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LOOK REPORT #31: DATA STOCK TABLE Background: Quick Look Reports performs the forensics of the dominant trend in an Index, Equity or Commodity. This report looks at the preliminary results of an experimental buy/sell indicator (i.e., not the standard RSI/MACD) which was developed by a close associate of mine over five years ago. He has tested hundreds of trading systems in the past 20+ years and this has been the most practical and works on trending datasets. It has been successfully back-tested/traded in the past five years using the Russell 2000 as a US proxy. I am currently conducting research on the trading tool and applying it to the closing daily prices of a number of datasets (which will be expanded in the future) using daily updated datasets from Mr. Nick Laird (see www.goldmarketdata.com. This approach has nothing to do with market cycles. It is a simple (but elegant) mechanical trading tool to use as an additional guide (possibly with cycles, RSI, MACD, etc.) to stop large losses and find solid turning points. In Table I, we present a summary of our initial findings for stocks and some foreign indices (results can change daily). It is not yet proposed as a trading tool, but let’s see what the future research may hold as some of its parameters are optimized to each particular dataset (ongoing process). This is a companion study to Quick Look Report #30. Table 1 presents the initial results of the mechanical trading system as it applies to some stocks and it has a very simple buy/sell conditional (keep it simple). It does not predict absolute tops and bottoms but the idea is to catch 80% of the major trend while avoiding the major corrections. An item (such as Nat Gas) with both a Buy and a Neutral Rating means in this case it is probably coming off a seasonal bottom (but not yet a solid daily Buy indicator from the mechanical trading system). These results cannot and should never be applied to “day trading” which would require 5 to 15 min real-time data. Table 1 is simply a guideline right now to use with your current RSI, MACD-type tools (do I hear 20,50 or200-day moving averages?) or other TradeStation software. My mechanical trading system does use tailored mathematical filters to the closing prices (or minute or hourly data). Bottom Line: Long term cycles may govern the overall long term behavior of stocks but it is possible (at least in major trending markets) to let the market tell you where it is going by adopting some type of mechanical trading system with a set of “conditionals or rules” which will determine entry/exit points (and many interesting ones are noted in FSU Archives by various authors). The results of such our mechanical trading system will be added to our arsenal (cycles, mechanical trading, neural nets, as well as rumors and innuendos). The current mechanical system has been extensively back-tested on certain indices and the current study is looking at primarily DOW component stocks with an extensive past history. TABLE 1. STOCKS FOR OCTOBER 16, 2006
The current DJIA is the “devil dog” for analysts to predict or study. The major reason is the DJIA trendline is a strong function of M3 and there is no longer any “officially published” data on M3 and it can drive the DJIA positive or negative (overriding or masking big cycles temporarily – up to 35+ weeks). However, I did show in an earlier study with Neural Nets that one can generate a “major NYSE/DJIA rally mode” if M3 is pumped to about 10%+. It was noted in a recent FinancialSense broadcast that M3 may be currently at a level of 10% and the DJIA is behaving as if M3 is 10%+. In the case where M3 is pumped and drives a strong trendline in the DJIA,NYSE and S&P (as well as foreign indices), a good mechanical (trend following) trading scheme can have a “field day” in keeping the portfolio increasing and avoiding the big hit and leaving with 80%+ of your recent profits intact. One of the questions we would like an answer to is - how long does this current fun last? Can we squeeze the last fun and get out ahead of hedge funds selling-off? Chart 1 presents the current best fit to the DJIA waveform as regards cycles (with conservative M3 trendline of 5%). The predicted rise in the DJIA for 2007 is 12,800+ by April 2007 with a major (double top) followed by a major drop forming a “W-shaped” bottom and another rally in mid to late 2007 leading into the 2008 Olympics with the DJIA heading over 13,000+ if the current M3 trend continues (big if?). We can use this Chart to anticipate or check for coming major tops in DJIA with a mechanical trading system (or use 20-day, 50-day and 200-day moving averages or whatever). The DJIA is predicted to have a drop after the elections into mid or late November 2006 and rally back into January 2007 (first major top). It looks like a double top will be forming in the DJIA by Spring of 2007 and this is ominous if it occurs as the DJIA Party will be on hold for a while. The real problems for the DJIA come in 2008 when the Secular Bear may reappear for real (if we can mitigate the housing recession that long).
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INFORMATION DISCLAIMER: The author is not a registered stockbroker nor a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity, index or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. Of course, the author recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and barring that, we encourage you confirm the facts on your own before making important investment commitments. |
