Market Timing – Weekly Stock Market Update

The following emails went out over the last several weeks to our subscribers. If you would like to receive more timely market updates, go to the FREE TRIAL page and enter your name and e-mail address where it says join BuyandHoldisDead.com.

Due to the volatility in the markets I have included the current Market Update that went out to subscribers.

Weekly Market Update 10/3/09

Our profit margin took a hit this week. I have moved the stop for all long SPY positions to 101.49. This stop was sent out in a mid-week update. If we get stopped out we are sitting pretty close to break-even.

The Volatility Index or VXO as spiked higher and generated a sell signal for the SPY. This is part of the reason I am leaving our stop right below Fridays low. I don’t want to get caught long if the market decides to sell off sharply. The RSI, which is one of my favorite indicators, is very close to indicating a change in trend. On Friday the 14 period RSI closed at 43.17. If the RSI closes below 40 for more than a couple days, I would no longer be looking to buy dips.

Mid-Week update sent out 10/2/2009

The market is expected to open down another 1% today. This is on top
of Thursdays sell-off. This is not the time of year I like to see
Sentiment and economic numbers change.
I recommend exiting all long SPY position with a sell stop @ 101.49.
If the market fundamentals improve we can always get back in later.

Weekly Market Update 9/27/09

I am leaving our sell stop at 100.32. We have reached a point in this retracement where it is safe to consider adding to our long position with limited risk on the down side. I am only looking to add an additional 10% to our long position if filled we would be 30% long. I will place a buy stop at 105.46. If the market continues to make lower highs I will be lowering this stop.

Weekly Stock Market Update

The following emails went out over the last several weeks to our subscribers. If you would like to receive more timely market updates, go to the FREE TRIAL page and, enter your name and e-mail address where it says join BuyandHoldisDead.com.

Weekly Market Update – 8/23/2009

We have had a nice move from our buy of 99.20 on the SPY. I have my stop for this position at 92.75.

Weekly Market Update 8/30/09

I am moving our sell stop up to 96.05 from 92.75.

Weekly Market Update 9/07/09

Our sell stop remains at 96.05. I am keeping a close eye on the VIX.
That is the CBOE volatility index. If we see a close above 30.00 on
the VIX I am concerned we may see another move down in the averages.
I will keep you posted.

Here is a link to a post on a interest rate based market timing model:

http://www.buyandholdisdead.com/public_html/wordpress/135/

interest-rate-market-timing-model-still-on-sell/

Here is a link to a story I posted on what’s wrong with long term investing:

http://www.buyandholdisdead.com/public_html/wordpress/in-the-news/

Weekly Market Update 9/12/09

I am moving our sell stop up to 98.05. The VIX has settled down
considerably this week but, due to negative seasonality I will
be keeping a close eye on the markets. We are almost to break even
on our stop. If the market does decide to turn down from here the
damage will be minimal.

Weekly Market Update 9/20/09

I am moving our sell stop to 100.32. We would need to see a 6%
correction to get stopped out at this point.

Interest Rate Market Timing Model Still on Sell

This week I am going to add an interest rate model to our market timing arsenal. This particular market timing model looks at the yield differential between ten-year notes and 13-week T-bills. I am not an economist but it appears the market performs better when the differential is declining. Most likely this would be caused when the t-bill rate is increasing relative to yield on ten-year notes. This might happen if the economy was running on all cylinders, and the Fed was raising interest rates in order to slow down the economy. The opposite might be occurring if the differential were rising. The economy could be in the doldrums and the Fed is easing interest rates in an effort to jump-start the economy.

I looked at differential at the end of each month. It is more the trend in the differential that we are interested in, so I do not feel it is necessary to look at the differential on a daily basis. I placed both a 9-period and a 26-period moving average on a chart of the interest rate differential. I would sell the SPY and go into cash if 9-period moving average moved above the 26-period moving average. I would go long the SPY when the 9-period moving average moved below the 26-period moving average. This market timing system only gave three round turn signals in the last ten years. $10000 invested in SPY on 7/31/2000 (the date of the first buy signal) and held until 7/31/2009 would be worth $6349.01. The interest rate model taking only long signal (because I can’t go short in my 401k) would have grown from $10000 on 7/31/2000 to $13,024.27 on 10/31/2007. This is the date of the last sell signal and does not include dividends while in the market or interest earned while out of the market. This means a buy and hold investor, even after the nice up move from the March lows, would still be looking at a drawdown on his or her account of at least 51%.

No market timing system is perfect and this one is not either. Of the three buy signals given since 2000 only two were winners. This system is still on the sideline so it has not caught any of the move from the March lows. This is why I prefer to track multiple market timing models at the same time and diversify my investments among the various timing models.

Weekly Market Update

The following emails went out this week to our subscribers. If you would like to receive more timely market updates, just enter your name and e-mail address on the right hand side of the page where it says join BuyandHoldisDead.com.

Weekly Market Update for 8/16/2009

Hello Everyone,
Well the market was not able to take out the previous weeks high. I
for one am gratefull, I would much rather be buying in on a pullback,
and lower my risk in the process.

That being said I still have my buy stop on the SPY at 102.05.
I am waiting for one of my systems to signal a buy setup. When that
happens I will be sending out a email.
Until Then.
Good Trading,
Rob

Midweek Update sent out 8/17/2009

We had a nice pullback in the markets today. For this reason I am
lowering my buy stop down to 99.20 on the SPY. This is just above
Mondays high. I would like to see the market sell off a little more
but, if it doesn’t we will be in. If Tuesday gives us another lower
high I will lower our buy stop again.
Until Then,
Rob

Trend Following System

This Trend Following System is derived from the work of Constance Brown. In her book Technical Analysis for the Trading Professional she discusses RSI trading zones for both bull and bear markets. RSI (Relative Strength Index) is a very popular indicator developed by Welles Wilder. It measures gains vs. losses over a defined period and is traditionally used to signal overbought and oversold markets. The formula can be found on several sites on the web so I won’t go into detail here. What Constance points out in her book is that in a bear market the RSI will not typically trade above 60 and in a bull market the RSI will usually stay above 40.

What I have done with this is applied a 14 period RSI to a weekly chart of the SPY. SPY is ETF of the S&P 500. A long signal is generated when the RSI closes above 60 for the week. We will remain long until the RSI closes below 40 for the week. Signals are generated on Friday and trades were taken at the open on Monday. I realize that in most 401k accounts trades are done on the close. This should not significantly change the results.

Caution: This is a rather large file and may be slow in loading.

SPY CHART W/ RSI Trend Following System

 Trend Following System Trade Dates 

Past performance is not necessarily an indication of future performance. Hypothetical or simulated performance results have certain inherent limitations. See full disclosure on disclosure page.