Tuesday, November 30, 2004

Taylor Turkey System Follow-up

Wanted to post a follow-up to the Taylor Turkey system post. This system goes long at the market open the day before Thanksgiving and sells at the market open the Monday after.

This Thanksgiving was another winning year for the system. The Nasdaq Composite had a gain of 0.91%, the DJ-30 had a gain of 0.26%, and the S&P 500 produced a 0.49% gain. Didn't reach the average profit marks from the backtests...but a gain is a gain. Gotta take what the market gives ya.

If ya'll have any ideas you'd like me to test out...send me an email at mike@taylortree.com.

Enjoy your week.

Taylor Turkey System Follow-up

Wanted to post a follow-up to the Taylor Turkey system post. This system goes long at the market open the day before Thanksgiving and sells at the market open the Monday after.

This Thanksgiving was another winning year for the system. The Nasdaq Composite had a gain of 0.91%, the DJ-30 had a gain of 0.26%, and the S&P 500 produced a 0.49% gain. Didn't reach the average profit marks from the backtests...but a gain is a gain. Gotta take what the market gives ya.

If ya'll have any ideas you'd like me to test out...send me an email at mike@taylortree.com.

Enjoy your week.

Sunday, November 28, 2004

Weekend Update

J.P Morgan, when asked what the stock market will do, replied, It will fluctuate.
Roger Nusbaum of Random Roger's Big Picture asked for thoughts on what's next for US Capital Markets. I get a sense from Roger that he's like me...in that he's in the market, not going to miss the rally, but somewhat skeptical on the future move upward.

So, what is next for the markets? First, let's see how far this election rally has come.

Here's the breakdown of past election rallies if you would have invested at the close of the last day in October and sold at the close on the last day of December of the same year within an election year.

S&P 500
Time Period: 1964 - 2000
Total Elections: 10
Total Win%: 70.00%
Total Losing%: 30.00%
Average Profit: 3.85%
Average Loss: -2.74%
Largest Gain: 6.50%
Largest Loss: -7.63%

Time Period: 1916 - 2000
Total Elections: 22
Total Win%: 68.18%
Total Loss%: 31.82%
Average Profit: 5.63%
Average Loss: -5.44%
Largest Gain: 18.95%
Largest Loss: -15.29%

How does that compare with the current 2004 election rally?

The S&P 500 has moved 4.64% from its October close and the DJ-30 has moved 4.93% accordingly.

The S&P 500 has moved slightly ahead of its average profit of 3.85%. Nudging ever closer to its all-time high of 6.50% set back in the 1980 presidential election.

The DJ-30's current profit of 4.93% is still under its average profit of 5.63% and well off its all-time high of 18.95% occuring back in 1928.

What does all this mean? In my opinion, there is still head room for the market. Averages are just averages and the market can go anywhere it likes during the course of an individual data point. But, there's no denying the easy gains are behind us.

The key during these times are having proven exit strategies to protect your hard-earned gains. Letting the market take you out of your positions...not getting silly like me in trying to second-guess the market.

I hope to showcase some of my time-proven exit strategies in the days ahead.

Until then...

Daily System Updates
No open trades at this time.

Weekly System Updates
Long system trigger for AATK at Monday's market open. The system that generated this trade was same system that generated the SPDE trade for the previous week. So, as you know, system caters to penny-type stocks with high volatility. Holding periods are mid-term in length. This system is one of my riskiest systems. I trade very little size with trades from this system because losses can be extreme.

Current open system positions:
  • 1 QQQ long with current profit of 3.53%;
  • SPDE long with current loss of -7.69%.
Please read the disclaimer on the website. This is not a recommendation to buy, sell, or trade securities. Just a journal of my travels through Wall Street. I can buy, sell, or hold any positions mentioned on this website at anytime. So, be warned.

Wednesday, November 24, 2004

Happy Thanksgiving!

So far, the market is heading towards the bullish scenario from my prior post. Currently, the Nasdaq is up 0.51% from today's open, DJ-30 is up 0.25%, and the S&P 500 is up 0.31%. Will be interesting to see how close this market can get to its historical average profit %.

Have a Happy and Safe Thanksgiving!

Tuesday, November 23, 2004

Turkey Day Effect

Performed a fun system test on the major indicies today. Tested for the Thanksgiving Holiday effect on the stock market. If you buy on the Wednesday before Thanksgiving at the market's open and sell at the market's open on the Monday of the following week...you get some impressive results:

Nasdaq Composite
Time Period: 1990 - 2003
Total Trades: 14
Total Win%: 92.86%
Total Loss%: -7.14%
Average Profit: 1.72%
Largest Profit: 5.37%
Only one loss and it was less than half a percent. Not bad.

S&P 500
Time Period: 1962 - 2003
Total Trades: 42
Total Win%: 83.33%
Total Loss%: 16.67%
Average Profit: 0.93%
Average Loss: -0.62%
Largest Profit: 2.64%
Largest Loss: -2.46%

Time Period: 1951 - 2003
Total Trades: 51
Total Win%: 58.49%
Total Loss%: 41.51%
Average Profit: 1.11%
Average Loss: -0.92%
Largest Profit: 3.89%
Largest Loss: -5.23%

Take special note of the length of time frame tested here. The Nasdaq Composite enjoys the best record but with the shortest time frame tested. The Dow Jones is the worst performer but with the longest time frame tested.

