September 2008 Archives

Here's yesterday's volatility spike.  This could very well be the bottom, I hope!  My S&P500 market timing model made a 4 STDEV move yesterday and issued the strongest BUY signal yet. I'm very cautious these days because I've been averaging down and losing money.  This is an extremely stupid way of investing in the short term but you gotta think long term here, and have the BOS to do so. :)

We are living in exciting times alright!  I'm happy that the bailout plan was voted down but my guess is they'll try to get it passed again.  I'm not happy that 1.2 trillion dollars of market cap vanished yesterday but my Excel monte carlo simulations pointed to a slide to the 1100's for the S&P500 if it broke through 1176. I'll update my model runs today to see where the S&P500 could go from here.  I usually tweet the results on Twitter so if you wan to be the first on your block to get them, sign up for my tweets! PS: The market timing model issued the strongest BUY signal yet yesterday.  Even bigger than this one.

I've been busy rebuilding my Gold neural net model over the past few days with new data and inputs using the new version of Rapidminer.  It's the same model I used to write my published Futures Magazine article and tinkering with it should give me new insight into the current Gold trend.  This is particularly important to me because I want to know if any future pull backs in Gold is a buying opportunity or something else.  I predominately use my trend models to find buying opportunities and this works great in Forex and Metals. Many people I correspond with thought the Gold market was crashing when the price broke through $750 recently.  I seem to remember a lot option acitivity around the $600 level as well.  My old Gold model told me otherwise and I paid a visit to my Gold dealer earlier this month.  I'm curious to see if it will tell me to visit my Gold dealear again in October.

The one nice thing about Genetic Algorithmic stock market models is that they evolve with new market data. The bad thing about them is that they're a pain in the ass to create.  My current GA model is surprisingly simple and works in conjunction with my S&P500 Volatility Timing Model. Although its highly secret, what I can tell you is that I use the Genetik Solver Excel Addin.  I specifically use it because its free and integrates with MS Excel.  Its a bit clunky to use but if you read my tutorial on it, you should be able to learn it in no time. I take a snapshot of market data in real time using the input variables from my volatility model and use the Genetik Solver to analyze those data points.  I make sure to grab the max and min data points for each variable, load it into the Solver, enter my population size, cross over probability, mutation, and then run it. The answers I get from running this analysis helps me understand at what levels my input variables (to the timing model) should rise or fall to for things to return to a state of calm.  From this I can better understand the current market internals and  what things to look for as the market evolves in real time. Right now my Genetic Algorithmic stock market model tells me that in order for the markets to return to a calmer state,  Gold has to drop (no-brainer) and T-bills have to increase in yield to the 2% level.  What wasn't so obvious was that fact the technology sector must remain fairly flat and the Nikkei 225 has to rally like crazy.  If Gold sits tight, T-Bill yields weaken, and you have a rally in the tech sector, watch out!  At least for for this week. :)

Wow, just plain wow!  With the failure of LEH we might have seen the bottom of the market, or maybe not.  My market timing model blew through the roof, a two standard deviation move which is a massive fear event.  I'm close to calling this a Black Swan Event or at least a Gray Swan (we knew this was happening). Whatever it is, I just shot my investment load and moved a lot of money back into the market.

It figures that the Gold and Oil markets start to collapse just as I go on hiatus. My guess is that hedge funds are selling their winners to cover their losers (financials, banks, etc). This has had a nasty consequence in the currency markets with the AUDUSD collapsing from its near parity with the USD to around 0.80. Next stop for Gold could be $600 and Oil maybe $80 (wishful thinking?).

My timing models are going wild and pointing to a lot of market crosscurrents. This shouldn’t surprise me because we are in September after all and I can’t wait for October. We are at a very heavy volatility area in the S&P500 market and we could be making a low or preparing for the next leg down. If we are to go lower from here, it’ll be at least a 100 point drop in the S&P500 down to the 1100 level. How’s that for optimism? The upside potential for the S&P is around 1350 right now.

I’m still on hiatus but had to pop in to make a few comments. I should post my last video tutorial sometime but I don’t know when I’ll get to that.