Tag Archives: market lab report

Market Lab Report – Premarket Pulse 12/15/15

Major averages bounced yesterday on higher volume though the majors remain below major resistance points. The market initially sold off then staged its bounce once the price of oil which dipped under $35 a barrel recovered to finish the day higher. It was the lowest price oil has seen since early 2009. The Federal Reserve concludes its two-day meeting this Wednesday at 2 pm EST when they will announce whether or not they will hike rates. CME FedWatch puts the odds of a hike at 83% despite the recent turmoil. Futures are up almost 1% at the time of this writing.

Market Lab Report – Premarket Pulse 12/14/15

Major averages took it on the chin Friday on higher volume. The S&P 500 and NASDAQ Composite both broke below major support levels as the S&P dove below its 200-day moving average and the NASDAQ its 50-day moving average. Oil and other commodities continued their downtrends due to lack of demand in the face of a looming global recession combined with oversupply as OPEC voted to maintain current production levels. High-yield “junk” bonds also had a nasty day as one major high-yield fund moved to liquidate while simultaneously blocking investors from redeeming their stakes in the fund. Thus the markets are suffering crisis situations on several different levels. Such days as that seen Friday have preceded eventual major sell offs in the US stock market that often materialize within a few months or less. The Federal Reserve concludes its meeting this Wednesday. The market assumes it will raise rates, but with the recent weakness in the markets and ongoing weakness in the global economy, the Fed may have no choice but to hold off on any rate hikes. Updates on the Models VIX Volatility Model based on long term tests shows substantial profits overall. That said, all strategies go through periods of drawdowns. Such periods fortunately have not lasted longer than typically a few months. The model’s current drawdown started in early September, shortly after the model was shared on the website. Here’s an update we provided on October 23: http://www.virtueofselfishinvesting.com/reports/view/important-update-on-vix-volatility-model-vvm Based on back tests going back many years, I expect this difficult period to come to an end sooner than later. That said, the past cannot always predict the future, so patience during prolonged periods of difficulty is warranted. VIX Volatility Model remains in cash for now as the markets have been very noisy. While constructive volatility can yield steep gains such as in 2011 or more recently earlier this year, it is best to wait out the brief periods where the model does not have the odds on its side. The model needs to see advantage before issuing a buy or sell signal. While US markets this year have been unusually trendless, much of it has been surprisingly profitable with respect to the model’s performance tests. While the model remains in beta for now, the last three signals occurred after the fail safes were implemented. Total loss was just -2.8%. It is constructive that members can see how the model performs under one of the most challenging environments. So despite the noisy markets, and despite the three signals being losers, the total loss came to just -2.8% as expected based on backtests. Meanwhile, the model has had healthy gains prior to August of this year in backtests after the fail-safes were worked into the strategy. While this year has been one of the most challenging for market timing and hedge funds of all stripes, such periods always come to an end. When it comes to the markets, the only thing that doesn’t change is change. MDM is longer term so to avoid getting whipsawed repeatedly, especially in a year such as this one, it stays on its signals longer than normal. Do look at its overall long term track record vs the Nasdaq and S&P 500 to gain a clearer picture on the models strengths and weaknesses. When it comes to catching intermediate to longer term trends, the model will get whipsawed like it has this year. Also, in the last couple of years, the markets have become far more manipulated by central banks thus shallow floors form even when all signs point to a much worse correction. Likewise, normal sustained uptrends have also been nearly non-existent. Sharp moves in either direction often come without warning off lows or off highs which explains why this year has been one of the most challenging in decades. Thus our greater focus on individual stocks and, more recently, the VIX Volatility Model given its performance up through August of this year with the implemented fail-safes. Note, the reports emailed out on the VIX model prior to the last three signals did not contain the implemented fail-safes as we have discussed in a prior VIX model update.

