Despite the small sample size of 28 trades, there appears to be
a significant edge here. From a sentiment perspective, the bulls
seemed somewhat incredulous that the markets closed higher for a
fourth day. Perhaps they will be more willing to sell tomorrow,
sensing that the market has gotten ahead of itself.
The Method
This study will short the [SPY] at the close if the following
two conditions are met:
1. The ETF will make four consecutive higher closes, AND
2. The four day rate-of-change will be greater than 5%.
The exit is a simple time-based exit.
100K per trade was used, with no compounding of gains. No
commissions or slippage was added.
There were 28 trades generated from all of the available SPY
data.
The Results
Net Profit stays positive even when holding short position for
20 days. I interpret this mean to that these setups often mark
intermediate tops.
Almost 80% of trades are profitable on the next close. Note how
the measure drops off smoothly through the 6 day exit and then
becomes volatile.
Win/Loss Ratio is volatile but gives a rough average of 2.00
This means the average winning trade is twice the size of the
average losing trade. Also, it never drops below 1.00 which means
the losing trades were never larger than the winning trades.
The average trade is profitable from day one (this is what my
partner and I call an “entry edge”). Note that a $1900.00 average
trade shows the market has moved down, on average 1.9% from the
entry by the close of the 2nd day (day zero equals day of
entry).
A Little More Information:
Using all of the same parameters (exit on close of bar 2) except
removing the Rate of Change requirement yields a total of 164
trades, with 51.22% profitable, a win/loss ratio of 1.73, and an
average trade of $286.00. I present this information to show that
at the very least winners will remain almost twice as large as
losers. Introducing the Rate of Change improves the chances of
winning as well as increasing the size of the winners, presumably
because a market that has made a large gain has farther to
fall.
Summary:
Be careful jumping on the short bandwagon if the markets gap
down on Friday. Further testing shows that this edge is often
eroded in the overnight futures market. If you are already short,
great. However, if our best average exit yields 1.9% and the market
gaps down 0.9%, half the average return may be lost.
is hard to compete with their level of costs, but they work
hard, which is an asset and they seem to be "driven" as a country
to improve and be productive, all under whats seems to be a more
relaxed form of "communism".
However to compete, the World needs to learn to cut costs
without losing quality to become comptitive with the Chinese.
Table 3: Top US Imports from China 2008 ($
billion)
*Percent change over 2007
Sources: US International Trade Commission, US Department of
Commerce, and US Census Bureau
HS#
Commodity Description
Volume
% Change*
85
Electrical machinery & equipment
80.3
4.7
84
Power generation equipment
65.1
1.7
95
Toys & games
27.2
4.0
61, 62
Apparel
24.0
0.1
94
Furniture
19.4
-4.7
72, 73
Iron & steel
14.8
24.7
64
Footwear & parts thereof
14.5
2.4
39
Plastics & articles thereof
8.9
8.2
42
Leather & travel goods
7.4
2.1
87
Vehicles other than railway
6.4
4.9
Table 4: China's Trade with the World ($
billion)
Note: PRC exports reported on an
free-on-board basis; imports on a cost, insurance, and freight
basis
Sources: PRC National Bureau of Statistics and PRC General
Administration of Customs, China's Customs Statistics
A common stereotype is that the Chinese traditionally lack
scientific and technological ability, although, somehow, they
stumbled upon paper making, printing, gunpowder, and the mariner's
compass. Modern Chinese, themselves, sometimes are surprised to
realize that modern agriculture, shipping, astronomical
observatories, decimal mathematics, paper money, umbrellas,
wheelbarrows, multi-stage rockets, brandy and whiskey, the game of
chess, and much more, all came from China.
The prevailing academic consensus is that gunpowder was
discovered in the 9th century by Chinese alchemists searching for
an elixir of immortality.The discovery of gunpowder was probably
the product of centuries of alchemical experimentation. Saltpetre
was known to the Chinese by the mid-1st century AD, and there is
strong evidence of the use of saltpetre and sulfur in various
largely medicinal combinations. A Chinese alchemical text from 492
noted that saltpeter gave off a purple flame when ignited,
providing for the first time a practical and reliable means of
distinguishing it from other inorganic salts, making it possible to
evaluate and compare purification techniques.
