Market Timing

A money manager (RIA) customer of mine uses our MIPS models along with models from other developers to trade his various strategies. He recently mentioned to me that he received an email from one of his other model developers that sounded almost apologetic for being in a Long Signal for so long (not to mention that his users have done very well in the last 12 months).

That sounds like MIPS.  Our current "Long Signal" from 7/12/2016 now has the longest signal life in MIPS' 11-year history.  As most of you know, I personally use a little leverage (but less than 1.5x), in order to "beat the market" some in extended uptrend periods (but almost never any leverage on short signals).  That keeps me interested instead of getting bored.

BTW - With ETFs, you can effectively generate 1.5x leverage by buying 50% of the 2x SSO and 50% of the 1x SPY.  Or, you can attain 1.25x leverage with 25% SSO and 75% SPY, and so forth.  You trade 0.5x when you buy SPY with 50% of your investment money and leave the rest in cash (but ready to trade with on any day).  With mutual funds, Rydex offers at least one 1.5x S&P 500 fund.

We will show you how MIPS3 would have behaved with these various trading profiles. The graphs below are MIPS3 trading SPY using verified signal data from TimerTrac.com.  Let's look at the 10+ year period between 2007 and 2017 YTD in three views, namely:
   I.) for the period 2007-2017 YTD (up and down markets),
  II.) for the period 2007-2009 (mostly down market), and
 III.) for the period 2009-2016 YTD (mostly up market).

The 3 lines on each graph below are with MIPS:
Green Line - Trading SPY with 1.5x Long and 1.0x Short  -  Aggressive
Gold Line   - Trading SPY with 1.5x Long and  0.5x Short -  Moderate
Blue Line    - Trading SPY with 1.0x Long and 1.0x Short  - Conservative

I. - For the period 2007-2017 ytd (up and down markets)

II - For the period 2007-2009 (mostly down market)

 III - For the period 2009-2016 ytd (mostly up market)

 

Note:  The above is from our original MIPS3 model which has verified signals on TimerTrac.com going back to Nov 4, 2005.  MIPS3 is still a very good model (ranked #1 on TimerTrac.com since 2006).  MIPS4 is a better model, but it only has verified signals since Sept 2013.

No one can tell you which of these is best for you, it depends upon your risk/reward temperament; that is, can you take higher risk (bigger drawdowns) for higher rewards; or would rather minimize your risk and be willing to give up some performance.

Most good investors get a little more aggressive in up markets (to a point of the market being way too "overbought") and cut back on risk in shakier markets (like sideways waffling).  Remember, you do not have to marry any of the above strategies, but do not switch them every time the market makes a little move up or down ("wiggles").

Let's enjoy this ride while it lasts. Some time this year I will most likely be explaining to you why MIPS is trading so often. That's all part of the success.

Stay tuned...

Paul Distefano, PhD
President/CEO
MIPS Timing Systems, LLC
Houston
281-251-MIPS(6477)

The market pundits are citing things like the Trump rally has run its course and that February is NOT normally a good month in the stock market.  As "proof" they point out that, in the last 40 years, in the "good months" between November-April (where they all go when they come back from "sell in May"), February has average gains of only 0.06% (yes, that's six 100ths of a percent).  Furthermore, in the February's following presidential election years, the market has dropped an average of -1.85%.

So, what are the last few days in the market telling us from a technical standpoint.

See the graph below:
1) the bold black trend line on the left is the "Long-Term Trend",
2) the light gray trend line extension is what I have called the Post Election Trend Line, but it really
    is just a natural continuation of the long-term trend line.
3) the orange circle on the top right is a "fake break" to the upside,
4) the blue lines point out where the SPY has dipped to its trend line, hit it, and bounced back up
    (in technical terms, the support level "held its ground" each time, which is bullish).
5) For our hard-core technical MIPS members, let us not ignore another bullish technical indicator. 
    Today (Tuesday) the SP500 "candlestick bar" formed a near-perfect "up hammer", by opening down
    (-7 on SP500), falling another -7 point segment during the day (-14 total), and then bouncing back
    up to close +12 points above its low-point (-2 for the day).  PS - The graph below is for the SPY,
    not the SP500; but of course, the similarity is there.

