The Trading Digest

Nicely done if I do say so myself (pat pat). System goes back to cash and waits for the next pop back below 20 on the T2108.

I also include a chart of interest for breakout players.

Those ETF’s I threw out yesterday that were part of the whole T2108 trade I designed, really popped up yesterday.

IAI was up from the open 2.3%. (profit target at 40.92)
PGJ hit the 3% profit target during the afternoon surge.

The t2108 indicator jumped all the way into the 30’s so we won’t be buying anything this morning based upon this system.

Have a Great Day!

Dave Johnson

The T2108 indicator has once again moved below the 20 level. This allows us to add up to 2 positions per day while below this level. I have a dentist appointment this morning so I will just add the symbols for you to do your own due diligence on. Seems the Fed has thrown more paper at the “crisis” and the futures are popped up which is not the best open to buy but the system is a system.

Ok the ETF buys are

IAI and PGJ —Broker/Dealers and China

Ok I am off now. If you wish to search for previous posts on this system use this link to search for “T2108″. You can find the full parameters of this excellent system.

Have a Great Day!

Dave Johnson

I wanted to present another system that presents an opportunity to buy fear in a weak market. This particular system has quite a good track record and thought I would mention it because it could trigger on tomorrows close. The system is quite simple. It first requires 4 consecutive red candles. Meaning four consecutive days where the close is lower that the open.

I ran some tests on the SP500 tracking ETF to give you an idea how powerful this setup is. Your job as a trader, based upon the data I present would be to “frame” the trade. Maybe you like the historical data - maybe not. But if you decide to take the trade you must use proper risk management. What percentage of your portfolio do you allocate? That would have to based on many factors I can not see for anyone but myself. Each trader needs to do his/her own analysis.
Ok, so here is what you looking for if you decide to watch/trade this. We have had 3 consecutive red candle days - and tomorrow would need to close below the open. Oh yes and the close needs to be a down day as well. Keep in mind we will most likely gap down based off the CSCO news and we would need to close below that open. If we do you’ll need to buy the closing price of the SPY.

The exit is quite simple:

• a 3% profit target
• holding for 7 days

Whichever triggers first. That is it. Simple.

Now I shall present the data of this setup since the beginning of the SPY in 1988. It is actually quite good. Many systems of this nature tend to have good win percentages but it is at the expense of having losers a bit larger that winners. That is not the case with this system over the past 25 years. I have included a link to a spreadsheet showing all the trades below. And a graphic showing some visual stats.

spreadsheet-of-all-trades.xls

Basically we have seen 71% winners - with winners averaging about 2.27% and losers about 1.24%. Quite impressive. Maybe a red candle is not always such a bad thing.

Have a Great Night!

Dave Johnson

On this blog and my old I have tried to show you that in the short term swing timeframe buying dips can over the long term exhibit an edge over buy and hold of the major indices. I now want to show you the other side of that coin. My dip buying system for individual equities stays trading even during bear markets. This is because in backtesting just when you think you have a mechanical time to turn it off, it ends up severely impeding long term performance. Systems are mechanical and as it stands is the best incarnation. Yet it weak markets it will have a drawdown much like any mutual fund because it is just a fully invested portfolio that mimics the markets with a small edge. But as I tried to explain in my last post you must learn to properly position size risk with each system.

The opposite of dip buying is trend following. In my testing trend following on daily bars does seem to have a slight edge and that edge tends to play out in weaker markets when it hides in cash. I wanted to show the readers the types of ETF’s this system has triggered a buy in and when those buys were triggered. With all the new ETF’s I obviously would not take all signals but build a logical trend portfolio. This graphic shows the holding that are presently triggered by John’s system called Fuzzy MA. Wonderful system. It has you typical stats of any trend type system. Large winners and smaller losers with winners being about 45% of trades. Anyway look at the progression of the graphic:

Look at the bars held column. Notice the progression? Bonds in July. Metals in September. Euro kicks in the same time as dollar falls. Then all the Ultra Short ETF’s. Way way back I had given away how I structure my portfolio on my old blog. I still follows the same plan and I even incorporate concepts inside concepts to diversify systems even further than that simple formula.

So basically the swing system stays turned on at all times and the trend equity related turned off back in October and November protecting precious capital all the while Bonds, Metals, and anti Dollar plays turned on. My IBD breakout stuff again kept precious capital in cash following basic rules I have developed based mainly upon the works of Weinstein and O’neil. The best part is that as the market begins to fall the VIX begins to rise and ultimately the daily bars start to get longer. As an intraday E-mini trader it is a dream come true to have added volatility and range, allowing me to capture some decent intraday ranges as much of the overall portfolio is in cash.

