Channeling Indices

Here is what I'm seeing, the Dow, S&P 500, Nasdaq Composite & Nasdaq 100 trading within downward sloping channels, with prices at the top of those channels as of Friday's close.

Best case scenario, a pullback to the middle of the channel then a breakout through the top. Worst case, a pullback from these levels that keeps on going and breaks through the bottom of the channel.

This week's economic data should decide the market's short-term fate.

Overbought & Time for a Pullback?

Markets have rallied strongly for a week and now most indices are approaching an overbought condition. The exception is the Nasdaq 100 as represented by the inverse ETF QID, which still has an RSI(2) over 10.

Depending on the market's behavior, I will be looking to go short sometime Monday, hopefully off a nice gap up at the open.

MA 50 Cross Over & Cross Under Update

Triple MA Cross Over Update

Here are the updates for the Triple MA Cross Over system, both 4-day and 5-day versions.

I have been busy with a major home renovation project these past couple weeks, which is why I haven't been posting updates, but I'll try to get back to the weekly posting of results soon.

Sold NVDA

I took advantage of this morning's rally and sold NVDA @ $7.31 for a $1.39/share profit or 23.4 percent since Thursday.

Only remaining long position is PFE.

Dip & Rip

I wanted to quickly update my blog readers on some swing trades I made over the last couple days. I twittered these as I made them, so if you want close to real time info, please follow my Twitter feed, the link is on the right.

Last Thursday as the market was in full-scale meltdown, I started buying some stocks at about 3:30 p.m. It felt like the world was coming to an end, which meant it was the perfect time to buy. In addition, the RSI(2) on the major indices was showing an extremely oversold market condition.

In the last 30 minutes of Thursday's trading session, I put about a third of my capital to work. Here is what I bought.

AA @ $6.91

IBKR @ $13.29

NVDA @ $5.92

PFE @ $14.46

QLD @ $20.92

SSO @ $18.85

I held all of these through Friday's rally and went to bed Friday night confident that there would be some kind of Citibank rescue plan, so I figured we would at least get a respectable gap up at Monday's open, which might be a good opportunity to sell.

At today's open, we got the gap and I sold the following: 

QLD @ $23.18 (per share gain of $2.26 or 10.8%)

SSO @ $22.11 (per share gain of $3.26 or 17.2%)

AA @ $8.74 (per share gain of $1.83 or 26%)

Later in the day I sold:

IBKR @ $15.79 (per share gain of $2.50 or 18.8%)

I am still holding PFE, which closed today @ $16.04 (per share gain of $1.58 or 11%) and NVDA, which closed at $6.79 (per share gain of .87 or 14.6%). At the time of purchase, PFE had a yield of 8%, so the low entry price and high yield may turn this into a very long-term hold, although I've said that once before and then bailed on the trade, which turned out to be the right decision!

Hindsight being what it is, I should have held onto QLD and SSO until the end of the day, but the opening gap and following market action was so weak, I didn't think the gap was going to hold, so I sold.

Overall, I'm happy with the trades even though I left some easy money on the table. 

Now, it is time to look for the next opportunity to short the indices. At today's highest point, the Dow was 1,100 points above Friday's low, and that type of movement can't be sustained without at least a mild consolidation day. 

Personally, I'm hoping for a gap & crap play on Tuesday's open, but we'll have to wait and see what Mother Market gives us.

Elected Officials Flunk Civics Quiz

This is encouraging. Not

US elected officials scored abysmally on a test measuring their civic knowledge, with an average grade of just 44 percent, the group that organized the exam said Thursday.

Ordinary citizens did not fare much better, scoring just 49 percent correct on the 33 exam questions compiled by the Intercollegiate Studies Institute (ISI).

Full article here.

Now, go take the 33-question quiz yourself.

Here is the summary of my results:

You answered 30 out of 33 correctly — 90.91%

Average score for this quiz during November: 77.9%
Average score: 77.9%

Good luck.

