Tag Archives: Neural Nets

VIX Buy/Sell Signals For Option Traders

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Ah, the almighty ^VIX, everyone’s favorite indicator and the one index that a lot of option traders watch with bated breath.  What if I were to tell you that you can use Stock Neuromaster to generate BUY/SELL signals for the ^VIX?  Would you be interested?

SNM-VIX-030808I’m sure that option traders and writers would be keenly interested if a^VIX neural net model generated a SELL signal for a new short position because it would mean volatility is expected to drop.  If it generated a BUY signal for a long position, then the option trader would expect volatility to increase! Don’t believe me?  Here’s the chart!

Another way to use this when trading options is to build a neural net model for a particular stock and then buy/sell call and put options against it!

Stock Signal Reviews – Boeing and The S&P500

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This week I featured the neural net models of Boeing Company (BA) and the S&P500 Index and indicated if each model had issued a BUY or SELL signal recently.

SNM-BA-030608For my BA post, my neural net model issued a SELL signal on 2/26/08 (for 2/27 open) to establish a short position. It then issued a BUY signal to close the short position on 3/5/08 (for 3/6 open). This was another successful trade using the Stock Neuromaster system and it would’ve netted you a gross profit of +4.6% in 6 trading days!

SNM-SP500-030608I also gave my readers an S&P500 Trend snapshot from my longer term S&P500 neural net model. The model issued a SELL signal on 2/28/08 (for 2/29 open) to establish a short position. It then issued a BUY signal to close the short position on 3/5/08 (for 3/6 open) . It’s too bad the model didn’t anticipate the sell off yesterday and then issue the close position signal last night but its prediction of the short trend term was correct! This small trade would’ve netted you a gross profit of +2.3%!

Once again the system proves to be a money maker and the beauty of it is, you can pick what stocks you want to follow! One bonus to the Stock Neuromaster system is that you can download OHLC data for any asset, in CSV format, load it into the system and build a neural net model with BUY and SELL signals! Are you interested in modeling Futures like Gold, Silver, Aussie Dollar, or Wheat? You can do that with this little program!

My Trading and Investment Strategy

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Bull.jpgYesterday I got a great email from Digital Dude who asked me why I didn’t use a stop when I went long Citigroup @ $42/share and does buying more, now, make it right? I responded by saying that my strategy for long term is different than my short term one. Soon after I posted my reply I realized that my answer wasn’t very clear to Digital Dude and my readers.

Simply put, my strategy in my 401k and IRA accounts is vastly different than my trading accounts, both for stocks and Forex. For my retirement accounts I like to market time the markets (buy in panics, take profits during euphoria), establish long term positions (5 years or more) in specific stocks like XOM, GE, and yes C! I choose these stocks on fundamentals and sentiment mostly and because I believe they’re going to be winners 5 years from now.  Just like on my mutual funds, I don’t use stops when entering these positions because I expect to be in them for a long time.  I’m always net long in my 401k and IRA accounts.

Sometimes this strategy backfires on me, like it did on Citigroup (C). So why buy more? My long term outlook for C still stands, I think its a great company despite its bad decision with its subprime investments. Now that the sentiment is even worse, rumors of another $18 Billion write down are floating around and fundamentally its become more attractive, I’m looking to add a few more shares to my 401k account. My exit strategy for these stocks will probably be bequeathing them to my grandchildren upon my death.

My trading strategy is entirely different. I use my neural nets to determine Forex trends or potential breakout stocks, I swing or position trade them, and I use stops! I typically place these stops using my Monte Carlo simulations. This works extremely well in the Forex markets I found out. My exit strategy on these are within a few days and occasionally weeks.

question.JPGJust a word of caution, my trading and investment strategies work for me but they may not be right for you. I’ve learned the hard way over my trading and investing life what works for me and what doesn’t. You’ll have to find your own strategies.

Forex Trend Signals

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currency.thumbnail.jpgIts been a while since I posted my Forex Trend Signals and the reasons why are numerous: I’ve been sick, swamped at work, and taking a break from trading Forex. The break in trading Forex was out of necessity. Although my trend signals were correct, the markets intraday were extremely volatile and stopped me out several times in a row. So before I decimate my trading account, I took some time off to think about my strategies before I start trading again.

The signals for this week shouldn’t come as a surprise to people, they are very obvious if you’ve been watching the market.

  • AUDUSD – UP
  • GBPUSD – UP
  • EURUSD – UP
  • OIL – UP
  • GOLD – UP

Note, these trend signals are based on proprietary neural net models I’ve created and they get updated weekly. I use them to guage if I should enter long or short swing positions on intraday or intraweek pull backs. These strategies have worked wonders in the past but lately they’ve caused me to be stopped out during intraday volatility.

What I really need to build this year is a better Forex volatility model to help me predict the direction of volatility and I’ll probably do that after I post my new tutorials and have the first RapidMiner Meetup in NYC.