It all goes back to my original post about multiple systems over multiple timeframes each with their own statistical edge proved by intensive backtesting. It is important to develop systems that counter each other in a positive way. Having systems that all do the same thing and that have equity curves that move in unison is really only one system. My advice? Spread risk across multiple uncorrelated systems. It’s really not hard to develop systems that do this. Best of luck and I am here to help.
Have a Great Night!

Dave Johnson

Now that the T2108 UO system has gone all to cash after the exit of IEO I can review the trades for you. Here is a graphic showing entries and exits. I also included a graphic showing the T2108 plunges below 20 where we were looking to go long with ETF’s that crossed below 30 on the Ultimate Oscillator.

Remember from the very first day we defined the parameters of the setup. This included:

• entry condition (T2108 under 20 and UO crossed below 3o)
• exit condition (3% Profit Target or UO crossing 50)
• number of holding the system will take (8 in this example)

So in an 8 position portfolio a 3% gain contributes 0.38% to the whole system performance (3.0 /8). The next component that would be up to the individual trader would be how much of your overall equity would this particular system represent? That would be entirely based on how aggressive you may be. I would not be incredibly aggressive but 25% sounds about right to me. Based upon this information the system returned 0.55% and if the system were only 25% of the total portfolio then you would divide that by 4.

This may seem small but remember the market fell over 10% since that first trade was triggered. We had 6 trades and 5 were winners. The larger loser EWS was larger than what backtesting showed but that was more raw luck of selection versus what we saw if we looked at every symbol that triggered. Overall this is a great way for you to see how you can begin to piece systems together. The trading blogospere is littered with recent blow ups that occured because people want to bet rather than trade. Here is the secret…..Position size is critical. Using leverage can cause large losses. And large gains. That is the allure. But the betters that risk their precious capital on a single concept rarely win in the long run. Preservation of capital is critical.

People want 200% gains with minimal drawdown. Yet to attain those gains consistently you would be constantly putting the overall portfolio in the risk of ruin position over and over. I am sure you have seen people that advertise tremendous returns with options strategies. But if that strategy returned 250% annually (unlikely) could you use your whole portfolio to trade that system? or would maybe 5% seem more reasonable based upon the obvious risk of losing 50-100% of total capital? Setting realistic goals is critical to not only your success as an investor but in reality your long term staying power as a trader. People scoff at 20% annual returns but at that rate your money will double every 3.5 years approximately. Meaning that a $50,000 account would grow like this:

In 3.5 years 100k

In 7 years 200k

in 10.5 years 400k

in 14 years 800k

in 17.5 years 1.6 mil

Preservation of capital and the application of small edges over the long term are what drive account values upward in the long term. Betting your account on the hopes that the market will bounce when you feel it should is an absolute recipe for disaster. If you click on the archive from mid December until now you can follow all the posts related to this system.

Have Great Weekend!

Dave Johnson

You can’t make this stuff up guys. EWG hits the 3% profit target right out of the box.

I will update tonight.

Have a Great Day!

Dave Johnson

Because we remain under 20 onn t2108 I scanned for ETF’s that crossed below the 30 level with the Ultimate Oscillator. Only one met my liquidity requirement but I will let the other one slide in because our exposure is so low for the system with only one holding.

I am going to select EWG and IEO be the new entries for tomorrow open.

This morning was absolute panic/fear and not many blogs or financial sites recommended a trade like I did today. I knew through testing that risk was actually less in those emotionally tense moments before the open. Contrary to what the trading community believes. Either way there are no guarantees in trading only probabilities and it’s understanding these probabilities that allows me to “frame” a trade into a set of rules that define entry and exit - unemotionally. Within a 15 minutes our first target was hit one the XLE and in another hour the DIA target was hit.

Think about that…an index moving 3% in such a short period of time- an index. In system design and backtesting I see this quality in a metric called “profit per bar”. Meaning as I evaluate all of the trades over the data set, they are the systems that tend to produce outsized gains in short time periods. Those types of trades tend to happen near emotionally charged and fast moving downward markets. It happens over and over and over. In every decade, yet I will implore readers or colleagues and friends to take the trade and they almost invariably prefer to “wait and see”. And of course they miss the trade. They fear open ended risk yet they allow their index funds in their retirement funds to be in stocks. If you can not clearly define risk then the trade must remain small - a very simple rule. But whatever you do don’t pass up the trade. The longer you follow this trading game the better you will be able to sense that panic opportunity yourself.

This morning the lemmings froze at the wrong time.

Have a Great Night!

Dave Johnson

Not bad having both our entries from this morning hit our 3% targets in short order. Excellent. I hope some of you profited from those trades.

Have a Great Day!

Dave Johnson

Man that was a quick in and out on XLE. Maybe DIA will get the 3% as well?

Have a Great Day!

