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Market Timing

Saturday, January 30 2021

Remember, this Blog has nothing to do with MIPS, but is more about what I study and how I invest.

- of course, the majority of my trades result from MIPS Signals, but not all.

So, exactly where is the Stock Market going from here ???
- the answer is easy, NOBODY KNOWS
- but, we can make some very "educated guesses" on what will happen (or said another way, we can develop some very practical possibilities)
- and, we can explore strategies regarding how we should invest in each
- some of my "tips" are written below...

First let's define what "where is the stock market going from here" means...
- basically, under "normal conditions" (like good economic growth, good earnings, low corporate debt, no crazy buying, low taxes,
  low interest rates) the stock market goes up
- otherwise, except for the rare "flat markets", the market goes down.
Now, let's examine "going down"
- there are multiple, identifiable ways that stock markets "go down"
- your reaction to each "drop" should be different

Here are some of definitions of typical market drops (and we will explain how we should react to each below these definitions)
1) Normal "Dips"
   Long-term up-markets look like:
    - stock markets move in cycles (like a sine wave)
    - what drives these cycles in an up-market is when the mid-line of the cycles have an upward trend (and vice-versa for down markets)
  Long-term down-markets can be identified like that above (down trends), but most of the time the down-trends fall much faster than in up-markets
  - but, in this type movement, the down cycles are more like dips than crashes
  Nothing special causes this, as it is "the norm" of movements for bid-and-ask markets
2) Corrections
    The investment community has named a "market drop" of over 5-10%, but not over 20% a "Correction" in the market
    - mostly corrections happen in normal markets as the result of some "bad-news events", not from bad economic business fundamentals
    - a good example of this was the correction between 4Q'19 thru 1Q'20 that resulted from bad news regarding the Brexit
    - during this time, the market fell in almost a straight line from the beginning-to-end of 4Q'19 and fully recovered in a straight line by the end of 1Q'20
    - the pattern for this type of correction would be called a "V-Bottom" 
   In addition, many corrections result from extremely overbought markets (where investors have pushed up stock prices way higher than they are worth)
3) Market Crashes
    Market crashes are when market indices (like the DOW, S&P500, Nasdaq 100, Russell 2000) drop over 50% in a one or two year period
    - in the market crash of the 2000 recession, the Nasdaq index dropped over 60% and took over 16 years to recover
    - in the market crash of the 2008 financial crisis, the SP500 dropped 55% and recovered within the next two years
   Normally, Market crashes result from a very poor economy (like a recession or depression).
    - by poor economy, we mean low consumer spending, lower business revenues, lower profits, higher debt, high borrowing rates, etc
    - this is like being in a slow moving, bad news environment with a relative long-time recovery
    - in the market crash from the depression in 1929, the market fell 90% in 2 years and took over 20+ years to recover
   Under no conditions (except using Quantitative models that hedge by effective shorting), you should not be fully invested in a market crash.
How to react to the above
You need to develop and follow your own "Strategy" in investing your hard earned assets.
- to be a successful investor, you first have to (really) understand your risk/reward tolerance (ask me about this)
- develop your Assent Allocation plan to determine what % of your Net Worth you want to have in Hard Assets (real estate, gold/silver, coins, etc), 
   and what % you want to have in Liquid Assets (cash, equities, bonds)
- this blog (and MIPS) is concentrating mainly on how you should invest your equity/bond money.
Your options on managing your own money include:
Traditional Investing
- buy-and-hold
- decide on your stock/bond allocation (like 60% stocks, 30% bonds, 10% cash) depending on your risk/reward toleration
- spread your investments thru mutual funds (certain %'s in large-cap USA, mid-small-cap USA, International companies, emerging markets, etc)
The above will most likely follow the market up, but does not protect you very well in market crashes

More Sophisticated Investing
- this includes using quantitative models to make money in up markets (and a little better using margin), and making money in down markets by
  "hedging" (that is, by going short to invest against the market when it is falling)
OK, where is this market going (my analysis) ?
1) Market Dips - We will always have "market dips", so simply do what MIPS says to do
2) Corrections - In long-term investing, corrections come and go like the wind. 
    - The current market is a good candidate for a correction due to an overbought market, high-corp. debt, record-high margin buying, etc 
    - In other words, too much speculation
3) Market Crash - The most likely thing that could cause a market crash in the next 1-3 years is the COVID-10 virus
    - If the virus continues to spread (like through new mutations) for the next several years, this would disrupt our economy and cause a recession.
    - To counter this, you could invest less in equities than your norm (like maybe only half of norm)
    - Or better yet, rely on MIPS to take you into "short" positions (inverse ETFs, etc)
    - However I believe the vaccines will bring things under control over the next 2 years, and hopefully things will revert back close to the norm

To execute your equity Strategy you can:
1) Keep trading on your own (when to trade, what to trade, when to punt, and when to run)
2) Use MIPS or other Quantitative Models by yourself with some of your money
3) Sign us with RIAs (Registered Investment Advisors) that use multiple Quantitative models (you do nothing, but pay a fee of 1.2-1.8%)
    - if you are interested, I use three good RIAs myself (they use 4-5 models each and only one uses MIPS; so I am buying model diversification)
4) Use traditional RIAs  (call me, I know some of the best, as I send them potential customers for free, and they treat you well because I sent you)
     Note - I make no money from these recommended RIAs (but I do make lots of friends and that is more important to me now).