The 1970s Were Evil

Taking a quick break from a home remodeling project and just wanted to let my readers know how I really felt about the 1970s.

As far as I can tell, only three good and wonderful things came out of the 1970s: my wife, who was born in 1971; the 1970 Boss 302 Mustang; and the 1970 AAR Cuda.

Disclaimer: my brother-in-law owns a red, 340-powered version of the AAR Cuda that we drag raced back in the day. It is the same color as the one in the picture linked above. And yes, I have the fastest time in the car, a fact that is still a sore point 20 years after the fact.

Disclaimer Two: Not sure my wife will appreciate being mentioned in the same paragraph as two muscle cars, but hey, she knows I'm a car guy at heart. At least she is listed first!

Everything else in the 1970s was pure evil, including anything having to do with interior design and architecture.

More later......

REM: The End of the World As We Know It

Oversold Redux

We've been here before. 

Exactly one week ago to be precise.

Yep, last Wednesday the major indices triggered RSI(2) buy signals that lead to a massive rally on Thursday, but Mother Market first subjected traders to a gut wrenching morning selloff that felt like the end of the world. 

It wasn't.

Now, most of the indices, and USO, are oversold again after a week's worth of selling. The notable exception is DDM, the double long ETF for the Dow 30, which has an RSI(2) of 16, so it is close.

I have no idea what will happen tomorrow. The indices set new lows today, except for the Dow, which is poised to follow suit. It is possible we plunge 500 points to Dow 7,500 and then get a relief rally, we also could get a pop at the open.

Who knows.

Just remember that markets do not go up or down in a straight line, it only feels that way. A bounce is coming very soon. Have a plan, be ready, but keep your powder dry until the moment arrives.

Feds Launch Corporate Outreach Program

Thin Market

Lots of chatter on Twitter today about why the indexes were going up while the stocks on our screens were still in the red. 

Then Soren Macbeth directed us to the following chart from FinViz showing that the only stocks going up were, in fact, the large and mega caps, while everything else languished. Additional graphs here.

I don't have the slightest idea if we are near a bottom or not, but I do know we need greater breadth to these rallies if they are going to hold.

An American Automotive History Lesson

While reading accounts of our politicians gearing up for a debate over a Big 3 rescue package, I stumbled across this list of 543 defunct automotive manufacturing companies of the U.S.

If you're interested in the history of the automotive industry, these 543 entries at Wikipedia might be of interest.

The World's Top New Car Companies

Popular Mechanics features the world's top 10 new car company startups. Take a look because you may be driving one of their products some day.

Everythings Oversold, Bounce or Plunge?

All the major indexes, and oil, are oversold according to RSI(2), so I'm looking for some type of bounce Thursday, even if it is just for a couple hours.

However, we may just plunge right through the October lows and never look back, especially given Intel's significantly lower revenue estimate for Q4. Concerns over the future viability of Ford, General Motors and Chrysler also will continue weighing down the markets.

So, buckle up and be prepared for a violent flushing or the mother of all snap back rallies. Either, or both, are possible.

Shorting Stocks Using RSI(2)

In a comment on my post regarding different exit strategies for the RSI(2) system, Complacent Panda wanted to know if a high RSI(2) reading could be used to short stocks.

So, I reversed the entry and exit criteria for the RSI(2) trading system and applied the new rules to the Nasdaq 100 stocks. The results are below, but first the rules:

Go short when RSI(2) is 98 or greater
Stop loss of eight percent
Exit the trade when RSI(2) is less than 20.

And now the results:

The New Ford

Meet the Fisker Karma. One very cool electric car.

I am convinced that if Ford, General Motors & Chrysler are allowed to fail, then people like Henrick Fisker will step up and produce the next generation of successful car companies.

Granted, the $80,000 price tag of the Karma is out of reach for the majority of car buyers, but just imagine what someone with this level of creativity could do if given just a fraction of the capital our Congress is thinking about giving to the Detroit Dinosaurs.