Market Lab Report – Review of Pocket Pivots for the Week of 12/7-12/11/15

Trading Journal Notes from Gil and Dr. K regarding this past week’s pocket pivot alerts: General Comments: GM – Fortunately, we only put out two pocket pivot reports this week, which is not surprising given the deteriorating nature of the market. As I pointed out in our Thursday webinar, there is a stark divergence between the broader market as measured by the Russell 2000 and NYSE Composite Indexes and the major market indexes. That point was reiterated in our Friday morning Pre-Market Pulse. With the market coming apart on Friday, cash, or at least more of it, strikes me as the most prudent approach to take here. I do think that investors need to be more mindful of what they are buying in this environment. In my view the evidence argues for the fact that probably we send out far too many pocket pivot alerts without regard to quality or a sense of what is actually working, even if only slightly, in this market. Big-stock NASDAQ names have led the rally off the lows of late September, and this is one reason why so many pocket pivots in smaller names have gone nowhere during the same time period. As I see it, this is something we need to look at seriously in order to improve our hit rate when it comes to these pocket pivot alerts.  DRK – A big part of successful investing is in organically moving money into the strongest names as the market dictates. Given the troubles smaller caps have had all year, these types of stocks may look seductive but have not been the lower hanging fruit. Nevertheless, some prefer smaller over larger caps because the gains in a short period can be greater. That is a false seduction and can increase losses especially when the markets are showing clearly that smaller caps are failing. Thus, as we have reported, larger caps have been the names with better odds. Nevertheless, over the last couple of years, when markets sell off, most stocks come apart in rapid fashion. Thus keeping stops extra tight has been essential in this highly unforgiving market.  Comfort Systems USA (FIX) GM – I never buy into strength, preferring to buy stocks on constructive weakness following a display of technical strength, and I NEVER buy breakouts. In this environment, the standard-issue CAN SLIM dogma of buying base breakouts in “quality” leaders simply sets one up for failure, and FIX is no different in this regard. Now the stock is streaking for its 50-day moving average and looks to be set to test the line on the downside. In this market, however, this could simply be setting the stock up for a late-stage base-failure if it is unable to hold the 50-day line. This is one to simply avoid after the breakout failure, in my view. DRK – Buying on pullbacks near support works best this year as we have reiterated. With markets trending lower as part of their sloppy, sideways manner then selling off further on Friday, a tight stop under the lows of either pocket pivot day would equate to a piercing of the stock’s 10-day moving average. When markets sell off, very tight stops will help minimize losses. This buying close to support at the stock’s 10dma would result in losses of 1-2% or even less.   Jet  Blue Airways (JBLU) GM – Your first clue that something was amiss in the airline sector was when Southwest Airlines (LUV) blew apart on Tuesday after guiding its growth numbers down. JBLU stalled out on a breakout attempt on Monday, but held up in the face of Tuesday’s negative news coming from LUV. However, JBLU issues its own similar news on Friday, sending the stock gapping to the downside. Again, we see an example of a stock that is breaking out, and it is simply mindlessly futile to try and buy these types of breakouts. Another issue with this current base is the heavy selling in the base while upside volume has remained muted. This is a detail that investors should probably not ignore when evaluating a one-day show of strength. Throw in a deteriorating market, and in my view JBLU is on track to rendezvous with its 200-day moving average this coming week. DRK – The stock should be sold as it pierced its multiple overlapping moving averages. Had one bought closer to major support such as when the stock pulled back to its overlapping moving averages, losses would be minimized. it’s important to remember that one does not have to trade all the time. One’s risk tolerance and trading personality will help shape such rules. If one feels compelled to trade all the time, that is a red flag. That said, one can mitigate losses by using small position sizes when markets are not acting right. This week, we saw markets retest the lows of its trading range then fall further on Friday. The warning signals were there. the markets have been the most challenging this year this our guidance of keeping stops extra tight and buying on weakness apply especially to such periods. Losses are then minimized so one can hold onto gains which have been tough to come buy since August.