQ code based on Domenico D’Errico’s article in the May 2017 issue of Stoks Commodities, “Detecting Swings,” is provided below.

I tested the author’s four systems using the NASDAQ 100 list of stocks on weekly bars, as did the author, from 3/16/2005 through 3/14/2017. Figure 7 shows the comparative metrics of the four systems using the four-week exit. The results were quite different than the author’s, probably due to a different test portfolio and also a 10-year test period rather than the author’s 20-year period. In addition, my test results show longs only, whereas the author’s results are the average of both the longs and shorts.

 

FIGURE 7: AIQ. As coded in EDS, this shows the metrics for the author’s four systems run on NASDAQ 100 stocks (weekly bar data) over the period 3/16/2005 to 3/14/2007.

The Bollinger Band (Buy2) system showed the worst results, whereas the author’s results showed the Bollinger Band system as the best. The pivot system (Buy1) showed the best results, whereas the author’s results showed the pivot system as the worst. I am not showing here the comparative test results for the Sell1 thru Sell4 rules, as all showed an average loss over this test period.

!DECTECTING SWINGS
!Author: Domenico D'Errico, TASC May 2017
!Coded by: Richard Denning, 3/15/17
!www.TradersEdgeSystems.com

!Set to WEEKLY in properties

Low is  [low].
Low1  is valresult(Low,1).
Low2  is valresult(Low,2). 
High is [high].
High1  is valresult(High,1).
High2  is valresult(High,2). 
PivotLow if Low1 < Low2  and Low1 < Low.
PivotHigh if High1 > High2  and High1 > High.

Buy1 if  PivotLow.  
Sell1 if  PivotHigh.    

!Set parameter for bollinger bands to 12 with 2 sigma (weekly) in charts:
Buy2 if [close] > [Lower BB] and valrule([close] <= [Lower BB],1).
Sell2 if [close] < [Upper BB] and valrule([close] >= [Upper BB],1).

!Set parameter for Wilder RSI to 5 (weekly) in charts:
Buy3 if [RSI Wilder] > 40 and valrule([RSI Wilder] <= 40,1).
Sell3 if [RSI Wilder] < 60 and valrule([RSI Wilder] >= 60,1).

Buy4 if [RSI Wilder] < 40  And Low > Low1.
Sell4 if [RSI Wilder] > 60  And High < High1.    

Exit if {position days} >= 4.

—Richard Denning
info@TradersEdgeSystems.com
for AIQ Systems

Editor note: The code and EDS file can be downloaded from http://aiqsystems.com/Detecting_Swings_TASC_May_2017.EDS

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This is What a Lack of Fear Looks Like (I Think)

May 22, 2017, 8:09 am

≫ Next: One Good Reason NOT to Pick a Bottom in DIS

≪ Previous: Detecting Swings

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I keep hearing that investors are “skittish” and “concerned” about the markets and the economy and so forth.  But the recent action in a relatively obscure ETF jumped out at me and seems to suggest that this is not necessarily the case – at least not among those who are active in the markets.  From what I can tell these people don’t have a care in the world.  See what you think.

What is Ticker SVXY?

A few key concepts:

*Implied volatility (IV) essentially measures the level of time premium built into the price of a given option or series of options on a given security.  In anxious times implied volatility will rise – sometimes sharply – as an increase in demand by speculators rushing to buy options to protect / hedge / speculate / etc in a given security, causes time premium to inflate.  When traders are less worried or more complacent then implied volatility will typically fall as decreased option buying pressure results in lower time premiums.

In sum, high and/or sharply rising IV typically signals fear, low and or declining IV typically signals a lack thereof.

*The VIX Index (see Figure 1) measures the implied volatility of options for the S&P 500 Index traded at the CBOE.  Typically when the stock market declines – especially when it declines sharply – the VIX index tends to “spike” as fearful traders rush in and bid up S&P 500 Index option prices

Figure 1 – VIX Index (trading inversely to S&P 500 Index) (Courtesy AIQ TradingExpert)

*In essence, the VIX Index is “inversely correlated” to the stock market.

*Ticker SVXY is an ETF that is designed to track the “inverse” of the VIX Index.  In other words, when VIX rises, SVXY falls and vice versa.  This also means the following:

*Ticker SVXY is highly correlated to the SP 500 Index.  In other words, as the stock market moves higher SVXY typically also moves higher and vice versa.

Figure 2 – SVXY (movements are correlated to the S&P 500 index)(Courtesy AIQ TradingExpert)

In sum, a declining trend in the price of SVXY shares typically signals fear, while a rising trend in the price of SXVY typically signals a lack thereof.

Now to My Concern

Hopefully some of that made sense.  In a nutshell, the key takeaways are that when fear is low:

*SVXY rises

*Implied volatility declines

But what if both go to extremes?  Is that a bad thing?  The reason I ask appears in Figure 3. 

Figure 3 – Ticker SVXY at an all-time high with implied volatility for options on ticker SVXY plunging (both pointing to a lack of fear)

As far as I can tell, this is what a lack of fear looks like:

*Ticker SVXY is rising dramatically

*Implied volatility (SVXY options) is plunging

In the last 4 years there has never been a bigger disparity between these two measures of “fear” – and they are both pointing to “no fear.”

Summary

So the obvious question now is – does any of this matter?  I mean this is more of a “perspective” indicator (“where we are now”) than a “timing’  indicator (“where we are headed next”).  I cannot presently point out a way to use this to generate specific buy and sell signals.

In addition, as a trend-follower I am not the type to make any “Aha, the End is Near” type pronouncements.  As long as the market wants to keep running higher I am happy to “go along for the ride.”

But the less I see my fellow riders being concerned about the market, the more concerned I become.

In the long run that instinct has served me well.

(Here’s hoping that my instinct is wrong this time)

Jay Kaeppel

Chief Market Analyst at JayOnTheMarkets.com and AIQ TradingExpert Pro (http://www.aiqsystems.com) client. http://jayonthemarkets.com/

Disclaimer:  The data presented herein were obtained from various third-party sources.  While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.

The post This is What a Lack of Fear Looks Like (I Think) appeared first on AIQ TradingExpert Pro.

One Good Reason NOT to Pick a Bottom in DIS

June 12, 2017, 3:39 pm

≫ Next: Summer Fun with Biotech and Real Estate

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A better title for this article might be “How to Avoid Losing 98% in Disney.”

The recent dip in the price of Disney stock may ultimately prove to be a buying opportunity.  But for reasons detailed below I am going to let this one pass.

If you have read my stuff in the past you know that I look a lot at seasonal trends.  This is especially true for sectors and commodities – which in some cases can be tied to recurring fundamental factors.  I have occasionally looked at individual stocks (here and here and here), but tend to think that an individual company’s fundamentals can change so drastically over time that a persistent seasonal trend is less likely.

It appears that there are exceptions to every rule.

In Figure 1 below we see that after a strong run up from its 2009 low, Disney finally topped out in August of 2015. Since that time it’s been a string of large moves up and down – with the latest being down. This might prompt one to consider the latest dip as a buying opportunity.  And in fact, maybe it is. But I won’t be making that play myself based simply on a seasonal trend in DIS stock that was highlighted by Brooke Thackray in his book Thackray’s 2017 Investor’s Guide.

Figure 1 – Is latest dip in DIS a buying opportunity?  Maybe, but history suggests we look elsewhere….(Courtesy AIQ TradingExpert)

When NOT to Own Disney Stock

In his book, Thackray highlights the period from June 5th through the end of September as an “unfavorable” period for DIS stock.  He also listed a specific “favorable” period that I’ll not mention here.  For purposes of this article I made the following changes:

*The “unfavorable” period begins at the close on the 5th trading day of June and ends at the close on the last trading day of September.

*The rest of the year – i.e., end of September until the close on the 5th trading day of June – is considered the “favorable” period.

Also, the test uses price data only.  No dividends are included nor is any interest assumed to be earned while out of DIS stock.

The results are fairly striking.  From the end of 1971 through the end of 2016:

*$1,000 invested in DIS on a buy-and-hold basis grew +8,042% to $81,422 (average annual +/- = +15.8%)

*$1,000 invested in DIS only during the “favorable” period grew +430,874% to $4,309,735 (average annual +/- = +25.0%)

*$1,000 invested in DIS only during the “unfavorable” period declined -98% to $18.89 (average annual +/- = (-6.9%))

It’s sort of hard to ignore the difference between +430,784% and -98%.

Figure 1 displays the cumulative performance during the unfavorable period from 1971 through 2016.

Figure 1 – Growth of $1,000 invested in DIS only from close of June Trading Day #5 through the end of September (1971-2016)

Figure 2 displays the growth of $1,000 during the favorable period (blue line) versus a buy-and-hold approach (red line).

Figure 2 – Growth of $1,000 invested in DIS only from the end of September through June Trading Day #5 (blue) versus Buy-and-Hold (red); 1971-2016

*The favorable period showed a net gain in 39 out of 45 years (87%)

*The unfavorable period showed a net gain in only 13 out of 45 years (29%)

*Buy-and-hold showed a net gain in 28 out of 45 years (62%)

Figure 3 displays year-by-year results.

