This entry was posted on Sunday, January 20th, 2008 at 11:11 am and is filed under Education, Trades, chart patterns, market commentary, system trading. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
Well as many of you have probably guessed I was waiting patiently for the market to reach the under 20 level on the T2108. For those who have not followed along in the past this indicator represents the percentage of stocks above their 40 day moving average. A reading below 20 has tended to mark the areas of extreme deviations than can lead to small or even large snap back rally’s.
The last time we crossed this level I described a simple system that would allow you to trade to the long side with a portion of your portfolio that may be in cash now. I set it up as a system that would only buy ETF’s that have crossed below the 30 level on the Ultimate Oscillator when T2108 is below 20.
The system can hold a maximum of 8 holding and can only add 2 holdings per day. Our last foray below T2108 we added VNQ which hit it’s 3% profit target and EWS which has not hit an exit yet. It is down about 11% from entry so the system is overall down about 1% since I highlighted the system, certainly way outperforming the market in this wretched time for long equities. Having met all the conditions on Friday I am going to add DIA and XLE on Mondays open. This will bring the portfolio to 3 out of a possible 8 holdings. Remember a system does not have to represent your whole portfolio. You could have a series of systems each with their own percentage of equity of the entire portfolio.
If we remain below 20 on the T2108 after Mondays close we will look to add more ETF exposure if we remain below that 20 level. I had also mentioned in the original post that you could use individual stocks with this method. A couple more liquid stocks that were below a reading of 25 on the Ultimate Oscillator now and may participate in any snapback are:
ADBE
GNTX
The exit is a cross of 50 on the UO or a 3% profit target on ETF’s and 5% on stocks. Whichever comes first. But for the sake of record keeping I will stick to tracking the ETF portfolio for you. Let’s hope futures gap down Monday and not up huge.
Have a Great Week!
Dave Johnson
January 20th, 2008 at 11:48 pm
Here’s my list below 30 on the UO: EFA, EWC, EWS, SPY, XLE, XLI
January 21st, 2008 at 9:10 am
Yes those and ETF’s many many more. Could be a dangerous pullback with no real backstop so no more than 10% of the overall portfolio for me. Also i should note the market is closed on Monday for Martin Luther King holiday and the entries will be on the Tuesday open.
January 21st, 2008 at 11:30 am
Wow - all the futures down big this morning…..could get that below 10 T2108!
January 21st, 2008 at 1:46 pm
Looks like we’ll get our wish of a big gap down…question is this - do you play it?
January 21st, 2008 at 4:35 pm
“Let’s hope futures gap down Monday and not up huge”
Looks like you got your wish and then some
January 21st, 2008 at 6:11 pm
Definitely play it. You have to have exposure to the long side here. Lets say this system is 10% of overall portfolio. And your adding 2 picks. With 8 position portfolio your total exposure is only 3.6% or so. It’s just a trade. No emotion. These things happen. Could be down another 15% next week. Just trade the systems. Obviously its not 200 % exposure.
June 27th, 2008 at 7:52 am
[...] of you may remember the system that triggers when we get very oversold on the T2108 indicator that I have highlighted in the [...]