I'm afraid the longer we extend the test period...the worse the results will become. But, continuing on this fun factor...let's see what happens if we use the same time period for all 3 indicies in the test:

Nasdaq Composite
Time Period: 1990 - 2003 (same period as previous test)
Total Trades: 14
Total Win%: 92.86%
Total Loss%: -7.14%
Average Profit: 1.72%
Largest Profit: 5.37%
Only one loss and it was less than half a percent. Not bad.

S&P 500
Time Period: 1990 - 2003
Total Trades: 14
Total Win%: 71.43%
Total Loss%: 28.57%
Average Profit: 0.79%
Average Loss: -0.30%
Largest Profit: 2.64%
Largest Loss: -0.72%

Time Period: 1990 - 2003
Total Trades: 12
Total Win%: 64.29%
Total Loss%: 35.71%
Average Profit: 0.83%
Average Loss: -0.23%
Largest Profit: 2.58%
Largest Loss: -0.79%

As expected, the DJ-30 results improved as the tested time period was shortened by almost 40 years. A little odd is the S&P 500 results performing worse under the shorter time period. This throws a minor wrench in my theory of results improving with shorter time periods. Especially since this shortened time period was the roaring bull market 90's.

There might be something to the Taylor Turkey system. A little tweak here, a trend filter there...might improve the results even more. Then again, that could leave you with even less data points in your test. A system with few tested data points has a tendency to forward test rather poorly. Maybe this test should remain as it started...just a fun project.

Please note, the above system results were judged merely by the Total Win% variable. I'm fully aware there are many more important factors to consider when evaluating a system. But, in order to keep the post short, simple, and fun...decided to go with a ratio most investors understand.

Sunday, November 21, 2004

Weekend Update

Finally got back the use of my left arm...so I'll begin testing some new system ideas this week. In addition, fine-tune the new system I created a week or so ago. I'll keep you updated on the progress.

Have a great week!

Daily System Updates

Currently no open system positions

Weekly System Updates
Long system trigger for SPDE at Monday's market open. System that generated this trade caters to penny-type stocks with high volatility. Holding periods are short to mid-term in length. This system is one of my riskiest systems. I trade very little size with trades from this system because losses can be extreme.

Current open system positions:
  • 1 QQQ long with current profit of 1.92%;
Please read the disclaimer on the website. This is not a recommendation to buy, sell, or trade securities. Just a journal of my travels through Wall Street. I can buy, sell, or hold any positions mentioned on this website at anytime. So, be warned.

Thursday, November 18, 2004

surgery & CVT update

sorry, but tough typing with just one hand. all went well with surgery...but recovery time is taking longer than expected. have to sit in a chair that moves my arm up & down 4 hours a day for up to 2 weeks. ugh! boredom is beginning to set in. i guess i'll get started on memorial day book by vince flynn...the last of the great mitch rapp series.

Daily System Updates

Closing positions at friday's market open (11/19/2004):
  • CVT long with current profit of 4.13%.

Please read the disclaimer on the website. This is not a recommendation to buy, sell, or trade securities. Just a journal of my travels through Wall Street. I can buy, sell, or hold any positions mentioned on this website at anytime. So, be warned.

Tuesday, November 16, 2004

Trading System Ditties

  • Market orders only. I do not use limit or stop orders in my trading systems. In fact, to avoid slippage issues, I only enter orders for the market's opening print. This allows my backtest results to better fit real world conditions. Or is it, real world results better fit backtest conditions? Ha!

  • There is a stock picture and an overall market picture. Making sure the market and stock picture match your idea can improve the performance of your system. But, keep it simple. Try to use just one filter to determine the strength or trend of the overall market. Then drill down to your stock ideas. This approach is even useful in trading ETF's.

  • All of my long-term and most of my mid-term systems contain a trailing ATR exit system. I usually avoid a predefined profit exit system. I find it best to let the stock or ETF run where it may and let the trailing ATR do its work. This might not be the most efficient way to capture profit from a trend...but works for me.

  • I will also add a timed exit system to some systems. This helps avoid and/or limit the dreaded "dead money" trades.

  • It is okay to break the market into exchanges for your systems. I find that extremely useful in my stock trading systems. The New York Stock Exchange trades differently than the Nasdaq. Surprisingly, the American Stock Exchange is closer to the Nasdaq's behavior than the NYSE.. Maybe one day someone will tell me why.

  • The Nasdaq is my preferred choice in trading systems. The Nasdaq stocks as a whole tend to trend much better and tighter than the other exchanges.

  • I do not have access to foreign stock exchange data. It would be interesting to see how those stocks behave in accordance with my system rules and logic.
A quick little ditty on my background. I have been developing and trading systems for 4 years now. Before that? I was a chart reading swing trader. Before that? A tape reading daytrader. Before that? Someone who believed you bought stocks and kept them forever. My how times have changed.

Good Night.

Daily System Updates
Current open system positions:
  • CVT long with current profit of 0.98%.

Please read the disclaimer on the website. This is not a recommendation to buy, sell, or trade securities. Just a journal of my travels through Wall Street. I can buy, sell, or hold any positions mentioned on this website at anytime. So, be warned.

Monday, November 15, 2004

Surgery & Fund Performance

I'm receiving shoulder surgery to repair a torn ligament this Wednesday. I'm told the surgery should be minor...but partial recovery might take a few days. This could impact the number of posts to the site. Please forgive me if I do indeed miss a day or two. I'll do my best to stay on top of things. On a brighter note...