Year	Favorable	Unfavorable	Buy/Hold
1972	78.1	(3.5)	71.9
1973	(53.5)	(12.0)	(59.1)
1974	4.4	(56.4)	(54.4)
1975	175.6	(12.4)	141.5
1976	5.2	(6.9)	(2.0)
1977	(28.2)	19.1	(14.4)
1978	4.6	(3.3)	1.2
1979	1.2	10.5	11.9
1980	20.8	(5.8)	13.8
1981	42.8	(28.7)	1.9
1982	16.0	4.4	21.1
1983	(5.7)	(11.6)	(16.7)
1984	25.6	(9.6)	13.6
1985	94.4	(3.3)	88.0
1986	98.3	(23.0)	52.8
1987	14.6	20.1	37.6
1988	4.2	6.5	10.9
1989	32.7	28.3	70.3
1990	28.4	(29.4)	(9.3)
1991	14.4	(1.5)	12.8
1992	51.3	(0.7)	50.2
1993	16.0	(14.5)	(0.8)
1994	23.2	(12.4)	7.9
1995	27.7	0.3	28.0
1996	18.4	0.0	18.4
1997	43.3	(0.9)	41.9
1998	36.9	(33.6)	(9.1)
1999	15.8	(15.8)	(2.5)
2000	4.0	(4.8)	(1.1)
2001	23.6	(42.1)	(28.4)
2002	12.6	(30.1)	(21.3)
2003	50.9	(5.2)	43.0
2004	28.9	(7.6)	19.2
2005	(2.5)	(11.6)	(13.8)
2006	41.8	0.8	43.0
2007	(6.2)	0.4	(5.8)
2008	(24.4)	(7.0)	(29.7)
2009	29.1	10.1	42.1
2010	16.1	0.2	16.3
2011	30.4	(23.4)	(0.0)
2012	15.9	14.6	32.8
2013	54.3	(0.6)	53.4
2014	17.2	5.2	23.3
2015	20.4	(7.3)	11.6
2016	5.0	(5.6)	(0.8)
2017	?	?	?
# Years UP	39	13	28
# Years DOWN	6	32	17
Average % +/-	25.0	(6.9)	15.8

Figure 3 – Year-by-Year Results

Summary

Brooke Thackray found an extremely interesting and robust “unfavorable” seasonal trend in DIS stock.  Of course none of the data above guarantees that DIS stock is doomed to languish and/or decline in the months ahead.  But I for one do not intend to “buck the odds” and play the long side of DIS for a while.

Jay Kaeppel  Chief Market Analyst at JayOnTheMarkets.com and AIQ TradingExpert Pro http://www.aiqsystems.com) client. 

Disclaimer:  The data presented herein were obtained from various third-party sources.  While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.

The post One Good Reason NOT to Pick a Bottom in DIS appeared first on AIQ TradingExpert Pro.

Summer Fun with Biotech and Real Estate

June 27, 2017, 5:24 pm

≫ Next: A Focus on the Trends in Stocks, Bonds and Gold

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Studies suggest that buying an upside breakout can be a good strategy.  It sure can be scary though.  There is always that underlying fear of looking like “the last fool in” if the security in question experiences only a false breakout and then reverses back to the downside (and I hate it when that happens).  Still, for a stock to go from $50 to $100 it first has to go to $50.01, then $50.02, etc.

Buying into an impending breakout can be an even dicier proposition since this involves buying into what is essentially a “topping formation.”  I recently wrote about consolidation patterns in biotech and real estate.  These sectors appear to be getting closer to a resolution.  Consider tickers XBI (biotech ETF) and IYR (real estate ETF) as shown in Figure 1.

Figure 1 – Biotech and Real Estate (Courtesy AIQ TradingExpert)

XBI appears to be breaking out to the upside – at least for now.  IYR is close to breaking out – however, one could look at it in an exactly opposite manner and claim that it is “running into resistance near the old highs and therefore may be forming a top.”

Ah, the eye of the beholder.

A Seasonal Play in Biotech and Real Estate

It is pretty widely known at this point that the summer months tend not to be very favorable for the stock market overall (although July of this year might be an exception to the rule).  But biotech and real estate often provide a summer trading opportunity.

The seasonally favorable period extends from:

*The close on June trading day #17 (6/23/2017 this year)

*Through the close on July trading day #21 (7/31/2017 this year)

Figure 2 displays the growth of $1,000 split evenly between ticker FBIOX (Fidelity Select Biotech) and ticker FRESX (Fidleity Select Real Estate) every since 1989 during this period.

Figure 2 – Growth of $1,000 split between FBIOX and FRESX during seasonally favorable summer period (1989-2016)

Figure 3 displays a summary of the results since 1989.

Measure	Result
# Years UP	22 (79%)
# Years DOWN	6 (21%)
Average All Years	+3.3%
Average UP Year	+5.0%
Average DOWN Year	(-2.9%)
Best UP Year	+14.9% (2009)
Worst DOWN Year	(-4.3%) (2004)

Figure 3 – Summary Results

(See also One Good Reason NOT to Pick a Bottom in DIS)

One thing to  note is the lack of downside volatility despite the fact that both biotech and real estate can be quite volatile (worst down period was -4.3% in 2004).

Year-by-Year Results Appear in Figure 4.  For comparisons sake the annual performance for the Dow Jones Industrials Average (DJIA) during the same period is included.

Year	FBIOX/FRESX	DJIA	Diff
1989	4.8	5.1	(0.3)
1990	2.8	2.1	0.7
1991	5.8	3.6	2.2
1992	7.0	3.2	3.7
1993	0.8	2.1	(1.3)
1994	(0.6)	1.8	(2.4)
1995	3.5	2.7	0.8
1996	(4.1)	(4.1)	0.1
1997	2.9	6.4	(3.5)
1998	1.8	2.2	(0.5)
1999	4.4	(0.1)	4.5
2000	0.3	1.1	(0.8)
2001	(3.6)	0.1	(3.8)
2002	(1.5)	(4.9)	3.4
2003	8.0	1.0	7.0
2004	(4.3)	(2.9)	(1.4)
2005	9.6	2.1	7.5
2006	4.0	1.8	2.2
2007	(3.2)	(1.0)	(2.1)
2008	6.7	(1.9)	8.6
2009	14.9	10.0	4.9
2010	2.0	1.6	0.4
2011	3.0	0.8	2.2
2012	5.7	4.0	1.7
2013	12.6	5.2	7.5
2014	1.1	0.4	0.7
2015	0.6	(2.2)	2.8
2016	8.6	2.3	6.2

Figure 4 – Annual Results for FBBIOX/FRESX during seasonally favorable  summer period versus Dow Jones Industrials Average

For the record,during the seasonally favorable summer period:

*The FBIOX/FRESX combo has outperformed the Dow in 19 out of 28 years.

*$1,000 invested in FBIOX/FRESX grew to $2,440

*$1,000 invested in the Dow Industrials grew to $1,505

Summary

So is biotech and real estate the place to be in the month ahead?  Well, that’s “the thing” about seasonal trends – there’s no way to know for sure what it’s going to be “this time around.”

On a cautionary note, it should be pointed out that the FBIOX/FRESX combo has registered a gain during the seasonal summer period – and outperformed the Dow – in each of the last 9 nine years.

So is it “Away We Go” or this the year that “Murphy’s Law” exacts its revenge?  As always, time will tell.

Jay Kaeppel  Chief Market Analyst at JayOnTheMarkets.com and AIQ TradingExpert Pro (http://www.aiqeducation.com) client. 

Disclaimer:  The data presented herein were obtained from various third-party sources.  While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.

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A Focus on the Trends in Stocks, Bonds and Gold

July 5, 2017, 11:26 am

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In the end it is not so much about “predicting” what will happen next in the financial markets, but rather recognizing – and being prepared for – the potential risks, that makes the most difference in the long run.  So let’s start by looking at current trends.

Stocks

Let’s start with a most simple trend-following model that works like this:

-A sell signal occurs when the S&P 500 Index (SPX) registers two consecutive monthly closes below its 21-month moving average

-After a sell signal, a buy signal occurs when SPX register a single monthly close above its 10-month moving average.

Figure 1 displays recent activity.

Figure 1 – SPX Trend-Following signals (Courtesy AIQ TradingExpert)

The good news is that this model does a good job of being out of stocks during long bear markets (1973-74, 2000-2002, 2008-2009).  The bad news is that – like any trend-following model – it gets “whipsawed” from time to time.  In fact the two most recent signals resulted in missing out on the October 2015 and March 2016 rallies.

But note the use of the phrase “simple trend-following model” and the lack of phrases such as “precision market timing” and “you can’t lose trading the stock market”, etc.

For now the trend is up.  A few things to keep an eye on appear in Figures 2 and 3.  Figure 2 displays four major averages.  Keep an eye to see if these averages break out to the upside (see here) or if they move sideways to lower.