Dave Johnson

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

It has been about 12 trading days since I first highlighted a system to trade extremely oversold conditions in the overall market using the T2108 indicator. Based on the last foray below the reading of 20 on that indicator we picked up 2 positions, VNQ and EWS. Remember we only add 2 positions per day and we only spent 1 day below that 20 level. VNQ had quickly hit it’s profit target of 3% and EWS stands -4.7% below it’s entry level. So our 8 position portfolio using this system has a return of -0.2% over the past 12 trading days. Not too bad considering the nature of the market since then. Basically it has sat in 75% cash waiting for another poke below the 20 level or have a current holding hit a profit target. Or cross above the 50 level on the Ultimate Oscillator as the other exit rule.

The current market weakness has now pushed T2108 to a reading of around 30.

So maybe with some bad market days we can get that sub 20 reading. If so maybe the system will have an opportunity to add some exposure.

Speaking of exposure, as I have mentioned in the past where do you think the trend component, on daily bars, of equity correlated stocks would be invested now? That is right. Cash. So in very negative type market environments it is a good idea to have opposing systems each with their own segment of the overall portfolio. In the ETF oversold type system it could potentially add a few positions. But would that system be 100% of the overall portfolio. No it represents a portion of a collection of systems. A collection of systems with positive expectancies can lead to less volatile returns as well avoiding large drawdowns. What do you think a trend system of non-equity type ETF’s based upon daily bars would be invested in now. That is right all that commodity based stuff that has been on a huge run. Look at the charts below. Blue dots are entries. Red are exits. John has discussed this trend following system in the past he named Fuzzy.

I want diversification of timeframe, investment class, and trading systems (good post explaining system diversification). With the whole portfolio being a proper balance of systems that best enhance and complement each other. This is in my opinion the most difficult part to piece together as it really takes some walk forward in real life to see how the systems react together. Having seen many of these market waves up and down in the 20 years I have followed the markets on a very close basis it has helped me to piece systems together that make logical fits. Over time these have evolved and will continue to evolve as I find new ideas and concepts that I believe may have a role in the overall living breathing portfolio.Have a Great Week!

Dave Johnson

From out original list of ETF’s that triggered 6 days ago another one has triggered an exit. The difference with this one is that it is exiting on the Ultimate Oscillator crossing 50. Remember the exit was one of two scenarios. Whichever triggered first. In this case it was the Ultimate Oscillator crossing 50 before nailing the 3% profit target like the first few exits. It is presently up  1.67% and would be sold at tomorrows open.

Have a Great Night!

Dave Johnson

It has been 4 days since I mentioned a simple trade setup using the T2108 and the Ultimate Oscillator. I wanted to show you what that list of ETF’s have done since then with a screenshot:

(click to enlarge)

As you can see from the original 7 symbols mentioned 2 have hit their profit target of 3% (FXI and HHH) and of remaining 5 we have a spattering of small moves and one down 3.47%. Of course that is one of the ones I randomly picked to mention to you for this example. A big part of trading is accepting responsibility for you trades and in this case I will clearly pass the buck to my wife. You see when I wish to randomize my entry signals with no bias I usually yell from the office to my wife “honey pick 2 of the these…VTV EWS EWJ VNQ XLY HHH FXI” , well she picked EWS and VNQ. So this lag is clearly her fault and I wipe my hands clean of all responsibility. But seriously I suspect these exits to begin to trigger over the next few days and weeks.

I hope all the readers have a great holiday and maybe in some small way this blog has helped you to look at the markets in a slightly different way. And ultimately that may help you and I in our quest for positive returns.

Have a Great Holiday!

Dave Johnson

Just a quick follow up on my post last night about the T2108 and Ultimate Oscillator System. The T2108 indicator popped back above the 20 level so we will not have any new entries tomorrow. As I noted last night the entries were to be EWS and VNQ at the open this morning.

EWS was entered at $13.84 with a 3% profit target at $14.25

VNQ was entered at $61.87 with a 3% profit target at $63.73

also if the Ultimate Oscillator were to close above a reading of 50  this would also trigger an exit.

Walking the readers through an example like this zeros in on the critical component of exposure. Before the trade we determined the number of entries the system can hold and how many can enter per day. If the market were to have a big up day tomorrow and trigger the 3% profit target my exposure would have only been 2 out of 8 potential holdings, or 25% exposure. Yet if I had taken all of the entries that triggered I could have 7 holdings as that was the number of buy signals we created yesterday. In portfolio level backtesting this component is so important to define. If you use the same entry criteria at all times your exposure could soar on some waves and on others it will be light. That is reality- real trading. You can’t just keep buying beyond your levels of equity or comfort. Yet if you are too conservative you may end up always having to little exposure. The key is through backtesting finding a happy medium.