It is time to turn off the life support system and let the Big 3 pass into history.

Space Invaders

Space Invaders made by Neave Games

Asteroids

Asteroids made by Neave Games

30 Years of Denial Bring Down Big 3

Interesting article on the Big 3's impending demise by the AP's auto writer Tom Krisher, who writes:

At Ford Motor Co. they called it "Blue," a team set up around the year 2000 to design an array of small, fuel-efficient cars to compete with the Japanese. It didn't get far because no one could figure out how to make money on low-priced compacts with Ford's high labor costs.

Besides, the automaker was racking up billions in profits by selling pickups and sport utility vehicles. Times were good and gas was cheap.

The most concise explanation of the Big 3's problems is found in this paragraph:

Critics say leaders over the years at Ford Motor Co., General Motors Corp. and what is now Chrysler LLC were slow to take on unions, failed to invest enough in new products, ceded the car market to the Japanese and were ill-prepared for the inevitable rise in gas prices that would make their trucks and SUVs obsolete.

In my humble opinion, the biggest mistake they made was handing the car market to the Japanese and Germans.

On a personal note, several years ago when we were shopping for cars, we tried to buy American but couldn't find domestic cars with the styling, performance, features, and safety offered by imports.

Eventually, we bought two new Volkswagens over a three-year period and have been very happy. Now, I doubt we'll ever buy, or even consider, an American car in the future.

If the inability to find a comparable American car wasn't a sign of things to come, a meeting I attended in 2003 offered up a bad omen of sorts.

There were four of us meeting to discuss an environmental issue involving our local lake. As the meeting broke up, we walked to our cars and said our good-byes when I noticed something odd, none of us were driving an American car.

Here were four people close in age, college educated, professionally employed, and none of us had an American car. There was a Subaru built in Indiana, a Honda built in Ohio, a Toyota built in Japan, and my Volkswagen, built in Mexico. Not a Ford, Chevy or Chrysler in the group.

At the time, I thought perhaps the Big 3 may have lost an entire generation of car buyers and that development couldn't be good for the Big 3's long-term prospects. 

Since then, each time the Big 3 are in the headlines, I think back to that moment and shake my head in amazement at how efficiently these companies have destroyed their brands, their reputations and their shareholders.

While I don't want to see the Big 3 forced into bankruptcy, the simple fact is they don't deserve to survive.

MA 50 Cross Over & Cross Under Updates

Mini Nukes Could Power 20,000 Homes

With oil below $70 and gas less than $2 per gallon, it will be difficult to keep people focused on developing alternative energy sources regardless of how many subsidies you throw at ethanol, solar, wind, tidal, or fill in the blank with your favorite alternative.

However, Hyperion Power Generation is moving forward with the construction of mini nuclear reactors that can be delivered by truck and generate enough electricity to power 20,000 homes. The nuclear reactors, about the size of a hot tub, cost approximately $25 million each.

Each reactor is sealed at the factory, moved to the site by ship, train or truck, then buried. The reactor has no moving parts and is incapable of going supercritical.

The Guardian has the story here and be sure to check out the company's website for more info. I find the concept very intriguing and think it has a lot of potential, especially for remote areas that are too difficult or expensive to connect to a power grid, or for those areas of the world where power grids don't exist yet.

Triple MA Cross Over Update

Comparing RSI(2) Exit Strategies

Due to the extreme volatility in the market these past few months, I haven't been trading the RSI(2) swing trading strategy, which is a mean-reversion mechanical trading system.

It is hard to trade reversion to the mean when the mean keeps getting blown away by extreme selling.

However, while reviewing recent trades triggered by the RSI(2) system, I noticed that in spite of the extreme volatility, most of the trades were at least profitable for a day or two.

True, the trades did not hit the normal exit trigger of RSI(2) greater than 80, but they were profitable for a brief moment before the selling resumed and drove prices lower.

