Swing Trading the MA 50 Cross Over

In Trend Following Made Easy, I shared backtesting results for buying stocks that cross above the MA 50, and then selling those stocks when they cross below the MA 50.

Tonight, I experimented with a StockFetcher filter using the same entry and exit parameters, plus a profit target. The purpose of the profit target is to turn what would normally be a long-term trend following system into a swing trading system.

Here are the rules:

Buy when price crosses above MA 50
Exit when price crosses below MA 50, or
Exit when price increases five percent, or
Exit when price triggers 8 percent stoploss
Maximum of five open positions

And here are the results YTD:


Given such promising results, I then ran annual backtests for each year beginning in 2002. Here are those results:


Those are some pretty dramatic year-to-year swings, which might be reduced somewhat by holding up to 10 positions rather than five.

Here is a comparison between holding five stocks vs. 10 stocks:

Easy Come, Easy Go

My $1,800 tax rebate/incentive check landed in my bank account this morning. Minutes later it was used to pay off a loan. Sorry, no economic stimulus from this family, just good old fashion debt reduction.

The large screen TV and spinner hubcaps for the Volkswagen will just have to wait.

Disclaimer: Yeah, I know the economic stimulus package is a weak concept, but I'm not going to complain about getting my own money back from the government. Seriously, how often does that happen in our lifetimes?

Trend Following Made Easy

Last night I was experimenting at StockFetcher with a filter that bought stocks that closed above a moving average, and then sold the stock when it closed below the same moving average.

While the initial results were promising, StockFetcher's two-year backtesting limit made it difficult to determine the long-term profitability of such a system. So, I rewrote the code for Wealth-Lab.com and then ran a five-year backtest.

The rules are very simple. Buy after a stock closes above the MA 50. Sell when a stock closes below the MA 50. Ten percent of equity per trade, with starting equity of $50,000. No stoploss.

Here are the results:


A few things come to mind right away.

A net profit of 153 percent, with a compounded annual growth rate (CAGR) of 20.48 percent over five years, is respectable and handily beats buying and holding an S&P 500 index fund. The drawdown of 25.69 percent is higher than I personally like, but not out of line with normal market behavior.

Secondly, the system produced a market-beating return even though less than a third of the trades were profitable, but this is rather typical for long-term trend following systems, which tend to have more losers than winners.

Finally, I was pleasantly surprised by the small average loss (2.78 percent) given the absence of a stoploss in this system, and the speed with which losers are jettisoned from the portfolio (5.7 days). While the quick turn over results in a lot of trades (647) and many losers (460), it also tends to keep equity in stocks that are moving in the right direction.

Common Sense Wins The Day

Via AP:

The Supreme Court has ruled that states can require voters to produce photo identification without violating their constitutional rights. The decision validates Republican-inspired voter ID laws.

The court vote 6-3 to uphold Indiana's strict photo ID requirement. Democrats and civil rights groups say the law would deter poor, older and minority voters from casting ballots.

Having to prove you are who you say you are before voting does not violate your rights.

Cross Over System Update

Here are the year to date results for the cross over trading system. At the market's close on Friday, the system had produced an annualized rate of return of nearly 25 percent.

You Know There is a Recession When....

....the RV companies start laying people off by the hundreds.

Monaco Coach, based in Coburg, Ore., with a large presence in north central Indiana, announced that 600 employees will lose their jobs soon. The job losses, which will be split evenly between Oregon and Indiana, come after employees spent the last three months working four-day weeks.

Monaco's bread and butter products are Class A RVs, road elephants with an entry level price of $95,000 for the Monarch model, extending all the way up to the top of the line Signature series, which has a starting price of $586,000.

Global Rice Panic Strikes Indiana

The end of civilization as we know it here in the Hoosier state.

One shopper who refused to comment for this story was seen loading over 300 boxes of various flavors of the popular Rice-A-Roni brand rice into his cart.  Onlookers appeared outraged and store management feared potential violence.....

You can read the whole thing here.

Posting To Resume Shortly

Sorry for the dearth of posts over the last 24 hours or so. 

At about 2 p.m. Thursday, copper thieves climbed down a manhole in South Bend, Ind., and instead of cutting copper wires, they cut a 196-strand fiber cable, thus severing my Internet connection and telecommunications services for thousands of people and businesses in north central Indiana and south central Michigan.

My ISP spent the evening hours transferring his business to a carrier with a functioning network, and I was back online by 10 a.m. today.