Yet if I were not to explain this component and just throw out signals, and they happen to all win….what did that tell you? How much did the system move up? Without knowing how many positions the system can hold there is absolutely no way to say. Next time you see a trade thrown out by another market commentator make sure you know how much of the particular systems equity it represents and how much equity that system makes up of the total portfolio. Otherwise the value of such advice is quite limited.

Have a Great Night!

Dave Johnson

John and I have in the past showed you how the T2108 indicator can be used to pinpoint extreme pessimism and with that a potential for a snap back upward in the swing timeframe on daily bars. The T2108 indicator is part of the Worden Telecharts package and plats the percentage of stocks below the 40 day moving average. I have used it in various systems that I have developed to filter the fear/pessimism environments.

One of the systems I recently tested was stumbled upon the last time the T2108 crossed below the level of 20 in mid November. This also coincided with a period that I was testing the Ultimate Oscillator as another tool to trigger oversold conditions in ETF’s and individual stocks. The knowledge of edges in each of these indicators allowed me to combine them into a system for trading stocks and ETF’s.

Seeing a chart with the 2108 indicator on it during bull and bear markets may help you visualize what these periods look like. In both these charts I used the SPY to represent the SP-500 and noted a period in the last bear market as well as the most recent bullish period we have just gone through. The blue buy dots you see are only showing a period when the indicator went to single digits which we discussed back in August. I circled the clusters of days where the indicator was below 20.

Bear Chart (click to enlarge)

Bull Chart (click to enlarge)

The system I created will only begin to trigger buys when T2108 is below 20, which closed at 19.93 today after the selloff into the close. Now that the condition is turned “on” I can now look for the trigger with the individual stock or ETF. With ETF’s I want the Ultimate Oscillator to close below a reading of 30 and on individual stocks a close under 25. Today 7 ETF’s closed below 30 from my list of about 100 very liquid ETF’s. They are:

EWJ
EWS
FXI
HHH
VNQ
VTV
XLY

With this system any of these would be considered a buy. But as with any system we need to determine how much capital to deploy and how to enter the positions based on past drops. My testing has shown using a 8-10 position portfolio where on each day no more that 2-3 entries is triggered is about the best. So lets say we are going to use 8 holdings and we can add 2 new holdings on any one day while older positions are open. So if tomorrow is still below 20 on the T2108 we will look and see if any ETF’s are still below 30 on the Ultimate Oscillator. The exit for the system is like any system and is hard coded. It is either a 3% profit target or a cross above 50 on the Ultimate Oscillator indicator- which ever comes first. The 3% target can trigger intraday. A time out exit also comes into play beyond a 40 day holding period. That is it. Really quite simple,

For my portfolio I will be buying EWS and VNQ. Tomorrow we’ll see what other setups are brought to us. Oh yes the entry is at the open the day following the condition triggering. So my entry will be at tomorrows open. Here are those charts:

This system is truly a standout in terms of winning percentage, drawdown, and profit factor. In the last 8 years a total of 116 buys have triggered and 88% of them were winners. The average winner was 3% and the average loser was about 2.3%. I have tested beyond this period but I don’t want to go too deep into the past for now because we would have to confront some backtesting challenges and I want tokeep it simple for the blog. Needless to say the period beyond 8 years is just as good and provides validity to the most recent data.

Each wave that dips into these areas are unique and it would not be unusual to see a foray into these areas that are not profitable so as always allocate a reasonable percentage of the portfolio to a system like this and follow it to the letter.

Oh yes I mentioned the individual stocks portion of the system. Today from the Nasdaq 100 I have only SBUX triggering. So I will keep an eye on that one as well.

Have a Great Night!

Dave Johnson

Earlier today before the release of the Fed Minutes at 2:00 EST I had made a rare intraday post to point to an oddity that had occurred on my 500 tick SP Futures chart (the ES). I like this chart because it makes turning points and flag edges quite clear to me on a longer term basis in order for me to time my entries on the shorter timeframes.

Anyway, this printed a pretty double “tent stake” - so named for their sharp bottoms and broad tops, an inverse of their brethren the “church steeple” top (hammers more appropriately). We had a decent rally off those and then after the Fed Minutes we printed more of these long wicks on the candles. Now if you trade intraday and especially on emotional big down days, any break of these long wick candles can spell trouble. Your typical breakout play that can certainly gather steam.

But if that emotional level is punctured and very quickly pops back up trapping those that played the breakout the fuel for a quick pop and potentially more is in place. That is exactly what we had happen today. The support of the long wicks were broken and the very quickly reversed. But the clincher was the volume in that reversal.

