It sure looks like we might have a short term (possibly even longer) bottom in place on the S&P500. The surprises this week are creating a beautiful “hammer” on the weekly chart as the Fed bailout is starting in earnest.
My Timing Model didn’t issue any signals yesterday so we remain vigilant and cautious. I will be sending an update this weekend with a snapshot of the model for members.
I dipped my toe into the markets yesterday and moved some cash back into the markets. My Timing Model indicated that it was a great day to Buy but since I’m risk averse, and the markets are gyrating like I’ve never seen them before, I took a small position concentrating mainly in Asia/Pacific area.
Only time will tell if this is the Bernanke support we all so badly want or if we are heading down to 1250 on the S&P500. Judging from the futures this morning it looks like I made a wise decision to take a small position and the markets have no confidence in Ben.
I emailed my members yesterday morning and told them what my plans were for the day, why don’t you join up?
The global market are getting hammered, things are looking ugly out there. I’m so glad that I’m mostly in cash and bonds right now, all thanks to my timing model. If you’ve been a reader of my newsletter (free to members) then you would’ve known that I got out of the market in mid December. The sell signals my model gave me in October and December have saved my ass from a whole world of hurt.
It looks like all the time I spent building neural net and genetic algorithm models has paid off.
I will be making changes to my membership and no longer toll gating any posts. From now this point forward, I will be charging for my market timing newsletter. The newsletter will be mailed out to paid members every week.
The last installment of this really well made documentary on Globalization. When I was young, and stupid, I believed in the miracle of Globalization. Now I see it for what it is, global governmental interventionism using the protocols set forth in Keynesian Economics but calling it Hayek Free Market-ism
I’ll write a review about the documentary and my thoughts on Globalization later.
A few years ago I got fascinated with Monte Carlo simulations after this application appeared in my 401k plan. At the time they had this “what if” calculator where you enter your age and then the amount you plan to save yearly in the 401k. You’d have to select how you wanted to invest your money, aggressively, middle of the road, or conservatively. After a few seconds of the application running in the background, a mini report would pop up and say:
Mr. Ott, if you invested $10,000 a year in an aggressive 401k portfolio you could end up with an account balance of either $500,000 or $2,300,000 by age 65.
I was intrigued, how did this 401k website know this? A short while later I realized it was a Monte Carlo simulation that was behind it all.
Since that time I started looking around for a good Monte Carlo simulation but come to find that they cost several hundreds to thousands of dollars. Since I’m frugal (cheap), I decided to see if there were any Excel Addin’s out there for free. I did find a few really feature lacking free Excel Addin Monte Carlo Simulations that didn’t impress me too much.
Then I stumbled across RiskAMP and was surprised by the power of this little Addin.
RiskAMP is a feature rich and tightly intergraded Excel Addin that lets you run all kinds of Monte Carlo simulations. It comes with a chart wizard, over 20 simulation functions, and over 35 random distribution functions. You can model simulations to your hearts content, all in the comfort of Excel. Once you run the simulations you can create a simulation results sheet complete with charts, all with a few clicks in the menu system.
Do you want to model at standard Gaussian distribution? RiskAMP does it.
Do you want to model a Pareto distribution? RiskAMP does it!
What about Binomial distributions? Geometric distributions? Multivariate distributions? Power distributions? Yes, yes, yes, and YES! RiskAMP can do it all!
RiskAMP is the primary simulation system I use to model my stop placement in the Forex Market. I won’t tell you how I do it (trade secret) but since I started modeling possible currency volatility outcomes, I’ve been able to place my stops just outside of the volatile price swings and stay in the game. This lead to swinging the probability in my favor and to the much enjoyed success of my $100 Forex Experiment last year.
I’ve also used RiskAMP to model the outcomes in my controversial “When Traders Blow Up” post and I continuously use it to model volatility outcomes for various stocks. Combined with RapidMiner and TraderXL Pro, RiskAMP has contributed greatly to my bottom line over the last year and I look forward to building more “what if” scenarios with it.