Stay tuned.

The Moody Blues: Tuesday Afternoon

No Trading Today

By the time you read this, I will be chaperoning my first grader's field trip to a South Bend Silverhawks baseball game, so I won't be trading today.

Game time is 10:30 a.m. EDT vs. the Wisconsin Timber Rattlers, but the bus leaves school at 8:30 a.m., so I'll miss the morning trading session and most of the afternoon.

This means, of course, that you bulls out there need to keep the market up until Wednesday before letting the bears take it down from these overbought levels. I want to ride the market down but am too much of a wuss to put on a short position outside normal market hours.

So, a bit of help would be appreciated. Thanks in advance.

Guns n Roses: Paradise City

Using Pivot Points for Entries & Exits

In a Saturday post, Dinosaur Trader reviewed his Friday trades and mentioned a need to refine his exit strategy to reduce the amount of money left on the table. In the comments, I asked if DT had ever used pivot points to establish a profit target, and he said he had not.

So, tonight, I am going to walk through each stock DT traded on Friday, and explain how pivots could have been used for entries and exits, most of the time. 

For the uninitiated, pivot points are support and resistance levels derived from the previous day's high, low and close. Invented and used by floor traders, pivot points tend to define the trading range for a market or stock. You can read more about pivot points here. Also, John Carter's book Mastering the Trade has an excellent chapter that explains what pivots are and why they work. I think that one chapter alone is worth the price of the entire book.

Now, onto the stocks DT traded on Friday. As I discuss each stock, it may be helpful to open each chart in a separate window while reading the narrative. Sorry, but I'm too tired from my 10 mile walk today to annotate the charts. 

First up is KEY.

 

Key gapped up at the open as did nearly everything else and finished the first 15 minutes of trading half way between the R1 and R2 pivot points. The price then spent the next hour selling off. However, once the price came within spitting distance of the R1 pivot point at the bottom of the 10:30 a.m. bar, buyers stepped in and drove the price higher.

The profit target on this trade would have been the R2 pivot point at $25.53, but as you can see, the stock wasn't strong enough to get that high. In fact, the stock started selling off with the overall market 1:30 p.m. But notice that the selling took the price back to the R1 pivot, where it began to move higher just before the close.

The second stock is HON.

The stock gapped up at the open, in this case above the R4 pivot point. The stock then sold off in the second 15 minutes of trading until it had reached the R3 pivot point, where it then reversed and resumed its upward momentum. In this trade, a pivot point provided a good entry, but since the R5 pivot point doesn't exist, a pivot could not be used for setting an exit target. 

The third stock is FLR.

The stock gapped at the open, stopped at the R1 pivot point, sold off to the EMA(4), then bounced back to the R1 pivot. Once price found support at R1, it then took off for the R2 pivot point, stopping just shy of that target at the top of the 10:30 and 10:45 a.m. bars. The stock then sold off to the EMA(8), which was just above the R1 pivot point, churned sideways for over two hours, then assaulted R2 once again, then dropped to R1 again, then began a third climb higher before the close. Whew!

Finally, there is MTL. 

In the first five minutes of trading, MTL gapped and ran into the R1 pivot point. In the second five minutes, the stock sold off to the EMA(8), which was just above the day's pivot point. Once the stock found support, the first profit target would have been R1. At this point, some judgment has to be used. Do you sell at R1 for a nice profit, or stick it out with the hope that price can break above R1 and head for R2?

Since the entry on the trade would have been at $149, a trader could risk giving up some profit by letting the trade play out for a few more minutes to see if it could break higher. If it does break through resistance, then the new profit target becomes the R2 pivot. 

Also notice that once R2 was reached, the price dropped to R1, broke below R1, churned, then broke lower and headed for the day's pivot point.

For other examples, search for "pivot points" on this blog to see how I have used pivots to trade the Nasdaq Composite via QLD, QID and NQ.

Happy Patriots Day

"By the rude bridge that arched the flood,
Their flag to April's breeze unfurled,
Here once the embattled farmers stood
And fired the shot heard round the world."

So wrote Ralph Waldo Emerson in Concord Hymn, a poetic memorial to the Battle of Lexington and Concord.

For you history buffs and patriots out there, today marks the 233rd anniversary of the start of the American Revolution.

Jules Crittenden has more here.

Cross Over Filter Results

April has been rough on the cross over filter swing trading technique.