In the meantime, and no matter what you decide to do in the future, keep using MIPS Signals as your guidance now.

PS - Even after last weeks market dip, all of the MIPS models are still long and the performance of the last signal on 6/26/2020 are:
        Trading SPY   +22.8%
        Trading QQQ +30.8%

Call me (10am-10pm, CDT - six days/week)
Paul Distefano, PhD
CEO / Founder
MIPS Timing Systems, LLC
Houston, TX
408-234-8348 (cell)
Posted by: Dr. G Paul Distefano AT 09:45 pm   |  Permalink   |  Email
Tuesday, December 01 2020
As we all know, the US stock markets have made a terrific comeback from the 2020 "mini-crash" (from bottom in mid-March)
- however, the SPY and QQQ have been moving basically sideways for the last several weeks/months
- as of today, these Indices may have experienced a breakout to the upside in time for another "Christmas Rally"

In the graphs below, you can see these recent "Breakouts" for the SPY and the QQQ.
- MIPS is still saying that this IS indeed a breakout (but there is still a possibility that the market is becoming highly overbought)

All MIPS models are still Long...

Paul Distefano, PhD
Founder / Lead Developer
MIPS Timing Systems, LLC



Posted by: Dr. G. Paul Distefano AT 07:37 pm   |  Permalink   |  Email
Monday, November 02 2020
MIPS provides its Subscribers very straight forward direction as to whether you should be invested in the market (Long), or out the market (Cash), or betting against the market (Short).  As a MIPS member you should follow the MIPS signals as issued.
But that is not the complete story.
At one time in the past, we reported how close we thought MIPS was to a signal change by what % of MIPS indicators were Long and what % were short. But, that was misused.  Using this, many of our Members tried to jump a few days ahead of the actual MIPS signals whenever they thought it was a good time to be Long or Short.   But, of course, most of  the time the market elects to change direction on its own; or its direction it is stopped by a support or resistance level, and it reverses itself quickly. So, we were forced to stop providing that kind of info because it was basically tempting our clients into trying to get ahead of the next signal; and of course, they failed.

But there is one investment strategy that MIPS (and to my knowledge, no other retail timing model) never attempts to manage, and that is your "Risk Management".  In order to know how to manage your risk, one would need to know your personal "Risk Tolerance", and of course, we do not know it.  Risk Tolerance could be as simple as how large of a loss of capital that you can tolerate without panicking.  Even though MIPS is programmed a little more for "Preservation of Capital" than for "Shooting for the Moon" in performance, good Risk Management is not possible without knowing the risk tolerance of each subscriber. That is not possible in my business.  Some professional money managers or RIAs (that require a minimum investment amount of $200,000-300,000 along with fees somewhere between 1.5% - 2.5% per year), may spend some personal time with you and may try to design a portfolio to meet your personal risk tolerance, but many of them fail to meet that goal.

My point is that, if you are going to manage your money yourself with trade signals from models developers like MIPS, you will need to help yourself a little with a few things that are easy and entirely under your control. The two that come to mind are:
   (A) you decide what Index you will trade, and
   (B) you decide what % of your money you want to be invested in stocks at any and all times.

A) MIPS is designed to work well trading the S&P 500 (SPY, IVV, VOO);  mainly tech stocks (QQQ, ONEQ); the Dow (DIA);  and mid-caps (IWM).
     For example:
     Under normal conditions, I trade SPY;
     - when the market is moving up somewhat steadily (like 2017), I trade QQQ; 
     - or in-between these top two, I may trade 50% SPY and 50% QQQ;
     - and, when I feel that I need more safety, I trade DIA
     I may leverage on Long Signals up to 1.5x, but I never leverage on Short signals
     - if you are not sure what to trade, trade the SPY (with no leverage)

B) Under somewhat normal conditions, I invest 100% of my investment money in equities (stocks).  In highly volatile markets (like Feb and March 2020), I may only trade
     with 70% of my money in equities and 30% in cash,   And, at this time, with high uncertainty in the election, I am 50% in equities and 50% in Cash (until after the election).
     - in other words, at this time I am willing to give up some performance on the upside to protect my money on the downside
     - on the other side, some of my best friends and clients are fully invested
     - the bottom line is that there is no right of wrong across the board, as it is all about how well you allocate your participation in the market to your personal risk tolerance.

