New KISS 401K System

VIDEO - CLICK HERE to watch a detailed 26 min video overview

Hello everyone, this is the section I'll be using going forward regarding 401K management the S&P 500.  As you know 2020 has been a wild and truly historic year with a quick 35% correction in the S&P 500 that occurred in only about a months time frame (from late Feb to Mar 23rd), and at the date I'm writing this Aug 21st 2020 the S&P 500 has now regained all of those losses in 5 months! This has never happened before in history and represents the fastest correction and subsequent recovery of that correction for the market in history!  Again we all know why; because of the unfathomable amount of liquidity in the system from the Federal reserve, and of course massive government stimulus plans, which have caused an 'artificialness' to the stock market.  In short, the market is trading way out of statistical norms and thus models and algos that have traditionally worked, did not fair well in this environment. Most models/Algorithms are based on analyzing past market trends and statistics and using that information to time the market. Technical analysis is based on analyzing these past market trends and looking for patterns and repeatable statistics to gain an edge. However as mentioned above the market is trading way out of statistical bounds and thus many of the market timing models have not worked well. 

Also at Breakpoint Trades for years we've used such a model for timing the long term trends of the market based on a monthly chart of the S&P 500, which was affectionately called the 'Paint Dry System' because of the infrequent nature of the market entry signals and exit signals.  The system was designed not for traders, but as a way for long term investors 'non traders' to keep their money invested (buy and hold) during long term uptrends/bull markets, and to provide exit to cash signals at the end of bull markets so that these investors can move their money to safety and avoid bear market declines that can take years to recover from if one had remained invested.  By the way this is what most financial advisers do for their clients, they simple keep them invested with most of the changes simply being a re-balance.  99% of financial advisers do NOT have an exit plan for their clients, they simply tell their clients to 'stay the course' and to remain invested during bear market declines,with the only changes they will make is to re-balance their clients accounts after large percentage changes.  For years our monthly system worked well and was modeled all the way to the early 1920's, historically identifying all the major uptrends and signaling an exit to cash signals before the major bear markets.  2020 however made my rethink my monthly paint dry model and move to something much more adaptive, and a model that can work in any market conditions, whether the market is following historical norms or is totally moving in an artificial way like 2010. My friends I have come up with such a model and I call it the KISS SPX 401K system!  

First off this new system shifts to a more dynamic daily model away from the monthly model of the paint dry system.  Monthly charts are just too slow to respond to the speed at which we saw the markets move this year i.e. a 35% correction in less than a month's time.  Secondly while there are more trade signals hence changes you will need to make to your 401K/IRA/SEP, it is not drastically more.  On average it appears that one only needs to be willing to make 3 - 5 changes a year in his/her portfolio that is mirroring the S&P 500, that is not much guys.  The system uses a proprietary combination of indicators that appear to give timely market signals on any instrument. There is no need to backtest anything, the same set of indicators and settings work globally for anything, and for any time frame. I hesitate to call this KISS Methodology a holy grail, however in my 23 years of doing advanced technical analysis I have never seen anything like it nor have I been more excited.  In fact the exact same set of conditions can be used for day traders on fast tick and 5, 4, 3, 1 min charts etc, pretty amazing. The charts are also visually appealing and very easy to understand at a glance, hence why I like the 'KISS' analogy.

Statistics:
As you can see from the table  below, starting with $10,000 from July 2006, that $10,000 would have turned into around $142K by September 3rd 2020 where the DVT exit price was hit. Buy and hold on the other hand from July 2006 that same $10,000 would have turned into roughly $27K! That's a big difference or a roughly 5.2 fold increase over simply buy and hold! However to me what really stands out is not the total gain but the lack of draw down.  Notice that buy and hold goes through periods of draw downs off the highs of 49%, 30%, 21%, 35%, 10% etc. Contrast this to the KISS 401K system and the average draw downs off the highs is only 2.5% - 5%!  On the live chart below you will see various prices and letters DVT next to those prices. These DVT prices Dynamic Variable Trigger) stops are like trailing stops that are constantly raised during uptrends to keep you protected, but also wide enough not to constantly stop out on noise.  Folks managing their S&P 500 401K's/IRA's would use these DVT prices to exit their S&P 500 related holdings to the safety of cash until the system signals you to go back long.

I'm removing the statistics for now until I have time to add the 60 Stochastic filter in place that I've discussed recently. For now simply get the DVT prices from the KISS charts which are updated daily