We began the month with annualized returns north of 45 percent, but a series of hit stop losses over the last two weeks has brought returns down to a more Earthly 12 percent.

Still respectable, just no longer spectacular!

Here are the latest stats and executed trades beginning with March 1.

The Doors: The End

Led Zeppelin: Stairway to Heaven

Links

Countries are beginning to ban grain exports

UBS Chairman: Three years to rebuild reputation

Another $6 to $8 billion in writedowns for Merill Lynch

Dave Barry explains how our tax dollars are used

Testosterone and wealth, the more the better, apparently

Education inflation outpacing fuel inflation

Fighting to save XP, 'cause Vista sucks

Our tax dollars are spent on what!?

Megan McArdle's tax reform plan

Iraqi war blogger Michael Yon's book is out. Make sure to scroll down and read the publisher's comments.

Harvard professors say railroads will be more popular. About 10 years behind the times I think. I doubt passenger trains will become big again though.

Rumor Mill: Microsoft Launching Retail Stores

Gizmodo reports on a rumor that Microsoft is getting ready to launch retail stores of its own, although I'm not sure reporting and rumor should be used in the same sentence.

Anyway, here is the story. And here is my fave from the comments so far:

I can see it now... Zune and Xbox stuffed into one small corner, and the other 90% of the store is shelf space for the 800 different versions of Windows Vista.

Apparently Ned Flanders may be hired as the company spokesman, too.

Don't ask, just follow the link.

Prosper Portfolio @ 16 Loans

My 16th Prosper loan was finalized yesterday. Here is the summary of my very small loan portfolio.

The credit scores of my borrowers range from AA to C, with the majority graded B, which seems to be my sweet spot for risk/reward. I limit my loans to $50, plus whatever loose change is sitting in the account.

I doubt the account will ever be of significant size, but it is fun to play Bank of Dogwood from time to time.

Blue Oyster Cult: Don't Fear The Reaper

Seems appropriate given where the market may be headed. This is footage from a live concert in the New York City area circa 1982. Ah, my high school days. The hair was big but the music was awesome, sometimes!

Low Volume Chop

The headline says it all. 

Volume was so low that moves up or down couldn't be sustained, so profits had to be taken off the table as soon as they appeared, because they disappeared quickly if you didn't.

The good news, price climbed and tagged the MA 50. The bad news, once the 50 was tagged price dropped and closed at the low of the day.

RSI(2) is inching toward extremely oversold territory and I wouldn't be surprised if we revisit the 2,250 area sometime this week, maybe tomorrow or Wednesday, depends on whose earnings suck the most.

On the other hand, with the market being so oversold, anything resembling good news may spark a respectable dead cat bounce that might last a day or two, but I'm still betting we go lower.

Trading RSI(2): Another Perspective

Ed over at Pennings of an Analyst spent some quality time at StockFetcher backtesting RSI(2) against a universe of inverse ETFs. 

The instruments used in the test are: QID, DXD, SDS, MZZ, SDD, TWM, SJF, SFK, SJL, SDK, SJH, SKK, EFU, EEV, EWV, FXP.

The results are very impressive, so go on over there and have a look.

Trading Stocks with RSI(2)

In a previous post, I discussed how RSI(2) could be used as the basis for a profitable swing trading strategy for the QLD and QID ETFs.

The strategy is simple, buy when the RSI(2) is at an extremely low level, then sell after two consecutive up days. While this strategy can be used to trade stock market indexes via ETFs, it also can be used to trade individual stocks.

Below are the backtest results for a strategy that buys Nasdaq 100 stocks when RSI(2) is less than 2, and then sells the stock after two consecutive up days.


As the backtest results show, buying extremely oversold stocks and then selling the ensuing bounce is a very profitable way to trade. While the profits are nice, another big benefit to this strategy is the very low market exposure which produces exceptional risk adjusted returns.

A negative side of this strategy are the small profits involved. In this case, the losses tend to be larger than the profits, but the number of winners outnumber losers nearly 2:1, so over the long run, this is a winning strategy, but the short-term results may be disappointing until the probabilities catch up.

For example, using 20 percent of capital per trade, the returns are as follows:

One Year: -11 percent, 48.6 percent winners
Two Year: +6.80 percent, 58 percent winners
Three Year: +45.81 percent, 61 percent winners
Four Year: +87.41 percent, 62.5 percent winners
Five Year: +259.95 percent, 65.60 percent winners

Over time, this strategy has a clear market-beating edge, especially during choppy markets, but a trader needs to stick with the plan long enough for it to take effect.