I drew in the emotional break down line. You can see that red candle (key bar) that punctures below the lows and closes below the obvious support level (naked close). This brought in massive trade size and which now sets me to watching the top of that bar as well as the emotional line. Remember breakout players played short below that level. As what typically happens when the breakout fails a quick snapback occurs with some follow through that takes out the emotional level as well as the key bars high (reversal).
So we have printed tons of reversals and ultimately print the clincher naked close reversal. Now what happens after the pop? We begin to trail back lower. But look at that volume as she rolls back. Nada. Shorts/Sellers flat out ran out of gas. I especially like these Naked Close Reversals to be on big volume and in key support and resistance areas. The volume should be the tell if it is.

In this case the ensuing rally pounced upon the lack of sellers and found a key support area for a very large advance into the close.

One more trading day until Turkey Time. If I don’t post before then….Have a Great Night and a Glorious Holiday!

Dave Johnson

In my post 2 weeks ago about the large drop in the banking sector I had made a few comments as to what I thought this drop might mean going forward. I had used a hypothetical holding period of 10 days to see what sort of forward results we could see. I also think it shows quite succinctly the power of backtesting.

Here is what I said 2 weeks ago:

Over the next 2 weeks I expect to see what our small snippet of history has shown us.

• Massive volatility in the market and banking in particular
• A tendency towards a upward reaction after a panic low is put in
• I would expect the range in the Bank Index to have a range of >7% low to high over the next 2 weeks

All of these “predictions” were not based on opinion or my personal bias, but were based on what the market had done on average in the past when this condition triggered.

Here is the chart showing that post 2 week period. The blue dot shows the trigger day and the bands denote the high to low range after that period:

Let us review each of the statements.

“Massive volatility in the market and banking in particular” - although most would have thought this statement to be an obvious one it actually was not. If you look at high volatility periods in general these spikes tend to see a lessening in ATR (Average True Range) in periods that follow. Yet we saw an increase in the 10 day ATR for the SP-500 jump 24% and in the BIX.X a 41% increase.

“A tendency towards a upward reaction after a panic low is put in” - on November 7th we had a 6.8% drop in the BIX.X, the largest one day drop in the sector since the selloff began in February and the 8% upward reaction after that massive down day within 4 days.

“I would expect the range in the Bank Index to have a range of >7% low to high over the next 2 weeks” again this was pointing to volatility but also zeroed in on just how volatile. The average for the periods I tested was for post trigger range of over 10% and so I tried to be a bit conservative yet still give an idea of the magnitude of the potential 10 day range. We ended up with an 11.73% range - right on in terms of the historical norm.

This little example gives us a snapshot of the power of backtesting data. It not only gives me trade ideas and how I can frame them but also can give a broader view of what the context of the broader market might be. I would highly recommend you find some way to test and analyze past market data in order to make educated guesses at forward looking market analysis.

Have a Great Week! A shortened one at that!

Dave Johnson

I received some questions today if todays big up move confirms the long entry in the SP-500. It does not. Remember the entry is an up day with volume greater than the previous 21 days. We had an up day but volume was not even close.

Could be tough in the short term to overcome that big volume bar from 4 days ago. But hey who knows.

Have a Great Night!

Dave Johnson

With the recent protracted slide in the financial sector many market observers have noted how this could be a sign of worse things to come for the limping market. In last weeks post I noted how a slide on the magnitude of 16% in the course of only 20 days pointed to a wild ride ahead.

The sector has slid more this week and I wanted to update the stats and present you with a trade that I think is setting up. We now have that same S&P Banking Index down 18% in 24 days as of the close on Wednesday. This has only happened on only 6 other occasions since 1983. Truly a noteworthy occurrence. As I reviewed the charts of the periods that triggered this condition I noticed that at times the SP-500 was in sync with the weakness in the Banking Index and at times only mildly so. One thing that generally happened fairly soon after this big drop in the Bank Index was a high volume reversal in the SP-500. I defined the high volume as the highest volume in the previous month and happening on a positive closing day.

If I were to test this condition (highest volume up day) on its own the resulting pop tends to be quite unimpressive but if this high volume pop up is preceded by the large banking drop the results are huge.

As I had mentioned an 18% drop in 24 days has only occurred on 6 separate dates that I have listed below.

The dates listed are the day after a close below the 18% level. If after this date we begin to look at the SP-500 chart and look for a reversal as defined by an up day on volume greater than all days in the previous month (21 days we’ll use) we would look to go long the next day at the market on the SP-500. We are going to look for a target in the 4-5% range.

Below you will find all of the charts of the SP-500 with the trigger date listed, the reversal day noted, and the profit target area were looking to hit. In each of these cases the target was hit very quickly even after entering after the large up move. The second entry date listed in 1998 actually happened while waiting for the earlier date to trigger a buy so we will only see 1 historical chart below for the 1998 entry.

This chart above of the 1998 entry shows our exit hitting in less than 2 weeks.

______________________________________________

______________________________________________

Again the entry in 1999 above hits our target in only 11 trading days.