With that in mind, I decided to test various exit triggers to find another way to capitalize on the effectiveness of the RSI(2) less than 10 entry trigger.

I tried a 1 day, 2 day and 3 day holding period, an RSI(2) greater than 70 trigger, and the standard RSI(2) greater than 80 exit trigger, which has been difficult to hit in this market environment.

In the first table below, I compare the annualized ROI of each exit trigger for 2007 and 2008. Only two years of results are shown because the system trades leveraged ETFs, most of which have been around for two years or less.

In the second table, I provide detailed trading stats for each exit trigger for 2008 YTD.

Today's Ride

The markets were boring today, and the temp was hitting the low 70s, so I bailed and went for a ride. Can't pass up 73 degrees in November in northern Indiana, it just doesn't happen that often!

For the last couple weeks, I've been joking with my wife about crashing my bike to get a new carbon fiber machine, well, today that joke almost became a reality. 

I was cruising along at 20 MPH in the final half-mile of a 12-mile ride when I noticed a car starting to pull out into the street. I saw the driver glance in my direction then look the other way, and knew she hadn't seen me. I got on the brakes hard and came to a stop just as she pulled half way into the lane before looking back in my direction and slamming on her brakes.

She made some apologetic gestures, I waved, and continued on my way with bike & body intact. I may lust after a carbon fiber frame, but I have no desire to have a bunch of stainless steel screws holding my bones together. I doubt I'm as resilient as I used to be.

Back in my teen years, I did a brief stint as a hood ornament after being hit by a car while riding my bike. I flew over the car, the bike was totaled, the woman driver - who happened to work for my dad - was a wreck, and I had 13 stitches in my head and a sprained and swollen knee. Even though the accident was my fault, the driver tried to pay for the bike, an offer my parents kindly and gently declined.

Lucky for me, the accident happened in front of the home of a retired Army medic, who was kneeling next to me almost as soon as I hit the ground. He had been doing yard work when he heard squealing car tires and turned around just in time to see me fly over the car. After showing one guy how to hold my scalp together to slow the bleeding, he checked my body for broken bones and other injuries.

He took good care of me and was reportedly appalled at how the EMTs handled me once they arrived on the scene. Army medics have high standards.

The worst part of the ordeal occurred in the emergency room when they started cleaning the wound. After doing the triple lindy off the car, I landed in dirt and gravel beside the road. Literally, I had rocks in my head, and yes, some people believe they are still there.

After picking out the big pieces, there was only one way to get the fine particles out to prevent infection. Yep, scrub it clean. The routine was scrub, then X-ray, then scrub, then X-ray, rinse & repeat until the X-rays came back clear. And while my head was numbed, I could still feel the pressure and hear the brush as the doctor worked his magic. 

Think fingernails on a blackboard then multiply the effect by 10. Yeah, pretty gross.

I was soon back to normal and all these years later the scar now serves as a useful teaching aid for my own kids, who are becoming bike riders. "Don't be careless like daddy was" is a bit more meaningful when you have a crescent-shaped scar where hair used to grow!

Anyway, enough with the flashbacks, here are today's elevation profile and stats:

Distance: 11.90 miles
Time: 0:53:00
Avg. Speed: 13.5
Max. Speed: 29.2

Min. Elevation: 725 ft.

Max. Elevation: 853 ft.

Ascent: 200 ft.

Descent: 190 ft.
Calories Burned: 537

Obama Campaign Releases Music Video

MA 50 Cross Over & Cross Under Updates

MA 50 Trend Following System

The MA 50 Trend Following system buys Nasdaq 100 stocks when they cross above the MA 50 and sells them when they close below the MA 50. An eight percent stoploss is used for each trade.

Five-year backtesting results courtesy of Wealth-Lab were featured in this post in April, although that test did not use a stoploss.

Triple MA Cross Over Update