Moving Averages, Simple & Effective

Moving averages.

Is there anything more simple and basic in stock trading than a moving average, other than price?

Didn't think so.

I've been going through my ChartScripts over at Wealth-Lab.com doing some backtesting updates, and completely forgot about one of the very first systems I programmed about two years ago.

The system is very simple. It uses the EMA 10, 20 and 50 to trade the Nasdaq 100 stocks. The system issues a buy signal when the EMA 20 crosses above the EMA 50. A sell signal is issued when the EMA 10 crosses below the EMA 50. There is no stoploss, although one could be added without too much difficulty.

I used a faster moving average on the sell side because stocks tend to go down faster than they go up, so the EMA 10 exit signal preserves profits at a time when the trend is ending.

Here are the backtest results:


The most challenging parts of this system are the winning percentage, the drawdown, and the simplicity.

First, most traders have a psychological need to be right, which is usually expressed as a desire to have more winning trades than losing trades. However, this system produces twice as many losers as winners, but those winners are generally three to four times larger than the losers.

Secondly, the drawdowns range from 20 percent to 30 percent, which is not out of line with the natural ebb and flow of the markets, but active traders may have more difficulty with drawdowns this size than would the average buy and forget mutual fund investor.

Finally, Wall Street has done a fantastic job convincing Joe Retail Investor that investing is hard and best left to professional money managers. As the above results show, however, stock trading need not be complicated to be profitable.

Unfortunately, too many traders/investors ignore effective simplicity in search for complicated and expensive Holy Grails.

Trend Followers: Use The Bear To Your Advantage

There is no doubt that bear markets are a financially painful experience for buy and hold investors, but there is an upside to bear markets: they offer a great opportunity to test and observe trend following trading systems in the most trying of circumstances.

While Wealth-Lab.com, StockFetcher and other websites and software packages can spit out backtest results for any trading system you can imagine and code, the results are somewhat abstract.

For example, every trading system has a maximum drawdown, but the number is fairly meaningless. Just how big is a 20 percent drawdown? More specifically, what does a 20 percent drawdown feel like? How about a 25 percent drawdown or even 30 percent? Most importantly, will you be able to psychologically stick to the trading plan when the financial world around you seems headed to zero?

This is where backtesting and bear markets come together. With stock indexes several percentages off their November 2007 highs, and likely headed lower, this is the perfect environment for trend following traders to develop and observe trading systems they may want to trade going forward.

Test the system, track it daily or weekly, and get a feel for how it works in a bear market to make sure you can psychologically trade through the volatility.

Granted, paper trading is no substitute for putting real money to work, but if paper trading your system through a bear market produces nerve-wracking results, then imagine how bad you'll feel when real money is put to work using that system.

Bear markets are a fact of life and we don't have to like them, but why not use the bear to help you develop a psychologically-compatible trend following trading system?

Let's face, anyone can trade a trend following system during a bull market, but the truly successful traders stick to their plan through bull and bear markets. So use this bear to develop a system you can stick to.

Naz Review

A big day to the negative for the three primary indexes today, with our beloved Nasdaq down 61.46 points, or 2.6 percent.

The day began with a 25-point gap down, which I tried to fade unsuccessfully. 

The Naz opened below the S1 pivot, rebounded to the S1 pivot in the second 15 minutes, then reversed and stopped me out. The market churned until Noon, then the Naz did a Return to EMA(8) and dropped the rest of the day.

So where does that leave us? 

Technically, the Naz is mildly oversold with an RSI of 17 and change, stochastic is dropping and MACD is rolling over. Adding insult to injury, the trend line was broken and the MA 50 failed to provide support.

Me thinks Monday will be another down day, sending the Naz further into oversold territory, which may provide for a bounce midweek or so. Throw in poor earnings and option expiration Friday, and your guess is as good as mine or any others.

Bakken Formation Report Completed

The USGS has released an estimate on the Bakken Formation in North Dakota and the results are:

3.65 billion barrels of oil
1.85 trillion cubic feet of natural gas
148 million barrels of natural gas liquids.

Not even close to the 200+ billion barrels discussed here and other places in the blogosphere, but impressive nonetheless.