The first reference to gunpowder is probably a passage in the
Zhenyuan miaodao yaolüe (真元妙道要略), a Taoist text tentatively dated
to the mid-800s:
Compass
The earliest form of compass was a naturally magnetic piece
of lodestone used to indicate direction, which preceded the more
advanced idea of using needles. They were used on land only and are
described as south-pointing devices in a text dating from the 4th
cent. BC. Much later, between 850 AD and 1050, the needle
compass came to be used for navigation at sea. At that time the
Chinese established also that the needle always deviates slightly
to the east, and does not point directly at the south, recognizing
the shift of the magnetic field of the earth.
The first mention of the magnetic compass in European
writings occuured in the year 1190, and it was not until the early
fifteenth century that Europeans knew about the magnetic
declination.
Paper
Tsai-lung (c.48-118 AD) was an official attached to the
Imperial court during the eastern Han dynasty. Tsai-lung, who
recognized the inadequacy of the existing writing material (silk,
bamboo), created the first paper in the world by drying pulp from
old rags, bark, mulberry fibers, and hemp.
The art of papermaking traveled slowly; it reached Samarkand
in Central Asia around 750, and fifty years later the first paper
was made in Baghdad during the time of Harun al-Rashid.
It reached Europe in the 14th century, more than thousand
years after its invention in China.
Cast Iron
Blast furnaces existed in Scandinavia in the eighth century
AD, but cast iron was not widely available in Europe until the 14th
century.
The Chinese practiced the technique already in the fourth
century BC. Two factors helped greatly.
First, good clay allowed the Chinese to build walls for blast
furnaces.
Second, the Chinese used 'black earth', which contained iron
phosphate, to reduce the melting temperature of iron from 1130 C to
950 C.
In the third century BC the Chinese were able to hold iron at
a high temperature for a week, which made it almost as good as
steel, good enough to produce iron plowshares and in the year 1105
to build an iron pagoda 78 feet high.
William
Hester, CFA is a Senior Financial Analyst with theHussman
Funds, and he
has written an interesting article that attempts to answer the
question: "does the
current economic backdrop yet have the characteristics that usually
coincide with the end of secular bear markets?"
I have
sought answers to a similar question, and this has led to the
development of the "next big thing" indicator, which attempts to
quantify those technical characteristics seen at market bottoms
just prior to secular trend changes. I have written enough in these
pages aboutthe proper
launching padand having
tailwinds not headwinds.
I believe
Hester's real insight is the link between valuations and investors
willingness to pay for those valuations. If investors are certain
about the future (albeit based upon
recentpast
experiences), then they are willing to pay up for equities.
Investors believe the good times will continue, and this is how we
get bubbles. If investors are uncertain about the future, then they
need lower valuations. Investors perceive that the bad times will
continue, and within this period of uncertainty, valuations are
driven lower and markets bottom.
To measure
investors' "comfort level" with the economy, Hester uses the
volatility of inflation. In his own words, Hester states:
It's not
only the level of volatility and uncertainty in the economy that
matters to investors, but also the trend and the persistence in
this uncertainty. Shrinking amounts of volatility in the economy
creates an environment where investors are willing to pay higher
and higher multiples for stocks, while growing uncertainty brings
lower and lower multiples.
One of
themes that appears to be on investors' minds is inflation. Even
though inflation, as measured by year over year CPI, is low,
investors
perceiveinflation
to be a threat as we have rising deficits, a government willing to
"bailout" all those who fail, and a government willing to avoid
today's pain and "kick the can" down the road, and world central
banks willing to devalue their currencies to gain a competitive
advantage.
To assess
inflation, I have developed a composite indicator that looks at the
trends in gold, crude oil, and yields on the 10 year Treasury. When
these trends are strong and rising as they are now, equities tend
to under perform. Previously, I had shown this in the article
entitled,"More
Headwinds To Worry About". Going
back to 1985, when these trends were strong, equities
underperformed - even during the bull market of the 1990's and
particularly from 2004 onward.
But let's
get back to Hester. He states that"it's
important to note that during the current secular bear market, the
volatility of inflation has mostly been well contained."The value
is less than those seen at past bear market bottoms, but the trend
is rising.
"Valuations going forward may show their typical sensitivity to
economic uncertainty, and for this reason, the change in the slope
of the volatility of inflation over the last two years is
troublesome. The level of inflation volatility is still low,
relative to the peaks reached during prior secular bear markets. If
the level of inflation volatility continues to increase, it will
become more difficult to argue that the secular bear market has
come to an end."