Of course, today's action is not why MIPS has stayed in a long position for so long (read previous blog for why that is).  It is mainly because a good trend following model will rarely go short when the market is above its trend.  But, good trend following models (like MIPS) will have algorithms that will take themselves short or to cash with a relatively big drop above the trend line [e.g., reversion-to-the-mean algorithms in overbought (or oversold) markets].

Overall, by following the trend, the MIPS models have done well in the recent market (see graph below).
 - from TimerTrac.com


In the above, you can see the following results for the time period of Jan'16-Jan'17:

Red Line      - S&P 500 = +11.9%
Blue Line     - MIPS3 trading SPY 1.0x Long and 1.0x short  =  +11.1%
Gold Line     - MIPS4 trading SPY 1.0x Long and 1.0x short  =  +12.2%
Green Line  - MIPS4 trading SPY 15.x long and 1.0x short   =  +17.9% *
                     * note: 1.5 leverage on long positions

Stay tuned...
It appears that the market will continue to the upside, but let's wait for MIPS to provide us with more "good guidance" going forward !!!


Paul Distefano, PhD
President/CEO
MIPS Timing Systems, LLC
Houston
251-281-MIPS(6477)

Trading frequency is a very important part of the performance of timing models.  If you look on TimerTrac.com, you will find long/short timing models that trade between 10-80 times/year.  If you use a long/short model, these "trades" are basically "round trip trades", which require two actual trades on every "signal change".  For example, a new long signal would require that you: (1) cover your existing short position, and then (2) buy your new long position.  At $10/trade, a model that trades 50 times a year (50 round trips) requires 100 actual trades (lots of work) and costs $1,000/year in trading fees. Whereas, a model that trades 12 times/year requires 24 trades/year and would cost $240/year at $10/trade.

As most of you know, the MIPS2 model trades about 8 times/year and the MIPS3 and MIPS4 models trade between 12-14 times/year.  Since MIPS3 and MIPS4 are better models, we recommend that you use them even though they trade a little more often.  Please remember that the trades/year are "averages" and could mean that in some years the MIPS3/4 models could trade 4-6 times/year and in other years they may trade 16-18 times/year.

What determines how many times/year a model trades is 90-100% dependent upon how long the market trends in that year last (other trades may come about from reversion-to-the-mean in overbought/oversold markets, etc.).  The MIPS models were developed to follow "Intermediate-Term" trends (weeks/months); and not "Short-Term" trends (days) nor "Long-Term" trends (months/years).

In the last 5-6 years, the market has trended up somewhat consistently.  However, in the graph below, you will see that the market in 4Q'15 trended down.  But, before and after 4Q'15, the SPY trended up in a relatively tight pattern.  So, after 4Q'15, models that were "long" more often than "short" should have matched or beat SPY (especially with like 1.5x leverage on long signals).




Getting closer to home, we all know that MIPS4 has been Long since 07/12/2016 (135 days)!
- [MIPS3 did basically the same, but with a one-day cash position on 11/04/2016]. 
Incidentally, in the 14 years since 2003, MIPS3 has had 11 signals that lasted longer than 3 months (90 days), with the longest signal lasting one year (361 days).  All 11 of these signals were winning signals (even a short signal in 2008).  The average gain from these 11 signals was 9.90% each.  [This would have been higher with 1.5x leverage, see the last graph.]

See the graph below to follow the trend of the SPY since 07/12/2016.  As you can see, the SPY trend was up most of the time, except for a dip in early November.  BTW, in a strong up market like this, it takes a bigger dip than that for MIPS to change direction.  And, chasing ralatively small dips can lead to getting whipsawed. Remember, our Blaster Series algos in 1Q'16 greatly lessen the chance of the MIPS models from getting whipsawed !!!

So, how did this 135-day long signal since 07/12/2016 perform. The graph below shows MIPS4 with a 7.9% gain and MIPS3 with a 5.8% gain, both trading SPY with no leverage.