Swing Trading QLD & QID Using RSI(2)

A commenter over at Woodshedder's place is taking issue with the usability of RSI(2) as a trading indicator, going so far as to say it is for "suckers". I left a comment explaining the usefulness of RSI(2), and here is the meat of what I said:

RSI(2) is a very good short term indicator for oversold and overbought market conditions, keyword being short term. Instead of arguing about it, pull up a chart of the Naz or any other stock with RSI(2) on it and see what it does when it hits extremes, i.e. below 10 and above 90.

The market is like a rubber band. Stretch it too far up, and it snaps down. Stretch it too far down, and it snaps up. RSI(2) measures the tension in that rubber band and let’s you know when it may be ready to head in the other direction. Not a guarantee, of course, but it is very useful for timing trades.

Hedge funds manage billions with complicated mean reversion strategies, RSI(2) is the poor man’s version.

Not sure if my argument was convincing, so I promised to do some backtesting to provide something more tangible than my opinion.

The table below shows the results of a mechanical trading system using QLD and QID, the double long and double inverse ETFs for the Nasdaq Composite. I tested three settings for RSI(2), less than 2, less than 5, and less than 10. Each test covers about two years, which is the lifespan of the ETFs.

Also, I used both ETFs to allow the system to go long (QLD) an oversold market, while shorting (QID) an overbought market.

And now, I'll let the results speak for themselves.


Given the low number of trading opportunities associated with extremely oversold and overbought markets, a trader would not want to trade this type of system exclusively, but trading market extremes is something that could be easily integrated into a more comprehensive trading approach.

Ed Seykota & The Trading Tribe Band

This is a great piece by famed trend trader Ed Seykota and his Trading Tribe Band. Turn up the volume and enjoy.



H/T Michael Covel

Tug of War? Not So Much.

Gee, where to start?

When I posted the Naz chart this morning I was truly expecting a tug of war between the bulls and the bears since the tech index was sitting just above the MA 50. 

Granted, the Naz was very oversold, so I was expecting a small rally to relieve some market pressure, but still, I expected the bears to at least pick up their end of the rope and make a contest of it, but they were a no show on our way to a 30-point gain on the day.

Other than a little consolidation after the run up in the first 15 minutes, the market went straight up to the R1-R2 midpoint pivot and then churned away the rest of the day. And check out the volume! We haven't traded this many shares since about March 24, give or take a day or two.

The Naz is no longer oversold, nor is it overbought, although at 62.88 it is approaching overbought territory. One caution flag, for me at least, is that price stopped at the trend line, which it took out to the downside yesterday.

At this point, I think we are in no man's land and can go in either direction. Today's high volume gives me hope for a more modest move higher, however, it is earnings season so any unpleasant surprises may send us back toward the MA 50 for another test.

Then again, we may be in the Bad News is Good News zone that will allow rallies on bad news.

Tug of War Thursday?

Yesterday's selling took the Nasdaq below the trend line but stopped just above the MA 50. The index is very oversold with an RSI(2) of 6.5, but it can always go lower. Volume did increase, which may not be very positive going forward.

This morning's trade numbers were bad and the initial jobless claims were mediocre to bad. After digesting the information for about 15 minutes, the NQ futures contract is having some trouble establishing a direction.

Today may be Tug of War Thursday as the bulls try to stay above support and the bears do their best to send it below.

Good times ahead, I'm sure! 

Haitian Death Spiral Continues

Shooting and rioting in Haiti:

Gunfire rang out from the wealthy suburbs in the hills to the starving slums below as 9,000 U.N. peacekeepers were unable to halt a frenzy of looting and violence that has grown out of protests over rising food prices.

The AP's full report is here. Wikipedia's profile of the country is here.

I went on a mission trip to Port-au-Prince in March 1991 during my senior year in college. Packed away somewhere is a Haitian flag that I had made during a visit to the outdoor market one day.

The newly-elected president Jean-Bertand Aristide took office a month before our team arrived. A week before our arrival, Haitians had taken to the streets to, you guessed it, riot and loot. We saw several recently burned cars along the roads and bullet holes in the walls of the Presidential Palace. Our host said several bodies had been removed from the streets two days before we landed.

Our week-long stay on the island began by climbing down stairs from our plane to the tarmac, where we were greeted by soldiers armed with AK 47s. Nice welcoming committee, I thought.