Below you'll find the recent 6 month performance of my virtual Marketocracy fund.

This will be the first quarter the fund qualifies for ranking by Marketocracy. The fund will be eligible for overall ranking and possibly the financial sector ranking as well. I'll continue to update the site with my progress.

By the way, I mentioned last week that I was going to work on a few system ideas over the weekend. That is true. I started out testing MuckDog's suggestion of the Chaikin Money Flow Indicator. I've never had much success with the Accumulation Distribution type indicators. I'm sure there is something there...just never could find it. But, in the process of trying out different ideas...I began to whittle together a new system. A very exciting system.

The system as it stands right now is one of my best works and yet one of the simplest. It is a weekly system that may hold positions for years. The system may go long or short depending on the entry rules and isn't always active in the market. The system is not quite ready for production. Additional work is required on entry rules, position sizing, and markets to trade. Hopefully, I can work on this system a bit while recovering from surgery.

Daily System Updates
Current open system positions:
  • CVT long with current profit of 1.18%.

Please read the disclaimer on the website. This is not a recommendation to buy, sell, or trade securities. Just a journal of my travels through Wall Street. I can buy, sell, or hold any positions mentioned on this website at anytime. So, be warned.

Sunday, November 14, 2004

Weekend Update

Taking our daughter to get her first haircut was a memorable experience. Funny how life's little pleasures mean the most. We also took her to see The Incredibles. Great movie. Unbelievable graphics. Just phenomenal. Three-quarters into the movie...the entire audience is silent...just totally absorbed into the movie. Don't you just love those movies where you get so into it...you forget you're at the movies? So, go see The Incredibles...two thumbs up!

Here's some interesting reads from this weekend:
  • Is this the beginning of a new secular bull market? Clem Chambers of ADVFN thinks so and makes a compelling argument. His main reason? "We are experiencing huge global progress. I am using pro-gress in the Victorian sense, progress being the improvement of humanitys lot. This progress will make the world a rich place. Even in sluggish, Europe, the effects of an exploding world economy will inundate us with wealth." Read on...

  • Roberto Perdone from the NasdaqTrader blog found a great article on Buffett-inspired investor, Eddie Lampert. This is the guy behind the recent KMART turnaround. Sounds like a pretty sharp cookie having worked with Robert Rubin (Clinton's Treasury Secretary), Professor James Tobin (Nobel prize winner in economics), and astute fund manager, Richard E. Rainwater. Read on...

  • Interesting article on Robots and NASA. Read on...

  • U.S. is 1st, India is 2nd, Russia is 3rd. What country contains the 4th largest number of computer programmers in the world? Ukraine. Read on...

  • It's about time. Why is it so easy for American companies to outsource their IT to India, China, or Russia when they could outsource to rural America for practicaly the same costs? I really like Kathy White's approach in working with universities. It's amazing how many outstanding programmers are being produced from America's rural universities. Yet, very few companies are paying attention. Read on...

  • Donald Luskin's take on the falling U.S. Dollar. Claims Warren Buffett doesn't know what he's doing. Greenspan doesn't either. And of course, he knows all. When I read articles like this I always ask...what was the point of writing it? Trying to prove something Donald? Read on...
Daily System Updates
Current open system positions:
  • CVT long with current profit of 0.79%.
Weekly System Updates
Current open system positions:
  • 1 QQQ long with current profit of 1.87%;
As I've mentioned in previous posts...I do have other weekly system positions that I purchased back last week. But, I've decided not to share them. Most of those positions were triggered several months ago. I've decided to only share the positions triggered since I've started this blog.

Have a great week!

Please read the disclaimer on the website. This is not a recommendation to buy, sell, or trade securities. Just a journal of my travels through Wall Street. I can buy, sell, or hold any positions mentioned on this website at anytime. So, be warned.

Friday, November 12, 2004

John Henry & Philip Gotthelf Interviews

Great quotes from John Henry in an SFO Magazine interview:
  • If you can put aside what should be, what could be, what ought to be, what would have, could have, should have occurred and just pay attention to what is actually happening, the act of paying attention transforms what is. The greatest action, the wisest, the best action that you can take in almost any situation is to stay with what is, instead of jumping to conclusions or trying to come up with conclusions. Just pay attention.

  • I’ve made a lot of money in the last two decades by not predicting anything. You know, once you admit that you can’t predict anything, people don’t want to listen to you.

  • A human being never gets a whole picture. The way that we perceive things is in contrast to other things. If you have a white wall and you put a white dot against it, you can’t see it. So, we don’t see things in their totality. We see things only in terms of contrast.

  • Markets are basically people’s expectations, and I always call trends manifestations of those expectations.
Read the full interview here. Note, you may need to register in order to read the article.

Another great interview of Philip Gotthelf from SFO Magazine as well. Talks about the COMMODEX System and its evolution. Read here and here. Great stories on his prediction and explanation of the March 2000 blow-off top, investing demographics, development of COMMODEX, thoughts about deflation, his market beating with COMMODEX calling the top, and most of all his father's market lesson.

Thursday, November 11, 2004

System Updates

This weekend I plan to experiment with a few new system ideas. After reviewing a few charts I have noticed cases where the volume expands greatly and the price does not reflect the change until several bars later. I've toyed with this idea before but never had much luck.