Figure 2 – Four Major Market Averages (Courtesy AIQ TradingExpert)

In addition, I suggest following the 4 tickers in Figure 3 for potential “early warnings” – i.e., if the major averages hit new highs that are not confirmed by the majority of the tickers in Figure 3.

Figure 3 – Four potential “Early Warning” tickers  (Courtesy AIQ TradingExpert)

Bonds

My main “simple bond trend-following model” remains bearish.  As you can see in Figure 4, a buy signal for bonds occurs when the 5-week moving average for ticker EWJ (Japanese stocks) drops below its 30-week moving average and vice versa.

Figure 4 – Ticker EWJ 5-week and 30-week moving average versus ticker TLT (Courtesy AIQ TradingExpert)

A 2nd model using metals to trade bonds has been bullish of late but is close to dropping back into bearish territory.  Figure 5 displays the P/L from holding a long position of 1 t-bond futures contract ONLY when both the EWJ AND Metals models are bearish (red line) versus when EITHER model is bullish (blue line)

Figure 5 – T-bond futures $ gain/loss when EWJ OR Metals Models are Bullish (blue line) versus when EWJ AND Metals Models are both Bearish (red line); August 1990-present

Gold

My most basic gold trend-following model is still bearish.  This model uses my “Anti-Gold Index” (comprised of tickers GLL, SPX, UUP and YCS).  It is bullish for gold when a Front-Weighted Moving Average (detailed here) is below the 55-week exponential moving average and vice versa.

Figure 6 – Jay’s “Anti-Gold Index” versus ticker GLD (Courtesy AIQ TradingExpert)

Summary

So at the moment the stock model is bullish and the bond and gold models are bearish.  Are these trends certain to persist ad infinitum into the future?  Definitely not.  Will the models detailed here provide timely signals regarding when to get in or out the next time around?  Sorry, but it doesn’t always work that way with trend-following.

But as for me I prefer “riding the trend” to “predicting the future.”

Some painful lessons just stick with you I guess.

Jay Kaeppel  Chief Market Analyst at JayOnTheMarkets.com and AIQ TradingExpert Pro (http://www.aiqsystems.com) client. 

Disclaimer:  The data presented herein were obtained from various third-party sources.  While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.

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Respect the Trend, But Beware

August 1, 2017, 12:31 pm

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It is hard to look at Figure 1 and argue that the trend of the stock market is anything but bullish.  Major averages making new all-time highs is essentially the very definition of a bull market.  And indeed the market may continue to push higher indefinitely.

Figure 1 – Four Major Averages all at or near all-time highs (Courtesy AIQ TradingExpert)

Trying to “pick a top” usually ends with an embarrassed prognosticator.  Particularly when the major market averages are posting new highs.  Still, there comes a time when it can pay to pay close attention for signs of “Trouble in Paradise”.  That time may be now.

Four Bellwethers

In this article I wrote about 4 “bellwethers” that I follow for potential “early warning signals”.  So far no “run for cover” signals have appeared.  Two of the four have confirmed the new highs in the market averages and the other two have not.  If and when 3 or 4 of them fail to confirm that may signal trouble ahead.

Figure 2 – XIV and BID confirm news highs; SMH and TRAN so far have not (Courtesy AIQ TradingExpert)

XIV and BID have confirmed new highs in the major averages (although the parabolic nature of XIV’s run is somewhat troubling to me) while SMH and the Dow Transports have not.

Post-Election/Year “7” Bermuda Triangle

I have written about this a few times but it bears repeating here.  Post-Election Years and Years ending in “7” (1907, 1917, etc.) have typically witnessed “trouble” in the second half of the year.  Figures 3 and 4 are posted courtesy of a Twitter post from Larry McMillan of the Option Strategist.

Figure 3 highlights the fact that the 2nd half of “Years 7” have often witnessed “trouble.”

Figure 4 show that each “7” year posted a high during the 2nd half of the year (or in June) and then suffered a decline.  This does not guarantee a repeat this year but it is a warning sign.

Figure 3 – Decade Pattern for the Dow Jones Industrials Average (Courtesy: Options Strategist)

Figure 4 – Years “7” (Courtesy: Options Strategist)

Also, during years that are both “post-election” years AND “Years ending in 7”, the August through October results have been brutal- as depicted in Figure 5 – with an average 3-month decline of -15%.

Figure 5 – August/September/October of Post-Election Years that also End in “7”

Nothing in Figures 3 through 5 “guarantee” an imminent market decline.  They do however, constitute the reason the word “Beware” appears in the headline.

Valuation

Last week I witnessed a presentation where a quite knowledgeable gentleman posted a chart of the Schiller PE Ratio.  He made note of the fact that the Schiller PE Ratio has only been higher twice in modern history – 1929 and 2000.  The 1929 peak was followed by an 89% decline by the Dow and the 2000 peak was followed by an 83% decline by the Nasdaq.  So are we doomed to experience a devastating decline?  Not necessarily.  At least not necessarily anytime soon.  The stock market became “overvalued” in 1995 and then continued to  rally sharply higher for another 4+ years.  Likewise, the market as theoretically been “overvalued” since 2013 – and so far so good.

Figure 6 shows the price action of the Dow Jones Industrials Average since 1901 in blue and the movements of the Schiller PE Ratio in green.

The peaks in the Schiller PE ratio in:

1901

1929

1937

1965

1995-2000

2003-2008

Were all followed by “something bad”.

While the exact timing is unknowable, as you can see in Figure 6, history does suggest that ultimately a “happy ending” is unlikely.

Figure 6 – A History Lesson in High Shiller PE Ratio Readings: Dow Jones Industrials Average (blue line) and Schiller PE Ratio (green line); 1901-present

Summary

I absolutely, positively DO NOT possess the ability to “predict” what is going to happen in the financial markets.  I have gotten pretty good however, at identifying when risk is unusually high or low.

Current Status: Risk High

Because I don’t offer investment advice on this blog – and because my track record of “market calls” is so bad, no one should interpret anything in this article as a call to “Sell Everything”, especially since I  haven’t even done that myself  – us “trend-followers” usually take awhile to give up the ghost.  In reality, I hope that stocks continue to rally and that this article ends up making me looking stupid, er, I mean “overly cautious”.

But the real point is simply that having plans, mechanisms, etc. to reduce risk in your portfolio makes sense.

Jay Kaeppel Chief Market Analyst at JayOnTheMarkets.com and TradingExpert Pro client. 

Disclaimer:  The data presented herein were obtained from various third-party sources.  While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.

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Detecting Swings

August 3, 2017, 10:57 am

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The AIQ code based on Domenico D’Errico’s article in the May 2017 issue of Stocks & Commodities issue, “Detecting Swings,” is provided here.

I tested the author’s four systems using the NASDAQ 100 list of stocks on weekly bars, as did the author, from 3/16/2005 through 3/14/2017. Figure 7 shows the comparative metrics of the four systems using the four-week exit. The results were quite different than the author’s, probably due to a different test portfolio and also a 10-year test period rather than the author’s 20-year period. In addition, my test results show longs only, whereas the author’s results are the average of both the longs and shorts.

FIGURE 7: AIQ. As coded in EDS, this shows the metrics for the author’s four systems run on NASDAQ 100 stocks (weekly bar data) over the period 3/16/2005 to 3/14/2007.

The Bollinger Band (Buy2) system showed the worst results, whereas the author’s results showed the Bollinger Band system as the best. The pivot system (Buy1) showed the best results, whereas the author’s results showed the pivot system as the worst. I am not showing here the comparative test results for the Sell1 thru Sell4 rules, as all showed an average loss over this test period.

!DECTECTING SWINGS
!Author: Domenico D'Errico, TASC May 2017
!Coded by: Richard Denning, 3/15/17
!www.TradersEdgeSystems.com

!Set to WEEKLY in properties

Low is  [low].
Low1  is valresult(Low,1).
Low2  is valresult(Low,2). 
High is [high].
High1  is valresult(High,1).
High2  is valresult(High,2). 
PivotLow if Low1 < Low2  and Low1 < Low.
PivotHigh if High1 > High2  and High1 > High.

Buy1 if  PivotLow.  
Sell1 if  PivotHigh.    

!Set parameter for bollinger bands to 12 with 2 sigma (weekly) in charts:
Buy2 if [close] > [Lower BB] and valrule([close] <= [Lower BB],1).
Sell2 if [close] < [Upper BB] and valrule([close] >= [Upper BB],1).

!Set parameter for Wilder RSI to 5 (weekly) in charts:
Buy3 if [RSI Wilder] > 40 and valrule([RSI Wilder] <= 40,1).
Sell3 if [RSI Wilder] < 60 and valrule([RSI Wilder] >= 60,1).

Buy4 if [RSI Wilder] < 40  And Low > Low1.
Sell4 if [RSI Wilder] > 60  And High < High1.    

Exit if {position days} >= 4.