The mission house we stayed in was located in the wealthy suburbs in the hills mentioned above. It was safer there. All the houses are behind brick walls and iron gates, while armed private security forces patrol the streets. In fact, right across the street from the mission house was a private security company operating out of a house. Not much zoning enforcement on the island.

We spent most of our time building a house. For fun, I rode a neighbor's burro but had to bail off when it ignored my English commands to stop. Yeah, their burros speak Creole. A friend and I also visited a nearby school, whose students promptly emptied the classrooms to see and touch us. They didn't get to see too many Yankees in their parts then...or now.

One of my favorite side trips was to a Baptist church mission in the countryside that was working with farmers to reforest their little part of the country. The mission had a large nursery where it grew native trees that were provided to farmers. The first step to reforestation was to plant trees around houses to help protect them from tropical storms and hurricanes. Once the farmer had protected his house, he was then willing to help reforest the rest of the hills and mountains around him.

The mission also had a small zoo where it cared for native monkeys and other species that were heading toward extinction due to the almost complete deforestation of the country.

Haiti is a fascinating country with unimaginable poverty. You really have to see it to believe it. Nothing in Mexico even comes close.

I would love to go back some day for another visit or work project, but I won't be holding my breath waiting for the country to stabilize. It may not happen in my lifetime.

Playing with Broken Stocks

Last year, I swing traded SWHC a couple times with good results and had all but forgotten about the stock until Uncle Howard twittered and posted about it yesterday and today. Lindzon went long today and I'm thinking about it.

Looking at today's chart, SWHC pulled back nicely with RSI(2) hitting 29. I'm going to wait another day or so to see what earnings season does to the market. Hopefully, the stock will become oversold near the MA 50, setting it up for a nice bounce off support.

Global Warming for the Nonscientist

If you are at all interested in the global warming issue, here is the best website I have found for explaining the scientific problems associated with the anthropogenic global warming hysteria. Good stuff.

Update: Money quote:

Man-made CO2 doesn't appear physically capable of absorbing much more than two-thousandths of the radiated heat (IR) passing upward through the atmosphere.

And, if all of the available heat in that spectrum is indeed being captured by the current CO2 levels before leaving the atmosphere, then adding more CO2 to the atmosphere won't matter a bit.

Cross Over Test: 5 Stocks vs. 10 Stocks

The cross over system I backtest and write about is designed around a five-stock portfolio. As the stock filter spits out buy signals, the trader adds stocks to the portfolio until the maximum number of positions (five) is reached. No additional stocks are added until an existing position is sold.

However, limiting a portfolio to just five stocks can add a bit more volatility to the equity curve than the average trader may be willing to accommodate. So, out of curiosity, I increased the maximum number of positions to 10, and then ran backtests for each calendar year starting with 2002. Here are the results:

On the positive side, doubling the number of positions smoothed out the volatility, especially in 2002 when the loss dropped from minus 27 percent to minus 18 percent. The additional positions also resulted in a much better performance in 2005, going from a 5.98 percent return to 23.88 percent.

On the negative side, adding more stocks reduced 2003's performance from 44 percent to 29 percent, and dropped performance in 2006 and 2007 by 10 percent and five percent, respectively. Finally, doubling the number of positions almost doubled the loss for 2004.

Overall, the five-stock system provides better absolute returns, while the 10-stock approach still outperforms the S&P 500 while providing more consistent year-to-year performance, albeit performance that is lower than the five-stock approach.

Gentle Drift Lower

Today was another low volume consolidation day as the Naz pulled back to its trend line and the RSI(2) moved into oversold territory with a reading of 20, although I won't get really excited until it drops closer to 10.

Given the bad earnings reports and the doom and gloom in the Fed minutes, the market held up rather well. 

Take a look at the volume, which was just over 2.2 billion shares today. Volume has been declining every day since the big April 1 rally, and it has been declining in a nice orderly fashion. No volume and price spikes or drops. In short, there is no panic, no rush, no sense of urgency.

If we can continue the gentle drift down to the MA 50, then a nice bounce may be in order.

Of course, really atrocious earnings reports could shred my thesis without too much effort, but the first day of earnings season passed with nary a blip in the markets. Long way to go though, so I'm not adding new longs to the portfolio...yet.

Cross Over System Update

As the 2008 trading year progresses, I will be regularly updating the backtesting for the moving average crossover system to track its performance. I will post the updates here whenever possible. 

Below is a screen shot of the latest trading statistics for the system through today's close. Details on the system can be found by searching previous posts.