I'd like to try testing to see if the volume does expand, the price does nothing one way or the other for that bar, then on the next few bars prices expand rapidly with relatively no increased expansion in volume. This would tell me that shares are in short supply, so to speak. And any buying creates a run-up in price.

Daily System Updates

Close at Friday's open:
  • 1 QQQ long system with current profit of 4.39%.
Current open system positions:
  • CVT long with current loss of -0.20%;
On a closing note...
We're taking my daughter out this weekend for her very first haircut. Then off to see The Incredibles. Should be fun.

A cold front swept through tonight...so should be a nice cool weekend in Texas. Hope the weather is good where you are.

Have a great weekend!

Random Musings

A little bit of fun for the day.
  • If all Chinese jumped at once, would cataclysm result? Answer.

  • Are turkeys so stupid they will look up in the sky when it rains and drown? Answer.

  • Can a Munchkin be seen committing suicide in The Wizard of Oz? Answer.

  • Will initials carved on the side of a tree always remain at the same height? Answer.

  • Is the "ninja death touch" real? Answer.

  • How far will ants wander in search of food? Answer.

Please take a minute to thank your Veterans today. I'd like to thank my Dad for serving in the Navy during World War II. Not only did he serve his country but he met the most wonderful woman in the world while out on dance patrol, my Mom. Thanks Dad.

Daily System Updates
Closed at today's open:
  • 1 QQQ long system with current profit of 3.03%.
Current open system positions:
  • 1 QQQ long systems with current profit of 3.03%;
  • CVT long with current loss of -0.98%;

Wednesday, November 10, 2004

Trading Rules Link

Great set of trading rules by Richard Rhodes of The Rhodes Report.

My favorites are the following:
#7 - Be patient. The old adage that "you never go broke taking a profit" is maybe the most worthless piece of advice ever given. Taking small profits is the surest way to ultimate loss I can think of, for small profits are never allowed to develop into enormous profits. The real money in trading is made from the one, two or three large trades that develop each year. You must develop the ability to patiently stay with winning trades to allow them to develop into that sort of trade.

#11 - Do more of what is working for you, and less of what's not. Each day, look at the various positions you are holding, and try to add to the trade that has the most profit while subtracting from that trade that is either unprofitable or is showing the smallest profit. This is the basis of the old adage, "let your profits run."

#17 - Markets form their tops in violence; markets form their lows in quiet conditions. The final 10% of the time of a bull run will usually encompass 50% or more of the price movement. Thus, the first 50% of the price movement will take 90% of the time and will require the most backing and filling and will be far more difficult to trade than the last 50%.

Read on...

Tuesday, November 09, 2004

Turtle Soup

Typically, my system ideas come from observing the market. Other times, they come from fading conventional logic. For example, while reading the book Trend Following by Michael Covel...I ran across the classic Donchian 5-20 moving average crossover system. For those not familiar with this system it's fairly simple:
  • If the 5 day moving average crosses above the 20 day moving average...go long;
  • If the 5 day moving average crosses below the 20 day moving average...close your long and go short.
Richard Donchian actually had a few more rules for this system...but you get the idea. His point was to get in on the big trends and capture the meat of the move. Of course, the downside to this system was a choppy, trendless market would kill you. And most likely cause you to give up on the system just before another big move occurred. Ha ha!

The key to this type of system is position sizing and diversifying your trade vehicles enough that when one is choppy another one might be trending.

So, back to trading system ideas. I periodically test these classic well known systems against the American markets just to see if things have changed. And in the process of testing this 5-20 moving average system last weekend...I decided to reverse the rules. Instead of buying when the 5 day moving average crossed above the 20...I went long when the 5 day crossed below the 20. The results were quite amazing.

This reminds me of Linda Raschke's Turtle Soup system. Richard Dennis trained several traders on Donchian's classic four-week breakout system. These group of traders were called Turtles by Dennis. These Turtles would go long the security the next day following a new four-week high. Linda figured out that all the buying from these Turtles would create a quick initial run-up in the price of the security. After the initial wave of buying...prices would quickly drop back down. And Linda would fade the move...short the Turtles...hence the name Turtle Soup.

Daily System Updates

Current open system positions:
  • 2 QQQ long systems with current profit of 3.38%;
  • CVT long with current loss of -1.18%;
Tomorrow's the big day, Fed meeting. Now, if I could only get off my butt and create a system to trade the Fed.

Until then...

Mid-Day Readings...

  • Last week's Petroleum Summary. Pay attention to the recent increase of diesel versus gasoline prices. Typically, gasoline is cheaper at the pump than diesel. Currently, this isn't the case. Down here in Texas...diesel is running over the $2.00/gallon mark while gasoline hovers around $1.85/gallon.

  • The trend towards clean energy and IT's ever increasing role. Read on...

  • da Vinci a Robotician? Amazing how little we've come in 500 years. Read on...

  • Really interesting blog from Warren Meyer. The CoyoteBlog. Dig the name. Don't miss his post on the 2008 election here.

  • Great insight into foreign ETF's by Roger Nusbaum from Random Roger's Big Picture blog. I have watched the TRF fund from the sidelines for a year or so. But, the CEE fund looks a bit more interesting with its greater emphasis on banking & energy. I also like his write-up on Turkey. Read on...
Take care out there. I have a performed various backtests of the concept of extreme range expansions immediately followed by extreme range contractions. In fact, I have a few systems geared towards this effect. Typical results are a sudden expansion out of the contraction in direction of the previous range expansion. Say that 3 times really fast. Ha ha.

