The purpose of this site is to share results of a trading system that I use for identifying both long-term and short-term trading opportunities. I take the time to do this because of my passion for investing and helping others succeed. The system helped me avoid the "Crash of 2007/2008" and every major correction since then. The cornerstone of my trading system are analyses of market liquidity to gauge longer-term market sentiment and equity and index options (put/call ratios) to identify short-term entry and exits.

If you are an investor, there's no need to concern yourself with the short-term trades that I occasionally discuss. The notes in the left-hand pane will provide you with my high-level outlook for the calendar year and for the next 12 months. The left pane will also contain alerts about possible intermediate-term reversals to help you make timely decisions for rebalancing your portolio, taking profits, or putting new money to work.

This site is for information purposes only. Past performance of the trading system is not a guarantee of its future success. Please consider consulting a qualified investment adviser before making investment decisions.

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Thursday, January 21, 2016

Just when I thought things were going to be quiet for a while

So after my last post in which I described the possible triggers that would cause me to dip my toes back into the water, the market popped on news that the ECB might implement stimulus measures.  Oil prices nudged upwards as well.  If the market closes above 1880 tomorrow, the S&P chart would carve out a basic RSI divergence.  I say basic because the divergence would be created with only two weekly bars versus a divergence over several weeks, which would be a stronger positive signal.

I assessed the daily money flow indicators and they look pretty good.  So what now?  Before I get into my game plan, I wanted to share with you what's on my watchlist.  Now don't fall asleep reviewing this list -- Yes, they are boring dividend stocks.  Here are the tickers:  MO, AEP, PPL, CVX, KO, CMP, DUK, EMR, LNT, FAST, GE, GIS, GPC, JNJ, D, PEG, PAYX, PM, PG, O, SO, SE, UPS, VTR, VZ, WFC, AND HCN.

Of these stocks, I would consider buying those that have weathered the storm well (i.e., exhibited good relative strength over the past 3 to 6 months) and those that are at or below fair value.  All with the exception of the following would pass this test:  CVX, CMP, EMR, FAST, GIS, PEG, PAYX, O, SO, UPS, VTR, WFC, AND HCN.  I would feel comfortable with this approach given the potential for further downside.  Executing this plan now would raise my equity exposure by about 20%.  As far as the "alpha" or growth components of my portfolio, I'll likely defer purchases to see how the market behaves absent rumors about further stimulus by the ECB.

Tuesday, January 19, 2016

Despite new lows, I see dollar signs!

So the market is "behaving" in a manner consistent with my macro indicator - Great!  Unfortunately, one the thing that the macro indicator isn't designed to do is pinpoint the exact bottom with regard to price or time.  As I mentioned in the prior post, the indicator is "saying" that a possible bottom might be in place in mid-April.  With this in mind, I wanted to share my mindset in terms of next steps and in particular, the triggers that would cause me to buy into the market.

Before I get into the triggers, I wanted to amuse myself by sharing an observation.  Even though I don't customarily use target levels to influence my actions, I did a Fibonacci analysis and concluded that there's strong support at the 1740 region.  There's support at 1800 as well, but it doesn't appear as strong.  I'm not saying that the market will correct to this level, but it is rather "convenient" that this would represent about a 18% correction and be close to the -20% figure that the media loves to refer to in judging whether we're in a bear market -- After-the-fact of course.  If the market were to approach this 1740 region, it would likely flush out the weak hands who believe that a bear market is impending.  I still don't believe that we are in or will experience a bear market this year.  In fact, my macro indicator is saying that we will close out the year higher than the anticipated April trough.  So what would cause me to dip my toes back into the water?  Here goes.....

As usual, I would be looking for a weekly RSI divergence.  This is my favorite long-term indicator -- to see the RSI reverse as price continues downward.  In simple terms, one scenario which would cause a divergence would be for the S&P to make a new weekly low and then close (during the same week) above the prior week's close.  Let's use last week as an example.  During the week of January 11, the S&P hit a low of 1858 but closed at 1880.  Now, if during this week, the S&P trades at or below 1858 and then closes above 1880, this would be a positive sign.  I would then look to other indicators such as money flow to confirm this positive turn of events.

Another indicator that I like to use is a reversal of the trailing ATR3 (Average True Range with x3 multiplier) stop.  As it stands today, a reversal over 1976 together with confirmation from other indicators would signal a buy.

So there you have it.  The strongest message here is that I still believe that we won't experience a bear market.  It's appears certain, however, that the market will again trade lower than the August low (1867).  As I'm writing this blog, the S&P futures are trading at 1851 cash.

Friday, December 11, 2015

Patience at 50% Exposure

So I haven't written for a while, partially because I haven't done anything investment-wise since going to a 50% cash position in mid-September.  I still remain skeptical of any pronounced gains from here and believe that there's a greater likelihood of revisiting the August lows.

Looking forward, my macro indicator is "saying" that there's a possibility of a low being reached in April of 2016.  If the market does continue to correct, I plan to deploy my cash going into this potential April trough.  Although the macro indicator is also showing a possible correction in fall of 2016, I don't believe that it would be significant enough to defer buying that long.

Monday, September 28, 2015

Macro Update

The updated (weekly) macro indicator showed only minor deterioration compared to last week -- down to a -13 from -9 the prior week.  The indicator still has not reached the "critical" level of -20 that would cause me to believe that a bear market is impending.  Given the deterioration, however, I will not be adding to my equity position even if the prior August lows are tested.

Tuesday, September 22, 2015

Some thoughts just in case

As I'm writing, China just reported another dismal PMI and US futures are pointing to another tough open.  I just wanted to share my thoughts on what I would do if my macro indicator turns down and signals a possible bear market.  Because the majority of my portfolio is comprised of dividend stocks, I hope that my readers can extrapolate the essence of what I'm doing and apply it to their portfolios.

First, my system calls for being no less than 50% (exposed) to equities for as long as the macro picture is positive -- that's my current stance.  Here are my priorities if and when the outlook changes:

  • Look for confirmation of a reversal (if the market rallies) that would be evident by a weekly RSI divergence and/or a violation of a trailing ATR3 stop.  In regard to the latter, I generally use a loose ATR4 stop when the macro is positive.  However, I would transition to a tighter ATR3 stop as a signal to take action on my holdings (see below).  Currently, the ATR3 stop on the S&P is 1918.
  • When I obtain a confirmation, I would sell my "alpha" or any momentum or core holdings that correlate highly with the market.
  • I would further trim my holdings by taking profits on any dividend growth stock that have appreciated more than 10%.  Specifically, I would sell shares amounting to the profits in a stock.
The actions above will undoubtedly results in an equity exposure of less than 50% in my case.  The next step which I will detail in another post this week would be to hedge my portfolio -- the holdings that I intend to keep for the long term.  This step will entail going short the market using an inverse ETF (e.g., SH, SDS, etc.) to further minimize downside risks.  

It's times like now that I wish my macro indicator was based on daily data.  Unfortunately, the data is provided by the Chicago Mercantile Exchange only on a weekly basis.

That's it for now.