 

With 1.5x Leverage
The graph below from TimerTrac.com shows how MIPS3/4 would have performed trading SPY with 1.5x leverage on long signals and 1.0x leverage on short signals (MIPS4 +11.8%;  MIPS3 +8.6%).


 

Paul Distefano, PhD
MIPS Timing Systems, LLC
Houston, TX
281-251-MIPS(6477)
www.mipstiming.com

Santa Claus Rally, December Rally, Trump Rally... what difference does it make... a rally is a rally !!!

Traditionally the Santa Claus Rally in December is believed to result from:

  (1) Mutual funds, etc., "dressing up" their portfolio by selling all of their losers and buying winning 
       stocks that have done well during the year. This way, all stocks in their year-end portfolios look
       really good (show gains), even though the fund did not actually participate in these gains. Some
       fund's year-end portfolio may show 90% of the stocks up 10-30% in 2016, when in actuality
       the fund was actually up only 2-3% for the year.  Sounds like "cheating" doesn't it?  At its best,
       this very misleading.   

  (2) In the last half of December, the pros have done their dirty deeds and have left on vacation
       for the rest of the year.  Usually, the market sentiment is high from the runup in the first half
       of December.  And then, in the last half, the "little guys" come in and push the market even
       higher on relatively low volume.

 (3) In 2016, all of the above have been aided by the Trump rally.

So, according to the above, December should finish with a nice gain (see graph below).

BTW:
- all MIPS models went long on 7/11/2016.
- MIPS4 was still long on 11/07/2016 (as was MIPS3, after it got called back to cash for a few days).

We MIPS members will wait for MIPS to tell use what to do next... 
Stay tuned...

Paul Distefano, PhD
CEO / Founder
MIPS Timing Systems, Inc.
Houston, TX
281-251-MIPS(6477)

From the MIPS website at: 
http://www.mipstiming.com/rias___nitro1

MIPS/Nitro up 14.3% thru 12/09/2016 (1.5x leverage long, 1.0x SH short)



Paul Distefano
 

-- 
--- Contact Info ---
Paul Distefano, PhD
CEO/Founder
MIPS Timing Systems, LLC
Houston, TX
281-251-MIPS(6477)

www.mipstiming.com
pdistefano@mipstiming.com

From the MIPS website at: 
http://www.mipstiming.com/home


MIPS3 up 8% thru 12/09/2016 (no leverage)


Paul Distefano
 

-- 
--- Contact Info ---
Paul Distefano, PhD
CEO/Founder
MIPS Timing Systems, LLC
Houston, TX
281-251-MIPS(6477)

www.mipstiming.com
pdistefano@mipstiming.com

Good News - The recent new highs are beginning to look like traditional new highs.  The S&P 500 broke out above its long-time resistance at 2165 (216.5 on the SPY) on 11/20/2015.  This was a BIG event !!!

Since then, the SPY has done what markets making new highs do.  That is: (1) break to the upside, (2) come back to test its support level (the old resistance level), and (3) bounce back above the support level with force.  And bounce back it did. 

Seven days after the SPY "broke out", for next two days it bounced off of its support level, its long-term trend line, and its 12-day EMA; and then it gapped up today (orange ellipse on the top right in the graph below) .  From here, the sky should be the limit; but what "should be" does not always happen.

Stay aware, and watch for the MIPS signals to tell us what to do from here...
Stay tuned...


 

Thanks,
Paul Distefano

<<< Contact Info >>>
Paul Distefano, PhD
CEO / Founder
MIPS Timing Systems, LLC
Houston, TX
281-251-MIPS(6477)

================================================================


<<<  Previous Blog >>>
MIPS - New Highs Coming ???

MIPS Members:

After going sideways for almost two years now, the market could be about to break out to the upside. This is somewhat obvious when we look at the long-term trend in the markets.  Keep in mind that the Dow, the NASDAQ, and the Russ2K have already hit new highs.  Is the mighty SPY next?  Instead of looking at daily graphs now, let's first look at a monthly graph of the SPY (ETF for the S&P500). 