Monday, November 08, 2004

Fade the Taylor

"I think the most important thing to do is to develop a system that you have confidence in. You will get nowhere if you are second-guessing what you are doing. When the market is open, you need to know what you are doing, and why you are doing it, without thinking too much about it. If you start thinking too much about what you are doing or second-guessing yourself, you will quickly get taken out of the game." -- Phil Rosten
Officially out of my short position in QQQ today. You know what that means? Start shorting. :)

I was able to leverage back into my weekly long systems today as well (in addition to the recent QQQ long system trade). I only have a couple of securities that I wasn't able to get into...just because they have moved too far. Hopefully, I can catch them in the next few days or weeks.

To witness some of the pain I endured while missing the election move...look no further than the following Marketocracy 6 month performance chart below. In particular focus on 11/01/04 and beyond. That's when I sold my systems and shorted the QQQ.

The above chart reflects the Marketocracy virtual fund I maintain of my system trades. I've always had compliance issues with the fund...mostly because I maintained too large a cash position. But, recently I've cleaned it up and achieved compliance. This virtual fund is much more conservative than my personal portfolio...mostly due to the many rules & regs involved in running a fund. And much harder to trade systems that are short in duration. So, most of my trades in this fund involve my long-term weekly systems. If you can remember to maintain the fund...it is a nice way to track your performance. Might be worth a look...registration is free.

Daily System Updates
  • Closing 1 QQQ system with current profit of 2.95%;
Current open system positions:
  • 2 QQQ long systems with current profit of 3.60%;
  • CVT long with current loss of -1.57%;
Pay attention to the fed meeting on Wednesday. I'm curious if the Fed will throw any words the falling US dollar's way.

Great little write-up on the investing public's pricing mechanism for stocks. I've always assumed that market participant's price stocks according to future good or bad events. But, after my recent debacle with hunch trading...maybe I had it all wrong. This article explains market participants might just pick stocks by extrapolating the present to the future. And disregard any notion that the future may be different from the present. Interesting. Why didn't you write this a week ago? :)

Good post regarding the habits of Ineffective Traders by Ken Wolff. I particularly like his write up on item #7, "A defeatest attitude". An old saying is the most you will get out of life is what you ask for. If you put your house up for sale for $140,000...nobody is going to drive buy and offer you $200,000. Unless you live in California. But, the point is, you control how high you reach. Don't limit yourself.

Please read the disclaimer on the website. This is not a recommendation to buy, sell, or trade securities. Just a journal of my travels through Wall Street. I can buy, sell, or hold any positions mentioned on this website at anytime. So, be warned.

Once was Lost...Now I'm Found

I really tried. I tried to be the gun-slinging trader like Trader Vic, Livermore, and Jim Rogers. Someone who can cull through various sources of information and gather a trading conviction. Throw money at that conviction and hold strong until market reality meets market perception.

I'm just not that type of trader. I'm a system trader...thru and thru. These past few weeks have been horrible for me. I sold off my system positions which have all since gone on to fresh new highs. And shorted the QQQ which has held fairly steady around my entry prices. So, while I've lost very little money with my short position...I've lost much by being out of my system positions.

This was my last and final attempt at this type of trading. From now on, regardless of what happens with my QQQ short, I'm going back to system trading and development. In fact, this weekend alone I came up with 3 new ETF systems. What really stings, I came up with a system that is triggering a long position at Monday's open for the QQQ. This system has a 93% win ratio and an average profit of 5%. Ouch for my short position, huh?

Here's my plan. I'm going to watch the market before open tomorrow to try and get a feel of this week's direction. What really interests me is the US Dollar. Right now, it seems to be in a bit of a free fall. A continued free fall in the Dollar will garnish more and more attention from Wall Street. I have a feeling the US Dollar will become the single most talked about investment topic of 2005. This could indeed put a drag on the market and cause the Fed to raise rates much higher than anticipated. This will also keep the current rotation from small caps to large caps in the American market going strong. Large Caps can typically wither the storm better than small caps from the effects of the falling dollar. Most large caps are multi-nationals and thus a loss in American dollars are offset by gains in international dollars.

I'll hold my short position as long as the level of $38.00 is not broken. And take profits where they occur. I'll also look to initiate the new system trigger for the QQQ to go long sometime this week. Could be tomorrow if the $38.00 level is broken...otherwise I'll wait until a time I deem appropriate. My main point is to liquidate my hunch trade and gradually leverage back into my open system positions.

System Updates
Received system triggers this week. These stocks were triggered as longs for Monday's opening: AVTR & ERIE. Both of these stocks were triggered by the TightUptrend Weekly system. This system looks to enter stocks whose range is very narrow and uptrend is well defined. These systems trade off weekly data and typically hold positions 6 months to several years.

Received a few triggers for closing existing positions:
  • Closing SMSI with current profit of 13.64%;
  • Closing PFSW with current profit of 10.53%;
  • Closing MCD with current profit of 4.92%.
Current open system positions:
  • 2 QQQ systems with current profit of 3.49%;
  • 1 QQQ system with current profit of 2.84%;
  • CVT with current loss of -2.36%.
I have several positions from other systems that are still open and will build a table of that data to publish in the days ahead.