The code and EDS file can be downloaded from http://aiqsystems.com/detectingswings.EDS

—Richard Denning

info@TradersEdgeSystems.com

for AIQ Systems

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One More Cry of ‘Wolf’

August 18, 2017, 11:51 am

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If I were the type to make bold proclamations I would probably consider “taking my shot” right here and shout “This is the Top” and/or “The Market May Crash.”  Unfortunately, on those occasions (well) in the past when I would make bold public predictions of what was about to happen in the financial markets I would almost invariably end up looking pretty stupid. So even if I did make a “bold proclamation” it wouldn’t necessarily mean that anyone should pay any attention.

Besides all that the last thing I want is for “the party to end”.  Even if you do think the market is about to tank it’s a pretty crummy thing to have to root for.  Even if you did manage to “call the top”, the ripple effect of the ramifications associated with a serious stock market decline can have pretty negative effect on just about everyone’s life.

So let’s put it this way: I am concerned – and prepared to act defensively if necessary – but still have money in the market and am still hoping for the best.

Reasons for Caution (Indexes)

Figure 1 displays four major indexes. The Dow keeps hitting new highs day after day while the others – at the moment – are failing to confirm.  That doesn’t mean that they won’t in the days ahead.  But the longer this trend persists the more negative the potential implications.

Figure 1 – Dow at new highs, small-caps, Nasdaq and S&P 500 not quite (Courtesy AIQ TradingExpert)

Reasons for Caution (Bellwethers)

Figure 2 displays 4 “bellwethers” that I follow which may give some early warning signs.

Figure 2 – Market Bellwethers possibly flashing some warning signs (Courtesy AIQ TradingExpert)

*SMH soared to a high in early June and has been floundering a bit since.

*Dow Transports tried to break out to the upside in July but failed miserably.

*XIV is comfortably in new high territory.

*BID tried to break out in July and then collapsed.  It is presently about 12% off of its high.

In a nutshell – 3 of the 4 are presently flashing warning signs.

Reasons for Caution (Market Churn)

In this article I wrote about an indicator that I follow that can be useful in identify market “churn” – which can often be a precursor to market declines.  Spikes above 100 by the blue line often signify impending market trouble

It should be noted that the indicators signals are often early and occasionally flat out wrong.  Still, a churning market with the Dow making new highs has often served as a “classic” warning sign.

Figure 3 – JK HiLo Index (blue) versus Nasdaq Compsite / 20 (red); 12/31/2006-present

Summary

Again, and for the record, I do not possess the ability to “predict” the markets.  But I have seen a few “warning signs” flash bright red at times in the past.  As a general rule, it is best to at least pay attention – and maybe make a few “contingency plans” – you know,  just in case.

Here’s hoping my gut is wrong – again.

Jay Kaeppel Chief Market Analyst at JayOnTheMarkets.com and AIQ TradingExpert Pro (http://www.aiqsystems.com) client. 

Disclaimer:  The data presented herein were obtained from various third-party sources.  While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.

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The Gathering Storm

September 7, 2017, 10:17 pm

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First the Good News:

*The market averages are still in an up trend

*The Fed has yet to “remove the punch bowl”

Figure 1 – Major Averages still in Up Trends (Courtesy AIQ TradingExpert)

Figure 2 – Fed Quantitative Easing propels the stock market (Courtesy RealInvestmentAdvice.com)

Now the bad news

Market Bellwethers Flashing Warnings

In this article I wrote about four tickers I follow for signs of early warnings of trouble.  At the moment, all four are flashing warnings.

Figure 3 – Bellwethers flashing potential warnings (Courtesy AIQ TradingExpert)

Stocks are Extremely Overvalued

Something important to note: valuation indicators are NOT good timing indicators.  The overall market can be over or undervalued for years. However, overvalued valuation readings are extremely reliable at telling us what will come next once the top is in (whenever that may be).  Figure 4 displays the Schiller CAPE model which measures adjusted P/E ratio.Figure 4 – Schiller Adjusted PE (Courtesy: Schiller Data Library)

1901: Dow -37% in 32 months

1929: Dow -89% in 3 years

1932: Dow -49% in 13 months

1965: Dow sideways to 40% lower for 17 years

2000: Nasdaq 100 -87%

2007: Dow -55% in 17 months

2017: ??

When will the exact top form?  Don’t know

What will likely follow?  Don’t Ask

The Decennial Pattern

As I wrote about here and as you can see in Figures 5 and 6, the Year 7 into Year 8 period has historically witnesses significant market weakness.  That does not mean that that is what will happen this time around.  But it is reason for caution.

Figure 5 – Stock Market Decennial Pattern (Courtesy: OptionStrategist.com)

Figure 6 – Trouble in Late Year “7”  (Courtesy: OptionStrategist.com)

Figure 7 from Tom McLellan illustrates this phenomenon even more clearly.

Figure 7 – Trouble in Late Year “7”  (Courtesy: www.mclellanoscillator.com)

September

What a crummy time for September to roll around.  Figure 8 displays the fact that the Dow has lost -80% during the month of September since 1897.

Figure 8 – Dow has lost -80% during September since 1897

Figure 9 displays the fact that since 1955 most of the “September Nasty” has occurred in that last 10 trading days of the month (after the close on 9/15 this year)

Figure 9 – Dow in September; 1st 3 days (blue); Last 10 days (green); in between (red); 1955-2016

Investor Complacency

Despite the fact that:

*We have experienced one of the longest bull markets in history

*Stock prices are extremely overvalued on an objective historical basis

*A number of warning signs are flashing

The investment world seems relatively untroubled (in the interest of full disclosure I have done only limited selling so far myself – more on this in a moment).

Figure 10 displays the AAII investor cash allocation reading from earlier this year.   Low cash levels tend to signal complacency (and impending market trouble) while high cash levels tend to occur near market bottoms.

Figure 10 – AAII Investor Cash % is low (Courtesy: American Association of Individual Investors)

Figure 11 displays the amount of assets in the Rydex suite of “bearish” funds from earlier this year.  As you can see, investors were not too concerned about the prospects for a bear market – a potential contrarian signal.

Figure 11 – Rydex Bearish Funds Assets low (Courtesy: The Lyons Share)

Figure 12 shows the level of margin debt versus stock prices.  Historically when margin debt peaks and begins to decline the stock market suffers significantly.  There is no way to predict  when margin debt will top out and roll over but it did recently reach a new all-time high.  Could it go higher? Absolutely.  But if it rolls over – then look out below.

Figure 12 – If Margin Debt peaks trouble may follow (Courtesy: dshort.com)

Figure 13 displays the stock market versus the number of “Hindenburg Omens” (a measure of “churning” in the stock market) that have occurred in the most recent 6-month period.  Another warning sign is flashing.

Figure 13 – Hindenburg Omen flashing a warning (Courtesy: SentimentTrader.com)

Summary

Does any of the above guarantee that a significant stock market decline is imminent?  The correct answer is “No.”  The major market indexes all remain above their long-term moving averages. This can be considered the very definition of a bull market.

I personally have seen lots of warning signs flash along the way over the years.  And I have found that it is important to pay attention to these and to “prepare for the worst” – i.e., to plan an exit/hedging strategy “just in case.”  But trying to pick the exact top is an excellent way to end up looking stupid.  Trust me on this one.

So here is my summary:

*I do not possess the ability to “call the top” nor to “predict what will happen next” in the stock market

*I do possess a reasonably good ability to identify the trend “right now”

*I also possess the ability to recognize gathering storms clouds (and, yes, they are forming) and the ability to formulate an “emergency plan” as well as the wherewithal to follow the plan “should this be an actual (market) emergency.”

The current level of market valuation – and the history of the stock market following previous similar such readings – suggests that the next bear market will surprise many investors by its severity.

The clouds are gathering.  Please plan accordingly.

Jay Kaeppel Chief Market Analyst at JayOnTheMarkets.com and AIQ TradingExpert Pro client. 

Disclaimer:  The data presented herein were obtained from various third-party sources.  While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.

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A Simple Indicator for Traders

October 6, 2017, 8:23 am

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First the Bad News: There are no “magic bullets” when it comes to trading.  There are people in this industry who have literally tested somewhere in the range of six bazillion “indicators” – give or take (“Hi. My name is Jay”).  Every trend following indicator looks like a gold mine when it latches onto a huge trend and rides it (but not so much when it starts getting whipsawed).  And every overbought/oversold indicator looks like a gift from heaven from time to time when it somehow manages to peak (or valley) and then reverses right at a high (or low).  And then the next time the thing gets oversold the security in question just keeps plunging and the previously “amazingly accurate” indicator just gets more and more oversold.

Bottom line: what I am about to discuss is likely no better or worse than a lot of other indicators.  And it is no holy grail.  Still, I kinda like it – or whatever that is worth.

EDITORS NOTE an AIQ EDS file for this indicator with the 3 step rules outlined can be downloaded from here you will need to copy or save this file into your wintes32/eds strategies folder. Alternatively the code is available at the end of this article for copying and pasting into a new EDS file.