Naz Review

Here is where we ended the day on the Naz.

Airlines Suck...Any Questions?

Uncle Howard laments the sorry state of affairs that is the U.S. airline industry, meanwhile WSJ.com is reporting that the startup low-cost carrier Skybus closed up shop today, bringing to four the number of airlines giving up the ghost this week.

Southwest Airlines...last man standing in the industry?

Naz In Review

The Nasdaq Composite gave a yo-yo like performance today, dropping at the open, rallying mid-day, then selling off to close the day with a modest gain of just over seven points at 2,370. We are now 220 points above the year's low of 2,150 set on St. Patrick's Day.

The index spent most of the week overbought, according to the RSI(2), but today it edged even higher to 91.92, which is getting a bit extreme. 

Given this week's bullish performance and the high RSI(2) reading, I expect we'll see a pullback in the market next week with perhaps a retest of the MA(50), which is 66 points below. 

At this point, I can't imagine a run to the MA(200), but hey, if everyone can ignore today's employment numbers, then I guess anything is possible. What's another 200 points between friends?

Crossover Handily Beats the S&P 500

StockFetcher is a great website for developing swing trading strategies, but one of the site's shortcomings is the inability to do long-term backtesting of your trading ideas. Each backtest at StockFetcher is limited to a maximum time frame of two years.

However, to get a more accurate picture of how your system performs in different markets, longer-term testing is necessary. But, since that is not in the cards, I decided to test the long-term viability of the crossover filter by doing a series of one-year backtests, then comparing those annual performances to the S&P 500's annual performance.

Here is what I found: 

Not too shabby, although a minus 27 percent year would be mighty tough to trade through, but then again, 2002 was a miserable time to be in the market. 

Crossover Buy Signals

Per Matt's request in the comments, here are the crossover buy signals for April. Stocks with the highest volume are listed first. If trading mechanically, a trader would buy the first five stocks on the list at the open, then place a stop loss eight percent below the entry price. 

Trade exit would be the close of next Thursday's trading, or the stop loss, which ever comes first.

However, nonfarm payroll and unemployment numbers are being released Friday morning at 8:30 a.m. EDT, so I would tread carefully at the open. As usual, trade at your own risk.

Shuttle Prep Process

If you are at all interested in the space shuttle, then you will enjoy these pics of the shuttle tank, rockets and engines being assembled. Very cool stuff.

$166 Billion Mistake

John Reed, former head of Citicorp, continues his urinating contest with Sandy Weill in an article at FT.com. Reed says the $166 billion merger 10 years ago was a mistake.

“The stockholders have not benefited, the employees certainly have not benefited and I don’t think the customers have benefited because our franchises are weaker than they have been.”

Final Results for Crossover Trading Test

Today was day 5 of the moving average crossover trading system test, which means each position opened last Friday would have been closed at the end of trading today. 

The tables and charts below show how this particular method worked for these stocks this week. But first, some disclaimers.

The results assume each position was entered with a market order at the beginning of trading on Friday. The results also assume each position was exited with a market order at today's closing price. No allowance has been made for slippage or commissions, and while the average trader can't do much about the former, the use of a deep discount broker like IB can minimize the latter. 

Finally, the results assume a position size of 100 shares per stock, when in reality a trader may allocate an equal dollar amount to each stock instead, which is how the backtesting at StockFetcher works. I may post a table using that method later tonight. Table C uses the top five stocks by volume and allocates $2,000 per stock.

Table A: All stocks triggering a buy signal

Table B: Top 5 stocks with highest volume

Table C: Top 5 stocks with $2,000 allocated per stock

The Fly Joins Chart Chompers R Us

The Fly over at iBankCoin historically has treated technical analysis traders (chart chompers) with nothing but contempt and disdain. However, it seems the market's schizophrenic nature of late has finally made a true believer out of him.

While still in his chart chomping infancy, I think this post shows some promise.

Recession, We Hardly Knew Thee

Mark Hulbert has the latest from TrimTabs, which is speculating that the recession may already be over, or nearly so. Here is the intro to Hulbert's column:

Let's start with the bad news: Not only is the economy in a recession, according to TrimTabs, it has been in one for six months now. The only reason that this isn't more widely recognized is that it takes months, if not years, for the government to officially confirm that a recession has started.

Now the good economic news from TrimTabs: There is a distinct possibility that the economy has already emerged from the recession, or is about to.

You can read the rest for yourself here.