So, you should use MIPS signals, but you need to help manage your own "Investment Risk"
     - should not be difficult, manly common sense.


All of the MIPS models are still Long. They are very close to a signal change (Cash or Short), but this could change in single day.
Also, the models are very close to a "Stop Loss Trade"; but that can also melt away like snow in hell.
That is why we need to wait for the exact signal from MIPS.

Happy Trading !!!

Paul Distefano, PhD
Founder / Lead Developer
MIPS Timing Systems, LLC
Houston, TX
281-251-MIPS (6477)
Posted by: Dr. G. Paul Distefano AT 01:45 pm   |  Permalink   |  Email
Sunday, October 18 2020
Several MIPS members have asked me to show detailed performance of the MIPS models since June, 2000
- this may have been motivated by the fact that our last signal was June 6, 2020 (see graph below)

Graph 1 - so far, the signal on June 26th has been very successful, and no new signals have been issued by any of the MIPS models since then
- MIPS does not trade just to trade; it trades when it's quantitative computer program calculates and forecasts that we need to go Long, or to go Short, or to go Cash

Graph 2 - Note that MIPS avoided most of "the crash" in 1Q'2020
- note that the MIPS models do trade more often in volatile markets (as they were designed to do)
And remember, you can trade the DIA or SPY or QQQ with MIPS signals (your choice)
- see =>
BTW - when in doubt, just trade the SPY (it's the safest), whereas QQQ is the most aggressive

Graph 1 - MIPS/Nitro55 Graph (since June 8th)
Blue    - Nitro trading QQQ
Green - Nitro trading SPY
Red    - Dow Index (DIA) Benchmark

From (red dots represent trade dates)

Graph 2 - MIPS/Nitro55  Graph (for the last 12 months)
Blue    - Nitro trading QQQ
Green - Nitro trading SPY
Red     - Dow Index (DIA) Benchmark

(red dots represent trade dates)
- MIPS avoided about 50% of the "big crash" of -33%, which bottomed on March 23rd

--- Contact Info ---
Paul Distefano, PhD
MIPS Timing Systems, LLC
Houston, TX
Posted by: Dr. G. Paul Distefano AT 06:20 pm   |  Permalink   |  Email
Sunday, October 04 2020
The graph below shows the performance of the MIPS/Nitro model in the last 12 months...
- Not too bad for this crazy market, but we could have been better
- In fact, had we had the last release of MIPS earlier in 2020, we would have done much better
- And, a little leverage on Long signals (like 1.25x or 1.5x) would have been a big help

Your trading choices with the MIPS models is explained briefly under the link below (or call us with questions)
Blue    - QQQ with no everage
Red     - SPY Index ETF
Green - SPY with no leverage

Paul Distefano
Posted by: Dr. G. Paul Distefano AT 05:51 pm   |  Permalink   |  Email
Monday, September 21 2020
Look at the extreme right in the graph below.  Today the market bounced off of a very strict support level (200-Day Exp Moving Average) and closed way above its bottom.
This pattern is called a "One-Day Key Reversal" and it usually turns into a change in direction. In our case today, that would mean that the market starts back up (at least
for a while. 

Time will tell.  All MIPS models are Long at this time.

Paul Distefano, PhD
Founder / Lead Developer
MIPS Timing Systems
Posted by: Dr. G. Paul Distefano AT 09:57 pm   |  Permalink   |  Email
Monday, August 24 2020
The S&P 500 Index (and the SPY) broke above their All-Time High (ATH) last week (graph below). From here, we can expect more upside; but this market is now way overbought by just a handful of high tech stocks like the so-called FAANNG (Facebook, Apple, Amazon, Nevida, NetFlex, Google), Microsoft, TESLA, and 10-20 others. The markets are in a situation where a relative few stocks in the indices (less than 20%) are valued above all of the other 80% combined.  One day, investors will realize that this move upward has run out of steam, and a pull-back (or even a correction) will happen soon thereafter.  When?  Well we need to rely on MIPS to tell us when we should remain Long and when to "Get Out".

Paul Distefano, PhD
Founder / Lead Developer
MIPS Timing Systems, LLC
Houston, TX
Posted by: Dr. G. Paul Distefano AT 12:34 am   |  Permalink   |  Email
Monday, August 17 2020

See the graph below. On the top right, you will see that the SPY has been within "breaking distance" (less than 1.5%) of its all-time high (ATH) for the last 5 trading days. Normally, the longer it takes the SPY to break above its ATH, the stronger the break to the upside will be. 