To
summarize by answering his own question from above -does the
current economic backdrop yet have the characteristics that usually
coincide with the end of secular bear markets? - Hester
states:
"...secular bear markets of last century shared three
characteristics. They each lasted for more than 15 years, they each
ended at extremely attractive levels of valuation (generally about
7-9 times trailing 10-year earnings), and , and they each endured
many years of growing volatility in output and inflation, which
eventually created the mindset for investors to price stocks at
attractive levels of valuation. The current secular bear market can
claim none of these characteristics yet."
So how can
we use this information? Inflation concerns are legitimate, and the
uncertainty of inflation is a headwind. How much so? Let's meld our
inflation indicator with theFaber
strategy. We will
use our inflation indicator as a filter in that no new positions
will be established or current positions will be exited when the
inflation indicator is in the high inflation zoneas it is
now. See
figure 1 a monthly graph of the S&P500 with our inflation
indicator in the lower panel. One note, in the original articles on
this indicator, I utilized the trends in crude oil, gold, and
yields on the 10 year Treasury bond to construct our indicator. In
this article, I replaced the crude oil data with data from the
Reuters - CRB Index as this data set goes back to 1971; doing this
does not affect the results of this study.
The community is delayed by three days for non registered users.
Title: Four Consecutive Higher Closes:
Posted by ravun on 17th of Jul 2009 at 03:36 am
Despite the small sample size of 28 trades, there appears to be a significant edge here. From a sentiment perspective, the bulls seemed somewhat incredulous that the markets closed higher for a fourth day. Perhaps they will be more willing to sell tomorrow, sensing that the market has gotten ahead of itself.
The Method
This study will short the [SPY] at the close if the following two conditions are met:
1. The ETF will make four consecutive higher closes, AND
2. The four day rate-of-change will be greater than 5%.
The exit is a simple time-based exit.
100K per trade was used, with no compounding of gains. No commissions or slippage was added.
There were 28 trades generated from all of the available SPY data.
The Results
Net Profit stays positive even when holding short position for 20 days. I interpret this mean to that these setups often mark intermediate tops.
Almost 80% of trades are profitable on the next close. Note how the measure drops off smoothly through the 6 day exit and then becomes volatile.
Win/Loss Ratio is volatile but gives a rough average of 2.00 This means the average winning trade is twice the size of the average losing trade. Also, it never drops below 1.00 which means the losing trades were never larger than the winning trades.
The average trade is profitable from day one (this is what my partner and I call an “entry edge”). Note that a $1900.00 average trade shows the market has moved down, on average 1.9% from the entry by the close of the 2nd day (day zero equals day of entry).
A Little More Information:
Using all of the same parameters (exit on close of bar 2) except removing the Rate of Change requirement yields a total of 164 trades, with 51.22% profitable, a win/loss ratio of 1.73, and an average trade of $286.00. I present this information to show that at the very least winners will remain almost twice as large as losers. Introducing the Rate of Change improves the chances of winning as well as increasing the size of the winners, presumably because a market that has made a large gain has farther to fall.
Summary:
Be careful jumping on the short bandwagon if the markets gap down on Friday. Further testing shows that this edge is often eroded in the overnight futures market. If you are already short, great. However, if our best average exit yields 1.9% and the market gaps down 0.9%, half the average return may be lost.
Errr Matt
SPX megaphone?
Posted by ravun on 15th of Jul 2009 at 01:28 pm
Thats a Dow daily chart, but you're welcome.
But I'll throw in a SPX 15 min...
Howdy BPT people, thought I would pop in and say hi.
Catch you later
BDI Index
Posted by ravun on 2nd of Jul 2009 at 03:02 am
Well yes
Ummm
Posted by ravun on 1st of Jul 2009 at 10:37 pm
is hard to compete with their level of costs, but they work hard, which is an asset and they seem to be "driven" as a country to improve and be productive, all under whats seems to be a more relaxed form of "communism".
However to compete, the World needs to learn to cut costs without losing quality to become comptitive with the Chinese.
Here u go, I did this a while back
Open in new window?
Posted by ravun on 1st of Jul 2009 at 10:08 pm
Video
Not the best vid I ever did, but should help..))
Chinese trade stats
Posted by ravun on 1st of Jul 2009 at 09:59 pm
Sources: US International Trade Commission, US Department of Commerce, and US Census Bureau
Sources: PRC National Bureau of Statistics and PRC General Administration of Customs, China's Customs Statistics
Ummm
Posted by ravun on 1st of Jul 2009 at 09:49 pm
A common stereotype is that the Chinese traditionally lack scientific and technological ability, although, somehow, they stumbled upon paper making, printing, gunpowder, and the mariner's compass. Modern Chinese, themselves, sometimes are surprised to realize that modern agriculture, shipping, astronomical observatories, decimal mathematics, paper money, umbrellas, wheelbarrows, multi-stage rockets, brandy and whiskey, the game of chess, and much more, all came from China.