UpDays20

I call this indicator UpDays20 and I stole, er, learned it originally from Tom McClellan of McLellan Financial Publications.  My calculation may be slightly different because I wanted an indicator that can go both positive and negative.  For a given security look at its trading gains and losses over the latest 20 trading days.

UPDays20 = (Total # of Up days over the last 20 trading days) – 10

So if 10 of the last 20 trading days showed a gain then UpDays20 would read exactly 0.

If only 6 of the last 20 trading days showed a gain then UpDays20 would read -4

You get the idea (and proving once again that it “doesn’t have to be rocket science”).  As a “trading method” it is always advised that this indicator – like most all other indicators – NOT be used as a standalone approach to trading.  That being said, the way I follow this indicator is as follows.

Step 1) UpDays20 drops to at least -2

Step 2) UpDays20 rises 2 points from a low

Step 3) The security in question then rises above its high for the previous 2 trading days

It is preferable to follow this setup hen the security in question is above its 200-day moving average, but that is up to the trader to decide (the danger to using this with a security below its 200-day moving average is that it might just be in the middle of a freefall.  The upside is that counter trend rallies can be fast and furious – even if sometimes short-lived).

Again, there is nothing magic about these particular steps.  They are simply designed to do the following:

1) Identify an oversold condition

2) Wait for some of the selling pressure to abate

3) Wait for the security to show some sign of reversing to the upside

Like just about every other indicator/method, sometimes it is uncannily accurate and sometimes it is embarrassingly wrong (hence the reason experienced traders understand that capital allocation and risk management are far more important than the actually method you use to enter trades).

In this previous article (in Figures 3 and 4) I wrote about using this indicator with ticker TLT.  Figure 1 and 2 display the “buy” signals generated using the rules above for tickers IYT and GLD.

Figure 1 – UpDays20 “Buy” Alerts for ticker IYT (Courtesy AIQ TradingExpert)

Figure 2 – UpDays20 “Buy” Alerts for ticker GLD (Courtesy AIQ TradingExpert)

Are these signals good or bad?  That is in the eye of the beholder and not for me to say.  One big unanswered question is “when do you exit”?  That is beyond the scope of this “idea” article – however, “sell some at the first good profit and then use a trailing stop” looks like a decent approach to consider) but would have a profound effect on any actual trading results.

Some of the signals displayed in Figures 1 and 2 are obviously great, others are maybe not so hot.  Interestingly, some of the signals in Figure 1 and 2 that don’t look to timely at first blush actually offered a profitable opportunity to a trader who was inclined to take a quick profit. Again, how you allocate capital and when you exit with a profit and when you exit with a loss would likely have as much impact on results as the raw “buy” signals themselves.

Summary

No one should go out and start trying to trade tomorrow based on UpDays20.  No claim is being made that the steps detailed herein will result in profits nor even that this is a good way to trade.

But, hey, it’s one way.

Jay Kaeppel Chief Market Analyst at JayOnTheMarkets.com and AIQ TradingExpert Pro client.

Disclaimer:  The data presented herein were obtained from various third-party sources.  While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.

EDITORS NOTE an AIQ EDS file for this indicator with the 3 step rules outlined can be downloaded from here you will need to copy or save this file into your wintes32/eds strategies folder. Alternatively the code is available at the end of this article for copying and pasting into a new EDS file.

! UpDays20 – I call this indicator UpDays20. For a given security look at its trading gains and losses over the latest 20 trading days.

! UPDays20 = (Total # of Up days over the last 20 trading days) – 10

! So if 10 of the last 20 trading days showed a gain then UpDays20 would read exactly 0.

! If only 6 of the last 20 trading days showed a gain then UpDays20 would read -4

Upday if [close]>val([close],1).

totalupdayslast20days is CountOf(upday,20).

updayindicator is totalupdayslast20days – 10.

! How to follow this indicator

! Step 1) UpDays20 drops to at least -2

! Step 2) UpDays20 rises 2 points from a low

! Step 3) The security in question then rises above its high for the previous 2 trading days

UpDays20rises2points if updayindicator>valresult(updayindicator,1) and valresult(updayindicator,1)>valresult(updayindicator,2).

updays20atminus2orlower if valresult(updayindicator,2)<=-2.

closesabovehighof2priordays if [close]>val([high],1) and [close]>val([high],2).

Upsignal if UpDays20rises2points and updays20atminus2orlower and closesabovehighof2priordays.

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System Development Using Artificial Intelligence

October 17, 2017, 2:36 am

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The AIQ code based on Domenico D’Errico and Giovanni Trombetta’s article in August 2017 Stock & Commodities issue, “System Development Using Artificial Intelligence,” is shown here. You can also download the EDS file from here

Are humans or computers better at trading? This question has been around on many fronts since the era of punch cards, and as technology advances, you question whether machines have limits. It’s the same with trading, and here’s an algorithm that may shed some light on which performs better…

!ARTIFICAL INTELLIGENCE FOR SYSTEM DEVELOPMENT
!Authors: Domenico D'Errico & Giovanni Trombetta, TASC August 2017
!Coded by: Richard Denning, 6/08/2017
!www.TradersEdgeSystems.com

!INPUTS:
O is [open].
C is [close].
H is [high].
L is [low].
exitBars is 8.
exitBarsP is 6.
enterGap is -0.08.

!CODE:
AvgP is (O+C+H+L)/4.
MedP is (H+L)/2.
MedB is (O+C)/2.

AvgP1 is valresult(AvgP,1).
AvgP2 is valresult(AvgP,2).
AvgP3 is valresult(AvgP,3).

MedP1 is valresult(MedP,1).
MedP2 is valresult(MedP,2).
MedP3 is valresult(MedP,3).
MedP4 is valresult(MedP,4).

MedB1 is valresult(MedB,1).
MedB2 is valresult(MedB,2).
MedB3 is valresult(MedB,3).
MedB4 is valresult(MedB,4).

!ENTRY & EXIT RULESl
Gandalf if 
  (AvgP1exitBars-1)
 or ({position days}>=exitBars-1)
 or ({position days}>=exitBarsP-1 and (C-{position entry price}>0)).

EntryPr is min(val([low],1) + enterGap,[open]).

Buy if Gandalf and [low] <= EntryPr.

See Figure 10 for how to set up the pricing in a backtest.

FIGURE 10: AIQ. This shows the EDS backtest settings for entry pricing.

—Richard Denning
info@TradersEdgeSystems.com
for AIQ Systems

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An Unusual 4 ETF Portfolio…That Seems to Work

October 30, 2017, 1:32 pm

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I know I repeat it a lot but the purpose of this blog is not to offer recommendations but rather to share ideas.  So here is one that I am not quite sure about but am keeping an eye on.

The FourNonCorr Portfolio

Somewhere awhile back I started looking at trying to pair non correlated – or even inversely correlated – securities in a portfolio that had the potential to outperform the overall market. What follows is what I refer to as the FourNonCorr Portfolio.  For the record I do not trade this portfolio with real money.  I am still trying to figure out if there is something to it or not.  But given that it has outperformed the S&P 500 by a factor of 3-to-1 (granted, using hypothetical results) since December of 2007, I figure it might be worth monitoring for awhile.

The portfolio consists of four ETFs:

Ticker FXE – Guggenheim CurrencyShares Euro Trust

Ticker UUP – PowerShares DB US Dollar Index Bullish

Ticker TLT – iShares Barclays 20+ Yr Treas. Bond

Ticker XIV – VelocityShares Daily Inverse VIX ST ETN

The monthly charts for each appear in Figure 1.

Figure 1 –The Four ETFs in The Four NonCorr Portfolio (Courtesy AIQ TradingExpert)

As you can see there is a lot of “zigging” by one accompanied by “zagging” for another.  No surprise that when the Euro rises the dollar falls and vice versa. Also, TLT often seems to move opposite XIV. That is essentially the purpose of these pairings.

Figure 2 displays the correlations between the four ETFs in the portfolio (using AIQ TradingExpert Matchmaker function from 8/31/2012 through 8/31/2017 using weekly data).  A reading of 1000 indicates a perfect correlation, a reading of -1000 indicates a perfectly inverse correlation.

	FXE	UUP	TLT	XIV
FXE		(913)	77	(13)
UUP	(913)		(117)	43
TLT	77	(117)		(234)
XIV	(13)	43	(234)

Figure 2 – Correlations for the FourNonCorr Portfolio ETFs (Source: AIQ TradingExpert)

Clearly there is a whole lot of “not correlating much” going on.

Results

For testing purposes I used monthly total return data for each ETF from the PEP Database from Callan Associates.  The one exception is ticker XIV which did not start actual trading until December 2010.  For January 2008 through November 2010 I used index data for the index that ticker XIV tracks inversely (S&P 500 VIX SHORT-TERM FUTURES INDEX). Actual XIV ETF data is used starting in December 2010.

As a benchmark, I also tracked the cumulative total return for ticker SPY (that tracks the S&P 500 Index).