The Boeing Company (BA) – Flying High or Crashing?

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The Boeing Company (BA) was flying high for a while but recently has been dragged down through this market correction. BA is generally a popular stock and its even been showcased on Wallstrip last week, right before they lost a $40 billion dollar contract to their rival Northrop Grumman. This is a slap in the face for Boeing because Northrop will be using the Airbus’s (their main rival) plane design to replace the Air Force’s aging in-flight fueling planes.

Fundamental Analysis

S&P currently rates BA as a 4 star company and was downgraded from 5 stars at the end of last year. BA pays a $0.40 dividend, its gross margin is 16.1%, net profit is 6.1%, and its PE ratio of 15.8. It has an ROA of 7.3%, an astounding 73% ROE, and a ROI of 16.4%. BA’s earnings grew over 83% for the past year with last year’s earnings being $5.26. Analysts expect BA’s earnings to grow to $5.98 in 2008 and $7.15 in 2009! So far BA looks pretty good and with its recent price pull back, but is it a BUY?

Technical Analysis

The technical picture for BA is so-so on the weekly charts. After peaking around $105, BA has pulled back to the $80 level and below its 50 WMA. It’s looking short term Bearish to me but long term it’s still Bullish for one simple fact, in my mind, it’s above the 200 WMA. But is it a Buy?

BA-022908

Neural Net Signal

SNM-BA-022908My BA neural net model issued a SELL signal on 2/26/08 to open a short position and it remains short going into today’s open. According to the neural net, it’s not a BUY but a SELL!

 

Price Targets

My Monte Carlo simulation indicates a downward bias for BA at this moment. That’s probably why the BA neural net model is short! The short term downside targets are: $78, then $71, and then $64. The most likely objective is the $71 level. Short term upside targets are $85 and $92.

Bottom line

I like BA for my 401k as a long term play but I’d wait to see if BA keeps selling off as indicated by my neural net model and my Monte Carlo sim. If it does and reaches the price objective of $71, I’d look to BUY for my 401k but in the meantime, do nothing.

Disclosure: No positions

New RapidMiner Tutorials Coming

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RapidMinerYes you read that right, I’m working on a new set of RapidMiner tutorial posts (I’m bagging the videos for now). I hope to share with my readers two new tutorials over the coming weeks/months and I expect to post the first installment this week.

The first tutorial will be about using RapidMiner’s Evolutionary Weighting and Genetic Algorithms to build a Market Timing Model. This tutorial will follow the same methodology I used to build my S&P500 Market Timing Model. If you ever wondered how to build a timing model using RapidMiner then make sure to check back often for these free and valuable lessons.

After I’m done with that tutorial, I’ll delve into the world of Web and Text Mining. I’ll show you how to web mine blogs and websites for interesting bits of data. I’ll make sure that all new tutorials will have downloadable templates and data for you to play with.

On top of this, I’ll be over the next few months I’ll be updating my original YALE tutorials to be compatible with the new RapidMiner format. The formats are close but not close enough. I’m sure that many readers downloaded the YALE templates and then opened with the new RapidMiner software and found some “run time errors.”

EMCOR Group Inc. (EME)

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Bull.jpgI got tired of listening to those Bloomberg Radio commercials about EMCOR so I decided to check them out to see what the hype was all about. EMCOR Group is one of those companies that isn’t overly exciting, they’re downright boring! EMCOR Group (EME) is part of the Construction Services group and they provide their clients with “construction services relating to electrical and mechanical systems in facilities of all types and in providing services for the operation, maintenance and management of all aspects of such facilities.”

Fundamental Analysis

EMCOR reminds me of the typical engineering company, low gross margins and even lower net profit margins. EME’s current gross profit margin is 11.9% and its net profit margin is a lousy 2.1%. The joke we make about large engineering companies in my field is that they exist just to keep people in employed, not make money! It looks like EME is one of these large corporations that do just this!

It has a PE ratio of 12.9, ROA of 5.1%, ROE of 15.6%, EPS (MRFY) of $1.86, and surprisingly the leader amongst its peer group. EME is outperforming its peers GVA, SXC, PCR, and ARCAY this year! On top of this, analysts expect EME’s earnings to grow between 11.8 to 22.6% this year with its EPS to range between $2.08 to $2.28 (source: S&P). Surprisingly that’s not too bad after all!

Technical Analysis

Technically the chart on EME is short term BEARISH but still long term BULLISH. They reason why I say that is because EME bounced off its 200 WMA and we have not seen a 50/200 WMA death cross happen.

EME-022408

This might be a good place to establish a long term position, a quick monte carlo simulation reveals price levels on the upside of $25, $28, and $31. Immediate downside targets is $22, then $19, and then $16, the worst case scenario is $13.