Until then...

Please read the disclaimer on the website. This is not a recommendation to buy, sell, or trade securities. Just a journal of my travels through Wall Street. I can buy, sell, or hold any positions mentioned on this website at anytime. So, be warned.

Thursday, November 04, 2004

Taking out Stops

I'm taking off from work Friday so expect my posts to be very limited. I'll probably check in at the market open and check the job's report and the market's reaction to the report. From there I plan on shutting er' down and enjoying some of this great weather.

Quick update on the trading systems:
  • Trigger to sell one QQQ system at Friday's market open (current profit 2.56%).
  • 2 QQQ systems will continue to be open with current profit of 2.56%.
  • 1 QQQ system continues to be open with current profit of 1.92%.
  • MCD system continues to be open with current profit of 3.42%.
  • CVT system continues to be open with current loss of -2.16%.
Of course, if you've been reading my blog...you'll know I'm out of these systems.

Check out the QQQ chart below.

It looks like many traders are betting on a great jobs report tomorrow morning. I believe even if we don't get a good report...the market could still rally. So, be careful out there. And remember, next week is a new beginning.

Until then...

I Fought the Law

"Investing is all about risk/reward. Presently Wall Street is selling you risk. So if you are buying their lemonade, just remember the stuff comes from lemons." -- Bill Cara from TraderWizard.com

I fought the law and the law won! So far, that's what it looks like. I tried to go against the tide and the tide was just too strong. I haven't stopped out on my short, yet. But, man, is it ever close. Of course, I never issue a hard stop and never close a position intraday. Through exhaustive backtesting, I have found it is always best to enter your I'm a loser and must get out of my position trade the following morning at the open. Until then...I have to fight this tide with all my might.

Bill Cara from TraderWizard has come up with an interesting idea. What if we track the market pundits on TV? Track their prognostications? That way, anytime you begin to hear these blowhards speak...you'll know whether they have the perfomance to back their mouthpiece. Read on...

Wednesday, November 03, 2004

What A Day!

"Don't try to buy at the bottom and sell at the top. It can't be done except by liars." -- Bernard Baruch
Wow! What a day. We got the presidential pop in the market. Now, we wait and see what happens next. If this is indeed the mid-term top...man, are we fixing to see a fight. The bulls are plenty and out in force. I haven't seen this level of speculation in a very long time. So, if a top is in...expect the next few days for the market to do everything in its power to reach and then break this morning's high.

As you can see, the market popped this morning and then spent the rest of the day selling off. I got my opportunity to short some more at the opening. Was it a tough short? Yes. Even tougher to read article after article discussing the bullishness of the market and this economy. My next moves are the following:

  1. If the market can exceed today's high over the next few days then I'll be forced to close my short positions and rethink my strategies. In fact, I'll probably stick to what I do best...system trading.

  2. If the market cannot exceed today's high and begins breaking down...I'll probably place my final short on the market. Or I might perform some searches for individual stocks to short.

Here's a quick update on how my daily systems are doing (of course I'm out of these):
  • 1 QQQ system sold at the open this morning for a 2.94% profit.
  • 3 QQQ systems are still open with a current profit of 1.99%.
  • 1 QQQ system is still open and up 1.35%.
  • The MCD stock system is still open and up 2.30%.
  • The CVT stock system is still open and down -2.36%.
So, in hindsight...it looks like staying with my systems would have been the smarter choice. I'll continue to monitor the systems and update the site with the results.

The next few days are going to prove very interesting.

Later trades.

Movie Madness

Yes, I'm still short the market. Yes, I shorted more at the opening. Yes, my gut is wrenching.

To keep my mind off the market today, I checked out some upcoming movies that look promising. Release Dates and summaries provided by Yahoo!.

White Noise - Release Date: 01/07/2005
Michael Keaton plays successful architect Jonathan Rivers, whose peaceful existence is shattered by the unexplained disappearance and death of his wife, Anna (Chandra West). Jonathan is eventually contacted by a man (Ian McNeice), who claims to be receiving messages from Anna through EVP (Electronic Voice Phenomenon), the process through which the dead communicate with the living through household recording devices. At first skeptical, Jonathan then becomes convinced of the messages' validity, and is soon obsessed with trying to contact her on his own. His further explorations into EVP and the accompanying supernatural messages unwittingly open a door to another world, allowing something uninvited into his life.

In Good Company - Release Date: 12/29/2004
Dan Foreman (Dennis Quaid) is headed for a shakeup. He is demoted from head of ad sales for a major magazine when the company he works for is acquired in a corporate takeover. His new boss, Carter Duryea (played by Topher Grace) is half his age--a business school prodigy who preaches corporate synergy. While Dan develops clients through handshake deals and relationships, Carter cross-promotes the magazine with the cell phone division and "Krispity Krunch," an indeterminate snack food under the same corporate umbrella. Both men are going through turmoil at home. Dan has two daughters--Alex, age 18, and Jana, age 16--and is shocked when his wife tells him she's pregnant with a new child. Between college tuition, the mortgage and a new baby, Dan can't afford to lose his job in the wave of corporate layoffs. Carter, in the meanwhile, is dumped by his wife of seven months just as he gets his promotion. Dan and Carter's uneasy friendship is thrown into jeopardy when Carter falls for, and begins an affair with, Dan's daughter Alex (Scarlett Johansson).