Figure 3 displays the cumulative percent gain or loss for both the FourNonCorr Portfolio and ticker SPY.Figure 3 – Cumulative % gain/loss for The FourNonCorr Portfolio (blue) versus SPY (red); 12/31/2007-9/30/2017

Year-by-year results appear in Figure 4

	4 NonCorr	SPY	Diff
2008	(6.0)	(37.0)	31.0
2009	26.1	26.4	(0.3)
2010	45.2	14.9	30.3
2011	(1.3)	2.1	(3.4)
2012	34.3	15.8	18.5
2013	19.3	32.2	(12.9)
2014	5.3	13.5	(8.2)
2015	0.6	1.3	(0.8)
2016	21.0	11.8	9.2
2017*	24.4	14.1	10.2

Figure 4 – Year-by-Year Results

The results by the numbers appear in Figure 5.

	4NonCorr	SPY
Average 12mo % +/-	17.8	11.2
Median 12mo % +/-	14.9	15.0
Std. Deviation	17.1	16.8
Ave/Std. Dev.	1.04	0.67
Worst 12mo %	(11.9)	(43.2)
Max. Drawdown %	(17.8)	(48.4)

Figure 5 – By the numbers

All told The FourNonCorr Portfolio:

*Gained +334% versus +110% for SPY since 12/31/2007

*Experienced a maximum drawdown of -17.8% versus-48.4% for SPY

Thoughts

On paper, The FourNonCorr Portfolio looks pretty decent, particularly compared to the S&P 500 Index.  But you will recall that I stated earlier that I don’t actually trade this portfolio with real money.  Why not?  A few concerns:

*Interest rates tend to move in long-term waves up and down.  How beneficial will it be to have TLT in the portfolio if and when interest rates embark on a long-term wave up?

*I don’t entirely trust ticker XIV.  Because of the way it is built it seems to have the benefit of upward bias due to contango in the VIX futures market (the opposite of ticker VXX – please Google “VXX” and/or “contango” for an actual explanation) it also holds the potential to sell off in shocking fashion.  Using the index data as I did in order to replicate hypothetical performance from Jan 2008 through Nov 2010, XIV declined a stunning -72% between the end of May 2008 and the end of November 2008. It also experienced a -60% decline in 2015-2016. Need to give some thought to adding a security that is even capable of that to a permanent portfolio.

*On the flip side, XIV has been the driving force for gains in recent years and shows a cumulative gain of +416% since 12/31/2007.  If (and when?) we ever do see a bear market and/or a significant pickup in volatility will XIV have a large negative influence on performance?  That seems to be the $64,000 question.

Summary

As a thought experiment, The FourNonCorr Portfolio shows a pretty decent track record and seems to hold some interesting promise.  As a real money, real world experience – questions remain.

Stay tuned, tinker and experiment if you wish,and don’t be too quick to “dive in.”

Jay Kaeppel Chief Market Analyst at JayOnTheMarkets.com and AIQ TradingExpert Pro client.

Disclaimer:  The data presented herein were obtained from various third-party sources.  Whilne I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.

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Adding groups and sectors to your Group/Sector List

November 14, 2017, 11:34 am

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Adding groups and sectors to your Group/Sector List

If for some reason you want to add to the Group/Sector List delivered with the system, TradingExpert Pro provides the necessary functions.

The procedure for adding to your Group/Sector List is as follows:

1. Add any new stocks to the Master Ticker List

2. Add new group tickers to the Master Ticker List.  

3. Add new sector tickers to the Master Ticker List.

4. Add new sectors to the Group/Sector List.  Under each new sector, insert the groups that will make up that sector.

5. Add new groups to the Group/Sector List.  Under each new group, insert the stocks that will make up that group.  

6. Use the Compute Group/Sector Indices function to compute indices for the new groups and sec­tors.

7. Use the Set RS Symbols function to set relative strength relationships.

Can a ticker be entered in more than one group?

TradingExpert Pro allows you to enter a ticker in more than one group.  For example, you may want to follow an index of locally-owned companies by placing them in a newly created group.  One of those companies could be a computer software development company that you would want to include in an industry group of computer stocks.  You can enter an eq­uity into as many user created groups as you want, but it is  important that you do not enter these user created groups into sectors.  Only principal industry groups should be collected into a sector.

Adding a new sector to your Group/Sector List

Proceed as follows:

1. First, add a new sector ticker to your Master Ticker List.  Click the Ticker command on the menu bar.  Then click New to display the New Ticker dialog box.  

2. Enter a ticker for the new sector, then be sure to enter the proper Type designation (sector).

3. Click OK, and the second dialog box for entering a new ticker appears.

4. Type in a name (Description) and the First Date of data.  The remaining default settings on this second dialog box can remain the same.

5. Click OK, and the new sector ticker will be added to the Master Ticker List.

6. Insert the new sector ticker into your Group/Sector List by doing the following:

• Display the Group/Sector List in the left (List) window by choosing its name from the Selected List text box on the toolbar.

• Highlight the new sector in the Master Ticker List by clicking on its name with your mouse.

• Again using your mouse, click the name of the master sector in the List window.

• Select the Insert Ticker(s) command on the List sub-menu or click the Insert to list toolbar button.

7. Before inserting groups under the new sector, be sure to create any new group tickers and add them to the Master Ticker List.

8. Insert all of the groups that will make up the new sector by doing the following:

• Select in the Master Ticker List all of  the groups you want to add by simply holding down the Ctrl key while clicking each group.

• Again using your mouse, click the new sector in the Group/Sector List under which you want to insert the groups.

• Select the Insert Ticker(s) command on the List sub-menu or click the Insert to list toolbar button.

Adding a new group to your Group/Sector List

Follow these steps:

1. First, add a new group ticker to the Master Ticker List.  Click the Ticker command on the menu bar.  Then click New to display the New Ticker dialog box.  

2. Enter a ticker for the new group, then be sure to enter the proper Type designation (group).

3. Click OK, and the second dialog box for entering a new ticker appears.

4. Type in a name (Description) and the First Date of data.  The remaining default settings on this second dialog box can remain the same.

5. Click OK, and the new group ticker will be added to the Master Ticker List.

6. Insert the new group ticker into your Group/Sector List by doing the following:

• Display the Group/Sector List in the left (List) window by choosing its name from the Selected List text box on the toolbar.

• Highlight the new group in the Master Ticker List by clicking on it with your mouse.

• Again using your mouse, click the sector in the List window under which you want to insert the new group.  If the list is fully contracted, you may need to use the Expand Level command on the List sub-menu to display all of the sectors.

• Select the Insert Ticker(s) command on the List sub-menu or click the Insert to list toolbar button. 

7. Before inserting stocks under the new group, be sure to add any new stocks to your Master Ticker List.  

8. Insert stocks by doing the following:

• Select in the Master Ticker List all of  the stocks you want to add by simply holding down the Ctrl key while clicking each stock.

• Again using your mouse, click the new group in the Group/Sector List under which you want to insert the stocks.

• Select the Insert Ticker(s) command on the List sub-menu or click the Insert to list toolbar button.

Computing indices for a new group or sector

Following your next data retrieval, the group and sector in­dices will be automatically computed.  However, when you add a new group or sector to your Group/Sector List, and you want to see an analysis at once without waiting for your next data retrieval, you can use the Compute Group/Sector Indices function to create the index.

To use Compute Group/Sector Indices:

1. Click Utilities on the Data Manager menu bar to display the drop-down menu.  

2. Select Compute Group/Sector Indices from this menu.  The Compute Group/Sector Indices dialog box appears.

3. In the Source section, click the option button for Selected Group(s) Symbols, then select your new group or sector in the text box.  Check to compute both Parent and Child symbols.

4. In the Range section, select the first option, Update from Last Date of Data.

5. Choose OK.  The computation will begin.

6. After you have computed group/sector indices, you should execute the function Set RS Indicators.

Setting relative strength relationships 

This function sets your relative strength indicators to conform with parent/child relationships.  Then, when you are working in Charts, you can easily see the relative strength of the stock vs. its parent group, a group vs. its parent sector, or a sector vs. the master sector.

To set Relative Strength Indicators:

1. Click Utilities on the Data Manager menu bar to display the drop-down menu.  

2. Select Set RS Symbols.  Then select Set RS Tickers.  The Set RS Tickers dialog box appears. 

3. Click the name of your list in the Selected Lists text box.

4. Click the first option, Set Relative Strength Relationships (overwrite).

5. Choose the OK button.

Building a new Group/Sector List

If for some reason you would want to build a new Group/Sector List, first create a new list and master sector, then follow the procedure above for adding groups and sectors to the list.

The post Adding groups and sectors to your Group/Sector List appeared first on AIQ TradingExpert Pro.

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A Bottom-Picking Portfolio

November 14, 2017, 11:38 am

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In a recent article I highlighted some stocks that appeared to have a chance of “putting in a low”.  In another article, I highlighted the potential usefulness of “horizontal lines” on a chart.  The phrase “putting in a low” is essentially a kindler, gentler version of the phrase “Hey, let’s pick a bottom”.