Neural Net Signal

EMEsnn-022408The EME neural net model indicates no buy or sell signals. In fact the recent market volatility and EME’s price action have made trading EME over the past month a money losing venture.

Bottom line

I like EMECOR because of one reason, our crumbling infrastructure. I’m very BULLISH in the construction services and material sectors over the next 20 to 30 years and I am considering adding any leader, like EME, to my 401k. EME maybe boring and not overly sexy with their profit margins, but if they’re like any other engineering/construction company, they have long term staying power. Consistent growth over a long time wins the game in my mind. Currently its trading its $23.99 and my target for this year will be around $28 to $30/share.

Disclosure: No positions in EME (yet)

Citigroup Inc (C) – Love/Hate Relationship Part 2

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bear.jpgI decided to take a look at my long term buy, Citigroup (C), again. Where have we gone since my last post? Not very far at all! The trend is definitely downward despite two cash infusions totaling $22 Billion dollars over the course of a few months. Will it help? I’m sure the cash infusions will help out their balance sheets but the sentiment on the Street for C, and financials in general, is pretty dour.

Fundamental Analysis

Fundamentally C is breaking down and I can’t help but wonder when the financial beating will stop. Standard & Poors gives C a 3 star ranking, down from 5 stars a few months ago. Its current PE ratio is 36 (a bit high), with expected earnings (note: expected) to be $2.91 for fiscal year 2008. This is a considerable “expected” improvement from the $0.72 earnings for fiscal year 2007 (source: S&P report).

Can C’s share price go any lower? It sure could but this company has been so beaten down that I’m considering buying more. The question is, at what price?

Technical Analysis

Technically speaking, C is flashing SELL. The most current weekly chart shows a “death cross” has formed and the price action is clearly below the 50 WMA. From a technical standpoint I wouldn’t go near Citigroup except to wait for a pull back and short it.

C-022208

Neural Net Signal

C-SNN-022208My current Citigroup neural net model is also flashing a SELL signal from its long entry back on 2/12 for market open 2/13. This trade will likely lose money but the previous short signal on 1/30 for execution on 1/31 would’ve made you money if you closed your position on 2/12.

Bottom Line

This analysis a toss up for me, I really want to add more shares but I fear that C might head lower. Why? Because the talk on the street is that another wave of financial calamity maybe on the way for Citigroup! Although things are getting to be overblown in my opinion I think I’ll stay on the sidelines for a bit until this gloomy cloud passes.

Stock Signals

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EWZ Buy SignalsI’m busy going through my list of stocks in my neural net program looking for buy and sell signals. My actual trades in XOM and EWZ have been profitable and I’m looking forward to doing some more trading this week. The beauty of this system is its simplicity. Every morning I just update the models with new price data and then click the prediction button. It tells me to BUY, SELL, or HOLD at the next market open. When used with a good stop loss and risk management system, this program is one helluva great swing/position trading tool.

Here are a few signals of stock positions I’m holding:

  1. NE – HOLD long position
  2. XOM – SELL long position @ market open

FYI: My posts may become erratic over the next few weeks as I’m busy with work and a crazy light rail design submission.

Sold iShares MSCI Brazil Index (EWZ)

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I sold my position in EWZ yesterday after it rocketed over $80 yesterday and started a slow decline back down. This is counter to what my EWZ neural net model says but the Forex Trader suddenly emerged and screamed, “see profit, take it now!” I ended up with a 2.3R gain instead of 3R but I’m happy nonetheless.

EWZ-021208

The EWZ neural net model still remains long going into today’s open and with my luck EWZ will blow past $81 today! :)

Stock Signals

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EWZ zoomed up yesterday and I remain long, up +4.2% since I bought it on Friday @ $74.66, I did move my stop up to break even and look to be trailing it from here on out. My stock neural net program tells me to remain long and I will wait patiently till the sell signal.

Just a quick recap of the other stocks I’m following and what their signals are right now:

  • SPY: SELL to close out the long position
  • EWM: HOLD long position
  • MLM: HOLD long position
  • GEOY: BUY today at open

Disclosure: Long EWZ and trade at your own risk

Stock NeuroMaster BUY/SELL Signals – VIII

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Today is the last installment of our little Stock NeuroMaster experiment, I hope you’ve been following along! We sold our long position of the iShares MSCI Brazil Index (EWZ) at the open for $74.09. The total total gain from this position is +12.1% and the model has sent another BUY signal for EWZ @ today’s opening, which I will be taking with real money.

The model is 2 for 2 in its win/loss ratio and the total gains for the account is +15.6% (I didn’t include costs for commissions and fees). I hope that this little experiment helped clear up any concerns you had regarding this software, I really like it and have included it in my trading arsenal.

If you read my Stock NeuroMaster post yesterday, you would’ve picked up on the SPY BUY signal and been sitting on a profit today. Guess what? EWH is also giving a BUY signal this morning!

As always, if you any questions, just leave me a comment below.