Just for fun, I’m attaching a few of the sample spreadsheets that come with the RiskAMP trial. You’ll need the Addin to make it work but you can test out some of the powerful things you can do with it (all Excel spreadsheets).
I suggest my readers take advantage of the RiskAMP free trial to try out the software. I opted to buy the Personal Edition and quickly realized what a steal that was. As always, if you have a question, please leave me a comment. Please subscribe to my feed on the way out.
I’m still at the spa enjoying the recent market insanity. It’s days like these where I’m reminded how awesome my S&P500 Timing model is (members get my weekly report). I’m glad I took its advice and sold my major holdings in mid December (and October) and moved my money into more defensive assets like bonds and cash.
Still though, the timing model actually issued a BUY signal today (see image), so it looks like we might have formed an interim bottom. I’m debating making a small buy here but I haven’t made up my mind, I sometimes don’t act on all the BUY signals the model gives me but I religiously follow its SELL signals.
Who knows which way the market will go but if it breaks down from here you can bet that 1250 will be the S&P500′s next stop.
PS: I created this model using Rapidminer and TraderXL Pro.
The markets are having a rough time since the beginning of January and its beginning to look like the Greenspan liquidity bubble is (has) catching (caught) up to us. If you ask me, there’s no rally around the corner right now but the start of a race to a bottom. My guess is that we could see the S&P500 at 2006 levels (1250) or even 2004 levels if things get really ugly.
For the record, I’m not a perma-bear and neither am I perma-bull. I just believe that for the past 5 years our stock market gains were built on excessive liquidity and the ability of the
Can you blame Mr. Joe Consumer, who in my opinion hasn’t had real wage growth in years, skipping his credit card payments with “in your face†inflation, such as $4/gallon milk and $3/gallon gas? I surely don’t. Mr. Joe Consumer is finally tapped out.
Although my post sounds alarmist, it isn’t. The market will bottom eventually and then we’ll rally but I don’t expect that to happen anytime soon. You can argue till your blue in the face with me that stocks are really undervalued here, and they are if you add in the liquidity inflation. Look at how undervalued Citigroup (C) is now at $26/share? It was also undervalued at $45/share when I bought it. Subtract out the liquidity inflation and then tell me the price where Citigroup is truly undervalued at.
I’m still at the Spa but it looks like I’m on the mend. I might feel strong enough to put together a post tonight, maybe!
Keynesian vs Hayek. Love it! Too bad we still have a quasi Keynesian global market economy which pays lip service to free market Hayek!
I had a vicious relapse of my problem this past weekend which has utterly wiped me out. Through these past weeks, no doctor was able to tell me if I really had a problem with kidneys or not, they were more eager to biopsy me than anything else. Before that happened, I got a second opinion yesterday and was prescribed medicine that is specific for Lymes Disease.
Within in 4 hours of taking that medicine, I began to feel 100% better. My ankle swelling and joint pains are subsiding and I’m finally getting my appetite back after not eating much for weeks. I’m still waiting on blood test results to conclusively identify my mystery illness as Lymes Disease but I’m beginning to believe that my “kidney issue” was never really there at all.
So I’m taking a few days off from posting here, I’m lounging at the health spa trying to get better. Subscribe to my feed so you can notified of when I start posting again!
What happens when you calculate the annualized volatility of the VIX Volatility Index and chart it? You see a violent spike in volatility in Feb 2007 which I suspect was when the “smart money” left the markets. Since that time the markets did hit new highs but they haven’t really moved significantly higher than the highs hit in Feb 2007.
Good thing I listened to my S&P500 Timing Model and closed a lot of positions in mid December. I still remain 60% in cash and bonds right now and I suspect a lot of churn to be happening from now till the summer.
Volatility begets more volatiliy and it looks like every time the annualized volatility number crosses the 13 DMA of volatility, the QQQQ prices become very volatile. Right now the Q’s are in a relatively low state of volatility but we all know that low volatility begets higher volatility and vice versa. I’m looking for more pain in the coming weeks.