The reality is that the ability to “pick tops and/or bottoms” on any kind of a consistent basis is a skill that roughly 99.2% of all investors and traders do not possess.  That being said, there is such a thing as a legitimate “bottom formation” (at least in my market addled opinion).  A security that bounces several or more times off a particular price is sending information that the sellers may be running out of ammunition.  These levels can be observed by drawing horizontal trend lines across a price chart – connecting recent highs and/or lows at roughly similar prices.

“Loading up” in this situation is not recommended. But committing an acceptable percentage of one’s portfolio (a level which each investor must decide on their own) to such opportunities is a perfectly acceptable form of speculation.

So for arguments sake, below is a “Bottom Pickers Portfolio”.  As always, I am not recommending this as an investment, simply highlighting an alternative idea for your further consideration.

The Tickers

The tickers included in this portfolio are mostly all commodity related.  That is not a purposeful choice; they simply “fit the model”.

First is ticker BAL – an ETF that tracks the price of cotton futures.  The critical level for BAL is roughly the $43.50 area.

Figure 1 – Ticker BAL (Courtesy AIQ TradingExpert)

Ticker GDX tracks a gold stock index and has been consolidating in a relatively tight range after last year’s sharp rally and subsequent pullback.

Figure 2 – Ticker GDX (Courtesy AIQ TradingExpert)

Ticker JO tracks the price of coffee futures.  This is one of the weakest charts on the list and is dangerously close to failing to the downside.  However, if the low holds this will strengthen the outlook a great deal.

Figure 3 – Ticker JO (Courtesy AIQ TradingExpert)

Ticker SGG tracks the price of sugar futures. SGG has been consolidating in a narrow range for about four months.  Key price levels on the downside are $26.50 and the August 2015 low of $24.79.

Figure 4 – Ticker SGG (Courtesy AIQ TradingExpert)

Ticker SWN is Southwestern Energy Co.  After a long, devastating decline the stock is attempting to form a low in the $5 a share range.

Figure 5 – Ticker SWN (Courtesy AIQ TradingExpert)

Ticker UNG tracks natural gas futures.  Thanks to the advent of fracking – which is made natural gas abundantly available – the price of natural gas has collapsed in recent years.  In the past week it retested its 2016 low and then ticked higher.  Like JO, this one is precariously close to “failing”.  But for now…

Figure 6 – Ticker UNG (Courtesy AIQ TradingExpert)

The Bottom Pickers Portfolio                      

I use AIQ TradingExpert software to create my own “Groups”.  So I created one called “Lows” to include the six tickers above.  The group consists of an equal dollar investment in each ticker.  The chart for this combination of tickers appears in Figure 7.EDITORS NOTE: Creating your own groups is accomplished in the TradingExpert Data Manager information can be found in this article ‘Adding groups and sectors to your Group/Sector List’

Figure 7 – The “Lows” Group (Courtesy AIQ TradingExpert)

Summary

Let me be blunt.  There is every chance that the majority of the tickers highlighted above will continue their long-term bearish trends and break down to the downside causing further losses for those holding these shares.

The primary thing to highlight in this piece is a personal preference.  I prefer “horizontal” lines on a chart – i.e., straight across, left to right – to the more typical slanted trend lines that most traders use.  The reason is simply – upward or downward slanting trend lines require a trader to decide which two (or more) highs (or lows) to connect in order to draw the trend line.  At the end of the day this is often a subjective decision.

Horizontal trend lines – which connect to (at least roughly equal) highs or lows – are generated by the market itself and as such, are more objective in nature.  In other words, investor buying and selling determines these levels.

Will my “Bottom Pickers Portfolio” move to the upside or fail to the downside?  We’ll just have to wait to find out.

Jay Kaeppel Chief Market Analyst at JayOnTheMarkets.com and AIQ TradingExpert Pro client.

Disclaimer:  The data presented herein were obtained from various third-party sources.  While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.

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Bitcoin May Rise Another 20-fold, But First….

December 13, 2017, 4:00 pm

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First off, for the record I am an “Old Dog” and Bitcoin is a “New Trick”. That creates a problem right there.  The truth is also that can’t honestly say that I fully understand what Bitcoin actually is or how it actually works (which technically means I am in pretty good company with a lot of people who are actually trading it, but I digress).  And as a “grizzled veteran” (of the markets) there is a part of me that instinctively wants to dismissively shout “bubble” and sneeringly walk away.  It’s not like it hasn’t been seen before – tulip bulbs, the Nifty 50, silver, technology/dot.com stocks, interest only mortgages and so on.

Most of you know the drill:

*Some form of “investment” catches lightning in a bottle

*The investment world (for lack of a more professional phrase) “wet’s itself”

*Price soars beyond all rational levels

You know, sort of like what you see in Figure 1…

Figure 1 – Bitcoin price (Bitcoin.com)

…And then it all ultimately plummets painfully to earth.

Well, at least temporarily. I mean sure tulip bubbles never ascended the heights again, but a lot of the Nifty 50 went on to still be major companies even after their stock cratered.  The same for a lot of the major dot.com era companies.  Silver is still trading as a serious commodity and real estate seems to have rebounded.

In sum: Is Bitcoin forming a price “bubble”? It’s hard to look at Figure 1 and not think so.  Of course, even if it is the questions no one can answer for sure are “When” and “from what level”?

The other question is “if it is a bubble and the bubble bursts, will crypto currencies go the way of tulip bulbs (as an investment) or is there a future for them in the long run?”

A Recent Bubble History Lesson

In the late 90’s into 2000 a bubble formed in tech stocks. And the bubble burst and it was ugly. And many “hot” companies folded and vanished. But not all of them and certainly not the major players.  And certainly not the industry as a whole.  Like I said before I don’t truly understand Bitcoin and crypto currencies. So I can’t say for sure if they are a “craze” – like tulip bulbs in the 1600’s during “Tulipmania” or something more viable and sustainable – like technology stocks.  To understand why this distinction matters, consider the stocks listed in Figure 2.Figure 2 – Dot.com bubble stocks that survived and thrived

As you can see in Figure 2 through 7 each of these stocks experienced a “bubble” and a “crash”.  Interestingly, the companies themselves ultimately rebounded and thrived.

The average “crash” was -87% and the average post-crash advance (so far) is about 16,000%.Figure 3 – Apple (Courtesy AIQ TradingExpert)

Figure 4 – Amazon (CourtesyAIQ  TradingExpert)

Figure 5 – Microsoft (Courtesy AIQ TradingExpert)

Figure 6 – Nvidia (Courtesy AIQ TradingExpert)

Figure 7 – Priceline (Courtesy AIQ TradingExpert)

Summary

The only thing we can say for sure is that some people will make a great deal of money from Bitcoin/crypto currencies and others will likely get wiped out.  The danger is obvious: whenever you have a lot of investors “chasing” something – especially something that many of them don’t even understand – it is a recipe for trouble.

That being said, in my (market addled) mind the real “long-term” question is, will crypto currencies still be “a thing” after the bottom falls out?  If Bitcoin is a bubble, then if history is a guide we can look or a decline in price somewhere in the 80% to 99% range after the top is ultimately made.

From there, if history is also a guide then depending on whether or not crypto currencies prove to be a viable thing, we can expect them to either:

a) Vanish altogether

OR

b) Rise 15-20 fold from the bottom

So here is my Bitcoin/crypto currency investing guide:

*It is OK to pile in and buy Bitcoin in hopes of getting rich (as long as you do not “bet the ranch”, invest only a small portion of your capital and acknowledge that a 100% loss is absolutely a possibility and that you are willing and able to accept that risk).

*It is also OK to sneer and shout “bubble” and not invest.  But if and when the bottom drops out and prices crater remember to peruse the wreckage.  There just might be an opportunity there (remember, Priceline lost -99% when the dot.com bubble burst, then gained 32,000%).

In any event, hold on tight people, this is NOT going to be a smooth ride.

Jay Kaeppel Chief Market Analyst at JayOnTheMarkets.com and AIQ TradingExpert Pro client.

Disclaimer:  The data presented herein were obtained from various third-party sources.  While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.

The post Bitcoin May Rise Another 20-fold, But First…. appeared first on AIQ TradingExpert Pro.

A Candlestick Strategy With Soldiers And Crows

December 13, 2017, 4:16 pm

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ndle reversal patterns—a bullish one white soldier and a bearish one black crow—that requ

The Expert Design Studio code for Jerry D’Ambrosio and Barbara Star’s article, “A Candlestick Strategy With Soldiers And Crows,” in Stocks & Commodities October 2018 issue is shown below.”Among the more well-known candlestick reversal patterns are soldiers and crows. These occur in a three-candle pattern such as three white soldiers or three black crows. Recently, on the website Candlesticker.com, we learned of two other candle reversal patterns—a bullish one white soldier and a bearish one black crow—that require fewer candles. ”

!A CANDLESTICK STRATEGY WITH SOLDIERS AND CROWS
!Author: Jerry D'Ambrosio & Barbara Star, TASC Oct 2017
!Coded by: Richard Denning 8/05/2017
!www.TradersEdgeSystems.com

!CODING ABBREVIATIONS:
O is [open].
O1 is valresult(O,1).
C is [close].
C1 is valresult(C,1).
C2 is valresult(C,2).
H is [high].
L is [low].
V is [volume].