______________________________________________

______________________________________________

The 2001 trade above hit out target in just over a week.

______________________________________________

______________________________________________

In this the first of two 2002 entries our target is attained in only 2-3 days.

______________________________________________

______________________________________________

In this second entry of 2002 we again hit our target area in just a few days.

_______________________________________________________

_______________________________________________________

On average we see the large volume reversal entry day within 12 days after the large drop condition triggers. 1999 was the one that took much longer. All the others happened very quickly.

On average, our target area is hit in about 5-6 trading days. Think about that a 4-5% upside move in the SP-500 in 5 days.

Based upon this analysis I will be on the lookout for the high volume upward punch that will catch the shorts covering and those with limited equity exposure trying to catch the ride. As for me it is a trade. Nothing more. After my exit the markets can tank all they want. All I am doing here is trying to frame a trade. In terms of a stop - based on this historical snapshot I’d say a stop in the 7% area should allow enough room for the trade to work.

Keep your eyes peeled because if we get it. I won’t miss it.

Have a Great Weekend!

Dave Johnson

All week on financial television and media I have heard how volatile the market has been. All I can do is pull from SenatorLloyd Benson’s famous quote and say “Nasdaq today you are no Nasdaq of yesteryear”

I am in no way implying about future movement but those were spectacular moves. That you had to have been through to truly have a concept of massive moves.

Also this weekend I will be doing a follow up on my Bank index post from last week. And pointing to a specific trade that could provide a huge opportunity in the near future.

Have a Great Weekend!

Dave Johnson

The SP Bank (BIX–X) index has dropped 16% in the last 20 trading days and I wanted to test what sort of market action has happened after this magnitude of a decline. Since 1993 this has happened on 7 occasions.

In my test I bought the bank index the first open following the 16% drop in 20 days and sold in 10 days. Simple. On average that index has shown random 10 day holding periods to change in price on average about +0.39% . After this condition has triggered the average 10 day move has been about +5.07%. Wow massive. The volatility coming into this period tends to continue. If you look in the last 2 columns in the spreadsheet within the graphic you can see MAE% and MFE%. These represent Max Favorable Excursion and Max Adverse Excursion. This shows us how high (favorable) and low (adverse) price deviated within the 10 day holding period.

August 28, 1998 had the largest adverse excursion of 13.1% and ultimately finished 5% negative after the 10 day period. These periods are very volatile periods for the market as a whole and point to underlying concerns with growth and interest rate direction.

Over the next 2 weeks I expect to see what our small snippet of history has shown us.

• Massive volatility in the market and banking in particular
• A tendency towards a upward reaction after a panic low is put in
• I would expect the range in the Bank Index to have a range of >7% low to high over the next 2 weeks

Have a Great Night (and next couple weeks)!

Dave Johnson

Ever since I recorded my intraday trades I have received an endless stream of readers looking for further tips. The videos themselves are an excellent resource to see some of the types of entries I might take during the day. But the basis for framing biases are really based upon very very simple ideas of identifying trends.

An up trend is a series of higher highs and lows. While a downtrend is a series of lower highs and lows. I have mentioned before that I found Stan Weinstein’s work in this area a great way to frame the “where are we now?” Trendlines can play an important role as well to see logical  resistance and exhaustion points on a chart.

Todays mid morning action was a trend down type scenario in the Nasdaq futures that for me exemplified some logical entry points as well as clear swing high points that would have changed the picture enough that I would have been able to see I was wrong.

Those turn point areas on the indicator make nice entry points with definable risk as marked by the red line at swing highs. Remember waves. If it does not look like a wave - it’s not. Today had some clear wave patterns I liked. Keep an eye out for those.

In my videos I was trying to show you how to play band to band mostly, where fading moves into logical resistance were the plays. With this other type of trading we are recognizing a trend or bias is in place and we want to trade with that. Those are clearly 2 diametrically opposed type of systems but sometimes the fading of extremes type entries can lead to being able to add to a position once the trend entry kicks in. Big waves and wavelets each with their own risk and position size is how I try to trade and analyze the market as it unfolds each day.

Have a Great Night!

Dave Johnson

This morning I came across an article by Alligator Investor on the Seeking Alpha website noting a trading system in the Dow Jones Industrials over the past 50 year. In the article he mentions a commonly mentioned system of using a moving average crossover system that uses the 50 and 200 day moving average. When the 50 day crosses above the 200 day moving average we buy and when it moves below we exit. Although I think there is some merit to the basic premise of the article I think it leaves the reader with the impression that the system did pretty well overall.

The problem is that over time it leaves you way way behind. The data and charts I am about to show you do not even include dividends or the effect of short term tax consequences. Looking at the last 50 years as he did in the article let us compare buy and hold versus usage of that system.