The Assasination of Richard Nixon - Release Date: 12/29/2004
Based on real life events, "Assassination" is set in 1974 and centers on a businessman (Penn) who decides to take extreme measures to achieve his American dream.

Blade: Trinity - Release Date: 12/08/2004
For years, Blade has fought against the vampires in the cover of night, with the world above unaware of the brutal ongoing war. But now, after falling into the crosshairs of the FBI, he is forced out into the daylight where he is driven to join forces with a clan of human vampire hunters he never knew existed - The Nightstalkers. Together with Abigail (Jessica Biel) and Hannibal (Ryan Reynolds), two deftly trained Nightstalkers, Blade follows a trail of blood to an ancient creature that is hunting him...the original vampire, Dracula.

Ocean's Twelve - Release Date: 12/10/2004
Danny Ocean (Clooney), reignited flame Tess (Roberts) and the rest of a band of thieves and con men (some returning and some new), team up for another three huge heists, but this time they're in three different locations - Rome, Paris and Amsterdam. In Amsterdam, the prize is Rembrandt's "De Nachtwacht" painting, which resides at the Rijksmuseum. Meanwhile, casino owner Terry Benedict (Garcia), whom Ocean and crew ripped off in Las Vegas, is hot on their tail, looking for revenge.

I'm especially pumped by the upcoming release of Ocean's Twelve. The first one, Ocean's Eleven, is one of my favorite movies. Hopefully, Twelve does not disappoint. If you like Ocean's Eleven...you should try renting The Italian Job. The Italian Job has the same type of assembling of crew and heist plot as Eleven...but with a bit of goofiness added in.

One more note. We're finally enjoying some cooler weather here in Texas. I have to say, it's about time! This is my favorite time of year. Tis' the season for chili!

Later Trades.

Tuesday, November 02, 2004

Short the Market!

My move to short the market will either look prescient or stupid. And the market will soon be the judge. I did sell my final position mid-morning today, McDonald's. Gain? Just a little over 3.00% on that trade. Being completely out of the market left me flush with cash for my next investment opportunity.

I waited patiently all day today for just the right trigger. I wanted to see a range expansion to the downside breaking the strong uptrend in place all day today. My moment finally came late in the trading day. And I sold short the QQQ as fast as I could.

After my initial trade was safely in the green...I waited and watched for signs of some consolidation to initiate another short on the stock with just minutes to spare before close.

I'm expecting the market to open up Wednesday and that's where I would like to initiate my final short on this stock.

This has been one very tough trade. Just thinking through all the crosscurrents of the market this week have been taxing on my mind. It's almost a relief to finally have this trade underway. If it goes my way...great. If not...a lesson learned.

Once again, I'll give you my quick ditty on why I sold everything and went short.
  • Good news was priced in. Everyone was touting an expected rally once the election was over. The old axiom...sell hope and buy fear never felt more applicable.
  • Long-term interest rates have fallen for months giving the market a quiet underlying strength. But, long-term rates are now hitting against the bottom of their downtrend channel. Most of my positions were in financials...particularly regional banks. I feared that any bump up in rates were sure to put a drag on these stocks.
  • The market's ignoring high oil prices and focusing on the presidential election instead. After the election, oil prices will still be high and I'm afraid their effects on the economy just beginning.
  • The S&P 500 and Nasdaq Composite were bumping against the upper portion of their downtrend channel. I'm a big believer in trend trading. Going with the trend is usually half the battle. Then pick your entry correctly to give you the confidence to weather any short-term volatility against that trend. The S&P 500 and Nasdaq Composite were bumping against the upper portion of their downtrend channel. In fact, I believe the Nasdaq Composite hit a new 84 day high. This seemed like a good place to gain entry into the mid-term downtrend.
In addition to all these factors...the thing that gives me the most confidence in my view and my trade is simply a quote...

Usually when making investments, it is implicit that investors believe they have some degree of knowledge about the future. So Wall Street has more fortune tellers than any other industry. I feel I've had an advantage over the years because I am clear about a couple of things: 1) it is part of the nature of life itself (and markets are simply manifestations of people's expectations) to trend, and 2) I will never have a complete or full understanding of anything. Therefore, all investment decisions should be based on what can be measured rather than what might be predicted or felt. -- John Henry, famous commodities trader and Boston Red Sox owner

As I'm ending this post...the presidential election is still very close. It looks that momentum is with President Bush. If so, tomorrow could see a nice little pop to the upside. Looks like more work and gut wrenching is still ahead of me.

Have a good night!

Rogers Interview

I'm heading home...but had to post the link to this great interview of market wizard, Jim Rogers. Thanks to the Commodity Trader for posting this interview.

Read article here.

I agree with Rogers on several points in the interview. Most importantly that oil will see much higher prices in the coming years. Although a pullback is needed from current levels.

Also pay note to what he says about utilities. And check out a few of the utility stocks and their corresponding stock charts...like TXU and Southern. I think an investment paradigm is in the making here. These stocks are moving into a different asset category. Moving from the old measure of dividend yields to the new one...the unthinkable for utilities...growth rates.

Dynegy's recent buying spree in this field is just a sign of things to come. Of course, these stocks are all due for a much needed pullback. But, pay attention to this sector. It could get interesting.

Random Links

"The public have an insatiable curiosity to know everything. Except what is worth knowing. Journalism, conscious of this, and having tradesman-like habits, supplies their demands." -- Oscar Wilde

Some Random Links to fill your trading day.