The prevailing academic consensus is that gunpowder was discovered in the 9th century by Chinese alchemists searching for an elixir of immortality.The discovery of gunpowder was probably the product of centuries of alchemical experimentation. Saltpetre was known to the Chinese by the mid-1st century AD, and there is strong evidence of the use of saltpetre and sulfur in various largely medicinal combinations. A Chinese alchemical text from 492 noted that saltpeter gave off a purple flame when ignited, providing for the first time a practical and reliable means of distinguishing it from other inorganic salts, making it possible to evaluate and compare purification techniques.
The first reference to gunpowder is probably a passage in the Zhenyuan miaodao yaolüe (真元妙道要略), a Taoist text tentatively dated to the mid-800s:
Compass
The earliest form of compass was a naturally magnetic piece of lodestone used to indicate direction, which preceded the more advanced idea of using needles. They were used on land only and are described as south-pointing devices in a text dating from the 4th cent. BC. Much later, between 850 AD and 1050, the needle compass came to be used for navigation at sea. At that time the Chinese established also that the needle always deviates slightly to the east, and does not point directly at the south, recognizing the shift of the magnetic field of the earth.
The first mention of the magnetic compass in European writings occuured in the year 1190, and it was not until the early fifteenth century that Europeans knew about the magnetic declination.
Paper
Tsai-lung (c.48-118 AD) was an official attached to the Imperial court during the eastern Han dynasty. Tsai-lung, who recognized the inadequacy of the existing writing material (silk, bamboo), created the first paper in the world by drying pulp from old rags, bark, mulberry fibers, and hemp.
The art of papermaking traveled slowly; it reached Samarkand in Central Asia around 750, and fifty years later the first paper was made in Baghdad during the time of Harun al-Rashid.
It reached Europe in the 14th century, more than thousand years after its invention in China.
Cast Iron
Blast furnaces existed in Scandinavia in the eighth century AD, but cast iron was not widely available in Europe until the 14th century.
The Chinese practiced the technique already in the fourth century BC. Two factors helped greatly.
First, good clay allowed the Chinese to build walls for blast furnaces.
Second, the Chinese used 'black earth', which contained iron phosphate, to reduce the melting temperature of iron from 1130 C to 950 C.
In the third century BC the Chinese were able to hold iron at a high temperature for a week, which made it almost as good as steel, good enough to produce iron plowshares and in the year 1105 to build an iron pagoda 78 feet high.
Dodger
Posted by ravun on 1st of Jul 2009 at 09:40 am
awesome report as usual
Yep
Another day in paradise
Posted by ravun on 1st of Jul 2009 at 08:50 am
I live there...Cape Town
Another day in paradise
Posted by ravun on 1st of Jul 2009 at 07:09 am
The new stadium for Soccer World cup coming on fine.
Title: Inflationary Pressures Are A
Posted by ravun on 30th of Jun 2009 at 05:31 pm
William Hester, CFA is a Senior Financial Analyst with the Hussman Funds , and he has written an interesting article that attempts to answer the question: " does the current economic backdrop yet have the characteristics that usually coincide with the end of secular bear markets?"
From across the pond
Posted by ravun on 30th of Jun 2009 at 03:59 pm
Flagging?
Posted by ravun on 30th of Jun 2009 at 03:36 pm
5 min dow
Posted by ravun on 30th of Jun 2009 at 10:52 am
Dow 5 min wedge
Posted by ravun on 29th of Jun 2009 at 03:39 pm
NDX 60 min
Posted by ravun on 29th of Jun 2009 at 03:17 pm
This one Matt?
Posted by ravun on 29th of Jun 2009 at 03:02 pm
I did mention
Posted by ravun on 29th of Jun 2009 at 10:43 am
a lot of possibilties...this AT being one of them. Dow 5 min
yep
ravun - spx wedge
Posted by ravun on 29th of Jun 2009 at 10:41 am
Alphahorn
Dow 5 min
Posted by ravun on 28th of Jun 2009 at 06:02 am
Do you perhaps post on a blog of your own? I found something akin to your work, under your name. Will pm it to you.
The timeframes (lower) creat a lot of restructing) but can be used as good entires/exits for longer term plans, especailly if tying in with other TA