And here is a visual of what that looks like in your portfolio.

That is not good.

Hey why stop at 50 years? Lets go back to 1919 !

Number wise this is bad enough. But this next visual is very enlightening.

Ok your so far behind - your not even in the race.

Here  is a PDF with all the trades listed

Surprising? I think it is when you see it in such stark contrast of data and pictures. Backtesting allows that. It allows you to challenge the conventional wisdom that permeates the trading environment. When people ask me “Dave what does work?” I tend to say things like “it’s the opposite” or “not what you may think”. I say these things because so much of what I have tested through the years has been so counter-intuitive to what I had been taught up until that time. It cuts to the core of your belief systems. It’s that knowledge that now allows me to feel comfortable stepping away from the crowd.

As an example of being totally crazy lets change the test a bit. We will not buy on a cross up - but a crossunder of the 50 day moving average and we will use the same exit as the first test- a cross under of the 50 below the 200 day moving average. So our system will buy the so called “Death Cross“. Yes the dreaded Death Cross. Those are considered very very bearish. So we buy that and wait for a cross up and use the crossunder as an exit. That has to have much worse performance right?

That is the past 50 years. So let me get this straight. Drawdown the same. Return of 5.15% in Death Cross system and 4.42% in the “good/safe” system I showed you above.

The purpose of this post is to make you look at the markets differently. Remember what Dr. Koch mentioned in his interview with me?

The Trading Digest - Can you tell me any consistent themes you find are more successful in trading systems? In what timeframes?

Dr. Koch - To tell you the truth: after years of research in the stock market I
know one single principle which works consistently: The effects of fear
in the markets. In terms of trading systems this is the pullback, bottom
fisher or mean reversal which in effect talk about the same statistical
effect. You can find this effect in hours, days, weeks, months and even
years. I found the most interesting time frame in the range of 2 to 5
days. Let me emphasize that this statement means at the same time: None
of the so called classical technical indicators works. No RSI, no MACD.
none of them.

Did you catch that? He said “The effects of fear in the markets. In terms of trading systems this is the pullback, bottom fisher or mean reversal which in effect talk about the same statistical effect. You can find this effect in hours, days, weeks, months and even years.”

Do you think something we call the “Death Cross” might be fear creeping into the market at that time? Sure is. And as I have shown you here today thats an edge over conventional wisdom.

Have a Great Day!

Dave Johnson

The massive runup from the extreme oversold lows of Mid-August gave me an idea to test. Let’s test a rate of change that just occurred from the lows on the Nasdaq 100 37 days ago. As of Fridays close we were greater than 12% higher than price 37 days ago. A big big move.

So if we screen for that condition and enter the next day at the open. (noted in blue dot)

And code an exit logic that looks like this:

We exit no matter what after 22 days (about 1 month) at the following open

or

We hit a 10% profit target

We do this on the Nasdaq 100 Index going back to Feb 1988 (beginning of data)

This condition triggered on 62 occasions - 69.35% were profitable - with an average profit of 2.65% - the dollar profits and drawdown are based on $15,000

Thats massive. As a matter of fact the average return over any 22 day period would be +1.22% yet we are seeing +2.65% average return.

The 10% profit target probably was only hit once or twice right? Wrong. Out of the 62 trades 16 hit the 10% target before the 22 day timeout exit. That is about 25% of the time. I put a link below where you can download a PDF showing all the trades.

Here is a PDF with all those trades listed

I am not here to expouse a particular bullish or bearish view. I can only show you what I am seeing in this test. I have no bias and I will not make any particular trade based upon this test. This data is very similar to a test I ran on the old blog that everyone dismissed at the time (here and here). Also some of the newer readers may benefit from a post on the old blog that talked about my portfiolio construction. That has changed only slightly from when I wrote that and has done very well for me. But that is another post for another day.

Have a Great Day!

Dave Johnson

Dr. Rene Koch has written articles for Technical Analysis of Stocks and Commodities, created software interfaces for the popular Wealth-Lab software, and has publicly tracked systems on the Collective2.com that are consistently top performers.

Dr. Koch lives in Germany and his native language is German so for our interview we decided to do an e-mail exchange with some questions that system traders or aspiring system traders might find useful.

The Trading Digest - Could you tell me a little about yourself and your background?

Dr. Koch - I am in my forties. 15 Years ago I received a PhD in physics and
computer science from a German Universities. I worked in the field of
acoustics and digital signal processing. After a few years in the
measurement technology business I turned to finance and trading system
development. Surprisingly a financial time series is not much different
from acoustical noise and the math used in both cases is astonishingly
similar.

The Trading Digest - How do you define system trading?

Dr. Koch - Taking advantage of statistical anomalies in financial time series. These
anomalies make future price changes a bit different form a 50% chance.