Excellent article by WallStreetWindow's Michael Swanson on the media's spin on investing and politics. I totally agree with the bullishness show producers force upon guests of the TV and Radio shows. I had the same thing happen to me when asked to be a guest for a popular investment radio show back in May of 2000. I wanted to talk about some of the stocks that were going to get cut in half...but the producers only wanted long picks. Really opened my eyes to what the media is about. Read on...

I'm not a fan of Robert Prechter. I view someone like him as a broken clock. Always telling the same time. The clock is worthless...yet everyday it reports the correct time...twice. But, this article has a few gems that Prechter doesn't even know he released. Read on...

Have a great election day!

Shorting TLT

Just experienced something extremely frustrating. I was told there were no shares available to short for the TLT from my broker. Something sounded awfully funny about having "no shares available"...so performed a little research. Apparently, this is a case where institutional investors get preferrential treatment and the retail client gets screwed. Read on...

Monday, November 01, 2004

The Market Sirens and Elections

I've sold my positions. Almost all of them. The only remaining position I have is McDonalds (MCD) with a 3.25% gain. I've sold the QQQ positions even though 4 of the systems currently have a .98% gain and one has a .35% gain. I even received a trading system trigger on CVT yesterday that I did not pull at the open today. That position would have been down -0.98% at the close.

I know I did a bad thing. In order to trade your systems you must remove all emotions. You must follow them rigidly. Most of my positions I've held for over 2 1/2 years. All of them were sold at the end of trading today. I've weathered many storms with those positions. But, I'm seeing things differently now. Maybe what I see is short-term in nature. I just don't think so.

It just feels like a strong top is or has taken place. The market sirens are singing their song...and I was almost lured to that island of Anthemoessa. I'm not sure what caused me to awake from their beautiful singing filled with GOOG like returns for many months to come. Where almost any breakout from congestion quickly garnishes several percentage points. Heck, some have even called those breakouts lottery tickets because of the huge moves accorded. Whatever shook me by my shoulders and melted wax into my ears...I'm grateful. At least for now.

Now that you know where I stand...let me show you some research you might find interesting. I researched the Dow Jones Industrials in respect to election years. Particulary, the time period from the end of October thru the end of December of the same year. I wanted to know what type of returns to expect from this very short period in time when the president is chosen thru the end of that election year. These results are based on election years 1916 - 2000.

The Dow Jones Industrials were up or breakeven 68% of the time and down 32% of the time. During those up or breakeven times...the DJ-30 eaked out an average gain of 5.63%. And during those down times the DJ-30 shed an average 5.44%.

Not bad, huh?

To go a step further, I reviewed the S&P 500. These results are based on the election years of 1964 - 2000.

S&P 500 was up or breakeven 70% of the time and of course down 30% of the time. The average move experienced during up or breakeven times was 3.85%. While the average loss during down times was -2.74%.

Very similar to the DJ-30 scenario.

I'm sure after seeing these numbers you're thinking I'm crazy for selling all my positions. You can't argue with the numbers. I mean we have at least a 68% chance of experiencing an average positive return of 5% or greater from now til' the end of December. And there's further research that agrees with this bullish scenario.

There's the Fed Model that suggests stocks are 37% cheaper than treasuries. Read on...

You also have the built in seasonality factor of November thru April where this period has outperformed the May thru October timeframe 70% of the time. Read on...

Despite all this great news, why am I bearish? And why if I'm a system trader would I give up all my hard-earned years of research for a hunch? I'll answer that in one word...EDGE.

I create systems to capture an edge in the market. The only way I make money is to find some edge or inefficiency to exploit. What happens when the edge I rely on is known by many participants? Does the edge vanish? I believe so. That's why I cashed out. I cashed out because the edge I was trading was gone. And there's another edge available to trade. I believe this new edge is rested on the fact that so many traders and hedge fund managers are leaning the same way. They are all using the same research and trading the same edge. They all know this bullish news. And they have been positioning themselves for this bullish news for the past few weeks.

What will happen when the market sirens stop singing? The answer to that question is the edge I'm looking to exploit.

Until then...

Random Links

"You make money on wall street by being very selective and being patient, waiting for those opportunities that are irresistible, where the percentages are very heavily in your favor." -- Seth Glickenhaus

Random Links to keep you procrastinating about the work you really need to get done.

Jerry Grantham is on a tear. Believes we'll see a big drop immediately following the presidential election. Read on...

The top 100 TiVo Season Passes. Two of my favorites are on the top 10...The Apprentice and Survivor. I'm a little surprised by Joey coming in at number 6. I loved Joey in Friends...but just couldn't get into the Joey series. Am I wrong here? Read on...

Interesting story on Columbian coca farmers and how they outsmarted Clinton's Plan Columbia, an anti-narcotics package that supplements the Columbian government with crop dusters and the herbicide Roundup. The original intent was to spray drug crops and stop the cocaine export before it ever started. Now, it looks like the US government is spraying weedkillers on Columbian drug crops for free. Not a bad deal for Columbian farmers. Read on...

Interest chart and analysis of presidential elections from The Big Picture blog. Read on...


Election and Market Sectors

Interesting study of sector movements and the Bush election contracts. To summarize, the author found:

Natural Resources and Utilities to do well when Bush's contract fell.

Healthcare performed well when Bush's contract rose.

Read on...