!INPUTS:
minPriceBull is 1.
minPriceBear is 10.
minVolume is 1000. !in hundreds
volAvgLen is 50.
dayCount is 5.
longExitBars is 7.
shortExitBars is 1.

okToBuy if simpleavg(C,50) > simpleavg(C,200) or CminPriceBull and simpleavg(V,volAvgLen)>minVolume.
BullWS if C1C1 and C>O1 and O= longExitBars.

okToSell if simpleavg(C,50) < simpleavg(C,200) or C>simpleavg(C,200)*1.1.
okToSellMkt if TickerRule("SPX",okToSell).
PVfilterBear if C>minPriceBear and simpleavg(V,volAvgLen).
BearBC if C1>C2 and C1>O1 
     and OO1 
     and countof(C1>C2,dayCount)=dayCount
     and PVfilterBear and okToSellMkt.
ExitShort if {position days} >= shortExitBars.

I ran several backtests using the NASDAQ 100 list of stocks over the period from 8/04/2000 to 8/04/2017. I varied the following inputs to find the optimum set of parameters for the candlestick patterns. For longs, the “dayCount” = 5 with an “longExitBars” = 7 produced the best results, which is shown in Figure 5. For shorts, the “dayCount” = 5 with a “shortExitBars” = 1 produced the best results, which is shown in Figure 6. Neither commission nor slippage were subtracted from the results.

FIGURE 5: WINWAY. EDS summary report for longs only.

FIGURE 6: WINWAY. EDS summary report for shorts only.

—Richard Denning
info@TradersEdgeSystems.com
for TradingExpert Pro

ire fewer candles. “

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Weekly and Daily MACD

December 20, 2017, 2:23 am

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The AIQ code based on Vitali Apirine’s article in December 2017 issue of Stocks and Commodities magazine, “Weekly & Daily MACD,” is provided below.

The moving average convergence/divergence oscillator (MACD), developed by Gerald Appel, is one of the more popular technical analysis indicators. The MACD is typically used on a single timeframe, but what if we looked at two timeframes on one chart?

Traders can look for relative daily MACD line crossovers, weekly and daily centerline crossovers, and divergences to generate trading signals. 

Figure 5 shows the daily & weekly MACD indicator on a chart of Apple Inc. (AAPL) during 2016 and 2017, when there was a change from a downtrend to an uptrend.

FIGURE 5: AIQ. Here is an example of the daily & weekly MACD on a chart of AAPL.

The code and EDS file can be downloaded from http://aiqsystems.com/dailyweeklyMACD.EDS, or copied here:

!WEEKLY & DAILY MACD
!Author: Vitali Apirine, TASC Dec 2017
!Coded by: Richard Denning 10/13/17
!www.TradersEdgeSystems.com

!INPUTS:
S is 12.
L is 25.

EMA1 is expavg([Close],S).
EMA2 is expavg([Close],L).
EMA3 is expavg([Close],S*5).
EMA4 is expavg([Close],L*5).
MACD is EMA1 - EMA2.
MACDW is EMA3 - EMA4.
rdMACD is MACD + MACDW.

—Richard Denning
info@TradersEdgeSystems.com
for AIQ Systems

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The Biotech-Gold Stock Connection

January 3, 2018, 12:19 pm

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At first blush there might not seem to be much to connect biotech stocks and gold stocks.

One type of company hires people to engage in high tech biomedical engineering in order to develop potentially life-saving – or at least, life altering – medical breakthroughs…

…while the other hires people to (essentially) dig holes in the ground and mine stuff (granted, valuable stuff, but stuff mined out of the ground nevertheless).

But there is one other connection – stocks of both categories are quite volatile. And that alone may be enough to create a potential opportunity.

The BioGold Index

I created an “index” (such as it is) that combines Fidelity Select Biotech (FBIOX) and Fidelity Select Gold (FSAGX).  The index appears in Figure 1.  Like every other index in the world this index fluctuates up and down.

Figure 1 – Jay’s BioGold Index (Courtesy AIQ TradingExpert)

The RSI32 Index

The RSI32 Index is simply a 2-day average of the standard 3-day RSI Index.  The code for AIQ TradingExpert EDS is below:

Define days3 5.

U3 is [close]-val([close],1).

D3 is val([close],1)-[close].

AvgU3 is ExpAvg(iff(U3>0,U3,0),days3).

AvgD3 is ExpAvg(iff(D3>=0,D3,0),days3).

RSI3 is 100-(100/(1+(AvgU3/AvgD3))).

RSI32 is simpleavg(RSI3,2).

The RSI32 Index for the BioGold Index appears on the monthly bar chart in Figure 2.

Figure 2 – The BioGold Index with RSI32 (drop to 33 or below = BUY) (Courtesy AIQ TradingExpert)

The BioGold “System”

The BioGold System works as follows:

*When the monthly RSI32 Index drops to 33 or lower, buy BOTH FBIOX and FSAGX

*After a “Buy Signal” then when the monthly RSI32 rises to 64 or higher, sell BOTH FBIOX and FSAGX

For testing purposes we will use monthly total return data for both FBIOX and FSAGX from the PEP Database from Callan Associates.

The Results

Figure 3 displays the results of the buy signals generated using the rules above (assumes that both FBIOX and FSAGX are bought after monthly RSI32 drops to 33 or lower and are held until monthly RSI32 rises to 64 or higher.

Buy Signal	Sell Signal	FBIOX+FSAGX % +(-)
4/30/1992	12/31/1992	+14.4%
2/26/1993	4/30/1993	+14.7%
4/29/1994	9/30/1994	+7.2%
12/30/1994	4/28/1995	+9.8%
4/30/1997	9/30/1997	+18.4%
11/28/1997	4/30/1998	+10.4%
6/30/1998	12/31/1998	+16.1%
3/30/2001	6/29/2001	+22.7%
7/31/2002	12/31/2002	+18.1%
7/30/2004	10/29/2004	+11.2%
3/31/2005	7/29/2005	+10.2%
4/30/2008	7/31/2008	+9.4%
9/30/2008	6/30/2009	+3.8%
5/31/2012	9/28/2012	+20.0%
2/28/2013	2/28/2014	+28.6%
8/31/2015	4/29/2016	+22.2%
12/30/2016	2/28/2017	+13.2%
	Average %	+14.7%
	Median %	+14.4%
	Std. Deviation %	6.4%
	Max % +(-)	+28.6%
	Min % +(-)	+3.8%

Figure 3 – Trade-by-Trade Results

For the record, the “System” has been in FBIOX and FSAGX only 28% of the time (88 months) and out of the market 72% of the time (223 months).

Figure 4 displays the trades in recent years.

Figure 4 – BioGold System trades; 2012-2017 (Courtesy AIQ TradingExpert)

*The Good News is that all 17 signals since 1992 showed a profit, with an average gain if +14.7%.

*The Bad News is that, a) 17 trades in 25 years is a pretty small number of trades and, b) there are some not insignificant drawdowns along the way (-22.8% in 1998 and -22.4% in 2008, -14.1% in 2013 and -13.6% in 2016).

Still, for what it is worth the monthly equity curve appears in Figure 5.

Figure 5 – Growth of $1,000 invested using the “BioGold System”; 12/31/1991-12/29/2017

For the record, the “System” has been in FBIOX and FSAGX only 28% of the time (88 months) and out of the market 72% of the time (223 months).

For the record, the “System” has been in FBIOX and FSAGX only 28% of the time (88 months) and out of the market 72% of the time (223 months).  No interest is assumed to be earned while out of the market in the test above.

If we invest in short-term treasuries (1-3 yr.) while not in the stock market we get the results shown in Figure 6.

In Figure 6:

*The blue line represents the growth of $1,000 achieved by holding FBIOX and FSAGX when the BioGold System is on a “buy signal” and 1-3 yr. treasuries the rest of the time.

*The red line represents the growth of $1,000 achieved by buying and holding both FBIOX and FSAGX and then rebalancing at the end of each year.

The “System” grew to $19,863 and the “split” grew to $12,844.

Figure 6 – Growth of $1,000 using BioGold System plus 1-3 yr. treasuries when out of stocks (blue) versus buying and holding FBIOX and FSAGX and rebalancing each year (red);12/31/1991-12/29/2017

Summary

So is the “BioGold System” really a viable investment idea?  That’s not for me to say.  The per trade returns are pretty good but there aren’t a whole lot of trades and if history is a guide an investor would likely have to ride some significant drawdowns in order to reap the gains.

Still, market-beating performance is market-beating performance, so who knows?

Jay Kaeppel Chief Market Analyst at JayOnTheMarkets.com and AIQ TradingExpert Pro client.

Disclaimer:  The data presented herein were obtained from various third-party sources.  While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.

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