In the graph below, you will see that our long uptrend is still in effect, but the SPY has waffled for 2 years (24 monthly bars up-and-down in a tight range), with a rather weak breakout 4 months ago.  Usually when this happens, the SPY is "topping" and a crash is imminent; but not always.  For example, if the market gets a catalyst that results in a strong rally at a time like this, the bull market can run higher, at least for a few months.  Of course, if whatever caused the catalyst is the "real thing", we could see a strong market for a long time.   Read on...




Of course, the "catalyst" this time was the surprising Trump victory in the presidential election ("Trexit").  Because of Trump's bold plans for infrastructure spending, bringing "blue collar" jobs back to the good old USA, etc., the Trump win led big investors to rotate their holdings into industrials (like Caterpillar) and financials (like Goldman Sachs) at the expense of the laggards (like utilities). And, this happened very quickly.  So far, the buying has continued.

Even with (and maybe because of) the bullish sentiment of, and rally in, the markets in the last few weeks, the market could experience a setback soon.  See the next graph below.

The all-time high for the S&P 500 is 2195 (approx 219.5 on the SPY).  As you can see, the SPY reached a resistance strong point of 219.0 on Thursday, and got beaten back by the bears lurking there. That was not good, but not overly bearish (yet).  Almost surely, the SPY will make another set of "charges" at the strong resistance levels at 219.0-219.5 in the next few days/weeks, and the winner will then be known (bulls or bears). 

Keep your eyes fixed on these price levels in the next few days/weeks, while letting MIPS tell you how and when to trade, if at all ...   MIPS members can see the current signals for all MIPS models here:   http://www.mipstiming.com/current_signals

History has shown that breaking (and staying) in new-high territory is very difficult.  On the other hand, if the bulls prevail with a strong break (say on high volume), the sky will be the limit for a while (nice sailing).

Thanks,
Paul Distefano

<<< Contact Info >>>
Paul Distefano, PhD
CEO / Founder
MIPS Timing Systems, LLC
Houston, TX
281-251-MIPS(6477)

After going sideways for almost two years now, the market could be about to break out to the upside. This is somewhat obvious when we look at the long-term trend in the markets.  Keep in mind that the Dow, the NASDAQ, and the Russ2K have already hit new highs.  Is the mighty SPY next?  Instead of looking at daily graphs now, let's first look at a monthly graph of the SPY (ETF for the S&P500). 

In the graph below, you will see that our long uptrend is still in effect, but the SPY has waffled for 2 years (24 monthly bars up-and-down in a tight range), with a rather weak breakout 4 months ago.  Usually when this happens, the SPY is "topping" and a crash is imminent; but not always.  For example, if the market gets a catalyst that results in a strong rally at a time like this, the bull market can run higher, at least for a few months.  Of course, if whatever caused the catalyst is the "real thing", we could see a strong market for a long time.   Read on...




Of course, the "catalyst" this time was the surprising Trump victory in the presidential election ("Trexit").  Because of Trump's bold plans for infrastructure spending, bringing "blue collar" jobs back to the good old USA, etc., the Trump win led big investors to rotate their holdings into industrials (like Caterpillar) and financials (like Goldman Sachs) at the expense of the laggards (like utilities). And, this happened very quickly.  So far, the buying has continued.

Even with (and maybe because of) the bullish sentiment of, and rally in, the markets in the last few weeks, the market could experience a setback soon.  See the next graph below.

The all-time high for the S&P 500 is 2195 (approx 219.5 on the SPY).  As you can see, the SPY reached a resistance strong point of 219.0 on Thursday, and got beaten back by the bears lurking there. That was not good, but not overly bearish (yet).  Almost surely, the SPY will make another set of "charges" at the strong resistance levels at 219.0-219.5 in the next few days/weeks, and the winner will then be known (bulls or bears). 

Keep your eyes fixed on these price levels in the next few days/weeks, while letting MIPS tell you how and when to trade, if at all ...   MIPS members can see the current signals for all MIPS models here:   http://www.mipstiming.com/current_signals

History has shown that breaking (and staying) in new-high territory is very difficult.  On the other hand, if the bulls prevail with a strong break (say on high volume), the sky will be the limit for a while (nice sailing).