 As always though, if the SPY fails to break above its all-time after like over 10-12 days, it could head south at a rapid pace into "correction" territory. There are times, however, when the SPY breaks above and below its ATH a few times before it makes up its mind on which way to go for the long term.

This is a very complicated period in the market, so we should wait until MIPS tells us what to do next.!!!
- MIPS is still long and strong at this time...
Paul Distefano, PhD
Founder / Lead Developer
MIPS Timing Systems, LLC
408-234-8348 (Cell)
Posted by: Dr. G. Paul Distefano AT 09:49 pm   |  Permalink   |  Email
Thursday, August 06 2020
In a previous Blog (see "Previous Blog" below), we showed "The Gap" that the market (S&P 500) would have to go through to reach new highs.  In the graph immediately below, we can see that the SPY did just that in short order this week as it broke out of "The Gap" to the upside today. Now, the SP 500 is only about 1.5% from its all time high.   Read on...

I think the big question now is "where will the market go from here in the short-term if it moves into new all time high territory?"  Usually when markets approach new highs from a big distance below, they "stall" and test above and below the old new high for several weeks.  Even considering the above, at this time, there is nothing to stand in the way of the market plowing through at the rate that it has been going. 

As we all must know by now, almost all of the recent upside movement in the market has come from less than 10% of the total stocks in the SPY and QQQ.  And, a large portion of these has come  from the FAANG stocks, Microsoft, and a few more (FB, AAPL, AMZN, NVDA, NFLX, GOOG, MSFT, and a handful more).  Of course, these stocks are now way overbought, and any disturbance here now could start a major sell-off and correction.

And remember, quantitative models classify markets as Up or Down by its movements, momentum, trends, etc and they DO
NOT need to know (or analyze) why. Quantitative models predict market directions from market movements, applied mathematics, predictive analytics, artificial intelligence, etc (and not solely from earnings, debt, PE ratios, etc).

MIPS is most valuable in markets like this by keeping us Long while the market is still going up, and getting us into Cash (or Short) if and when the market is falling.

Good trading...
Paul Distefano, PhD
Founder / Lead Developer
MIPS Timing Systems, LLC
Posted by: Dr. G. Paul Distefano AT 09:49 pm   |  Permalink   |  Email
Saturday, July 25 2020
As most of you know there are probably over 50 popular "Patterns" that investors use to forecast which direction the
market may be going. These patterns go back to over 50-70 years ago, when quantitative investors searched many past
years to identify certain patterns that seemed to (a) repeat themselves, and (b) have a high probability of an accurate
forecast going forward.  Most of these were published in the news or on the Internet, and many investors follow them
with high confidence.  A few of the most popular patterns are  "double tops/double bottoms",  "golden cross/death cross",
"MACD",  "Moving Average Crossovers" ,  "Flags" , etc.   

A lot of these were published many years ago and were confirmed by data back 20-50 years from that time.  The problem 
with this is that the market behavior in the past (50-70 years ago) has changed dramatically, so some of these are 
completely obsolete.  If so, then why do people still use them.  My belief is that, if enough of "today's investors" believe that
these patterns will accurately predict what they claim, the buy/sell action from these "today's investors" will force the pattern
to behave as promoted.  In other words, they perform as a  "self-fulfilling prophecy".

Even if a self-fulfilling prophecy is the reason, we still need to pay attention to the results to help us understand what results
the current massive buying/selling in the market will cause.

So, where are we now (see the graph below, using Vanguard's VOO for the S&P 500/SPY):
- See the big "GAP" in the SPY between 2/21/29 (Friday close) and 2/24/2020 (Monday close)
- investors don't like an "empty" GAP, so it can act like very strong upside resistance now
- As you can see below, the SPY recently broke upward into the GAP territory, but failed to top it and dropped back down
- Most likely the market will try at least one more time to break above the GAP and head to a new All Time High (ATH)
- But, the ATH will probably behave as a strong resistance to the market climbing above it.

There is a strong possibility that, if the market does not break into "new high" territory in the next few weeks/months, and if the
economy does not show some attractive growth by then, this will basically lead to a real bear market (a drop of 25-50%) !!!

MIPS is still long, so let's wait for MIPS to tell what to do next...

- don't be afraid of a bear market, because MIPS performs well in down-moving markets...

Good Trading...

Paul Distefano, PhD
Founder / Lead Developer
MIPS Timing Systems, LLC
Houston, TX
408-234-8345 (cell)
Posted by: Dr. G. Paul Distefano AT 04:22 pm   |  Permalink   |  Email

MIPS Timing Systems
P.O. Box 925214
Houston, TX  77292

An affordable and efficient stock market timing tool. Contact MIPS
281-251-MIPS (6477)