Thanks,
Paul Distefano

<<< Contact Info >>>
Paul Distefano, PhD
CEO / Founder
MIPS Timing Systems, LLC
Houston, TX
281-251-MIPS(6477)

There was nothing really bullish in the news or in the markets this week except:
1) in total, corporate earnings were better than expected
2) our country's GDP was up, and
3) even after the FBI broke the news today that they will be examining more Hillary emails (and this 
    turned the markets upside-down), the SPY support gave way as it broke below 2123 but then
    it bounced back up above its support to close slightly above 2125 (see graph below).

Stay tuned...

Paul Distefano

-----------------------
Contact Info
Paul Distefano, PhD
CEO / Founder
MIPS Timing Systems. LLC
Houston
281-251-MIPS(6477)

www.mipstiming.com
 

=============================================================

<<< Previous Blog >>>
 

MIPS Members:

It's times like this when we need a good timing model (like MIPS) to help provide guidance for us in determining the next "big" moves in the market.  When I say "big" moves, I mean future 2-6 month's trends, and NOT the 3-8 day "wiggles".  Remember, our new Blaster Series algorithms are supposed to keep us away from trading short-term "wiggles".

As you can see in the graph below, the market (namely the S&P 500 index, or its ETF the SPY) is basically in a "Standoff", where the market can easily go either way from here. 

On 10/10/16, the SPY hit the top of the "Triangle" pattern, and was followed by three additional days of drops.  Fortunately, on the third trading day (10/13/16), the SPY dropped substantially in early trading and crossed well below its strong support level at 2123 (horizontal black line); but then, the SPY came fighting its way back up (rebounded) and closed way over its support at 2130.  This would constitute what is called a "One Day Key Reversal" to the upside, a very bullish move.

After climbing back above the long-term trend line (green line), the market tried but failed to stay well above the LT trend line.  Actually, the SPY closed the week basically "ON" the trend line, which is neither bullish or bearish.  Or maybe, its just a little bullish since the SPY was facing a sudden downdraft, but somehow managed to "hold the line" right on the LT trend-line (and not below it).

Bearish                                                         Bullish
The SPY broke below the triangle pattern           The SPY was able to hold above its support of 2123
The SPY gave up its rebound and stopped         The SPY closed on or above the LT Trend Line in all of the last 4 days
                                                                             The SPY was on or above its 100-Day EMA for the last 4 days


 

Stay tuned...
- All MIPS models are still Long...

Thanks,
Paul Distefano

-----------------------
Contact Info
Paul Distefano, PhD
CEO / Founder
MIPS Timing Systems. LLC
Houston
281-251-MIPS(6477)

www.mipstiming.com

This market remains one that is very difficult to call. There are lots of things going on that influence the direction of the markets; like The Fed, extremely low interest rates, poor corporate earnings, wild Presidential campaigns, weak international economies, etc.  It seems like when any one of these "pops" just a little, the market goes crazy. That is why the market is relatively flat, but with high volatility.

From a "technical" standpoint, we have had a really interesting standoff, with the Bulls winning most and the Bears winning a few.  However, the Bears have been in charge so far this week, but the Bulls may have pulled off a "turnaround" today.  Still too close to call, but let's lay out what we see.

SHORT TERM
From the graph below, we can analyze the pros and cons for each side:

Bears                                                        Bulls                                 _             ________ __
Broke triangle pattern down 3 days ago        Today the SPY closed above its support at 212.0
Continued down for the next two days          Today's "candle" is in a positive "Hammer" position
The SPY broke it's 100-Day EMA today          Today may have been a "One Day Key Reversal"
                             

LONG TERM
From the graph below:

Bears                                                        Bulls                                 _             ________ _______
Broke below triangle pattern                        Market re-bound performed like a "One Day Key Reversal"
Broke just below the Long-Term trend line    Rebounded to closed almost on the Long-Term trend line
Broke just below its 200-Day EMA                      
                                                                

The short-term future of the market is very difficult to call under these conditions.  The current MIPS signals are "LONG", so we should hold our long positions for now.

Thanks,
Paul Distefano

----------------------------------
Paul Distefano, PhD
MIPS Timing Systems
Houston, TX
281-251_MIPS(6477)

www.mipstiming.com