The Trading Digest - How long have you been designing systems?

Dr. Koch - I started in 2000. My first usable system was ready in autumn 2001 and
showed very good stats at that time. I started trading right before 9/11
and lost quite some money, because system behaved quite different in
these weeks than the years before - an interesting lesson to learn.

The Trading Digest - What software do you use for your analysis and system design?

Dr. Koch - I started with Wealth-Lab and wrote quite a few utilities for it to give
me answers to my (statistical) questions. These days I use RightEdge
(www.rightedgesystems.com) and a bunch of additional software (Excel,
SQL Server, things I develop myself in C#)

The Trading Digest - How do you evaluate the quality or validity of a system?

Dr. Koch - The most important question to ask:
Is any result from a backtest (like overall profit, maximum drawdown,
sharpe ratio) just a statistical fluctuation or does this result hold
for future trades?
It is astonishingly hard to answer this question and most backtesting
software does not assist you but helps to produce false expectations.

I recently developed a new methodology which avoids over-optimization,
data-mining bias, etc. in short: fooling yourself. It is based on
proprietary statistical methods and gives excellent results.

The Trading Digest - Can you tell me any consistent themes you find are more successful in trading systems? In what timeframes?

Dr. Koch - To tell you the truth: after years of research in the stock market I
know one single principle which works consistently: The effects of fear
in the markets. In terms of trading systems this is the pullback, bottom
fisher or mean reversal which in effect talk about the same statistical
effect. You can find this effect in hours, days, weeks, months and even
years. I found the most interesting time frame in the range of 2 to 5
days. Let me emphasize that this statement means at the same time: None
of the so called classical technical indicators works. No RSI, no MACD.
none of them.

The Trading Digest - What advice would you give to beginning trader/investor?

Dr. Koch - First of all: Don’t believe a single word form the books of all these
well known trading gurus. I tested many of the systems/indicators/ideas
they published. None of them worked as advertised.

My advice: Get a sound understanding of “the scientific method”,
statistics, data mining, math.
One of the best books for this is: “Evidence Based Technical Analysis”
by David Aronson and the references herein.

The Trading Digest - Tell me about the systems you track on the Collective2.com site

Dr. Koch - One of my students is a typical “small investor”. He has not much
capital, not much free time during the day and didn’t want to do all the
development of a trading system for himself. After months of discussions
and refinements of published WealthLab systems, we arrived at some
systems which were tradeable for him. They work with small amounts of
invested money and are tradeable with a one-time effort during the day.
Because the systems performed quite well we decided to give them a try
on Collective2. Meanwhile all these systems are among the Top-10 stock
systems there.

The Trading Digest - How many systems do you trade for your personal account?

Dr. Koch - These days I am busy at the development side of the game. There is a
hedge-fund which trades the systems I developed with much more money
than I could afford.

The Trading Digest - What is the minimum account size you recommend for a subscriber to your system?

Dr. Koch - I recommend $15k as the minimum amount. While it is possible to use more
leverage with CFDs or similar products I do not recommend to do so,
because a future drawdown (which is always larger than expected) becomes
simply too dangerous if your leverage is higher than 1:2 or 1:3.

The Trading Digest - What enhancements would you like to see to the collective site?

Dr. Koch - I had some request from European customers to trade European stocks.
Unfortunately C2 is limited to US securities currently.

The Trading Digest - Any books or websites you could recommend?

Dr. Koch - Besides the one mentioned above just - one hot tip:
“Fooled by Randomness” by N.N. Taleb.

I stay away form most websites about trading and try to avoid discussion
forums as much as possible. The only exceptions being the Wealth-Lab and
Right-Edge Forums. 

The Trading Digest - Thanks you so much for your valuable time Dr. Koch and best of luck in all you future endeavors.

Any interested readers can learn more about his stock trading systems (Ruby and Topaz) on Collective2.com

Over at the Wall St. Warrior blog I happened to catch the chart he posted this morning on the Nasdaq Composite. He always has lots of graphs and data that can be helpful knowing where the market is. Thanks Jaime for a great blog.

I repost that chart here with his notes. I want to run a simple backtest based on something I am seeing.

Look at the RSI indicator in the upper pane. It appears to have just crossed under the value of 68 yesterday. I wanted to test what that may portend for the market going forward.

We will buy the open the day after the cross under of 68 on the 14 period RSI and test exits at 5,10,and 20 days later. I tested on the Nasdaq Composite going back 20 years. Here are the results of that scan.

Not what you may expect but the level of out performance in the 5 and 10 day holding periods is over 2 times the average 5 and 10 day hold. Even 20 days later were still almost 1.5 times an average 20 day hold. Does this mean we definitely go up these amounts. Not at all. There were many losing trades as well. But were looking at all of the trades in aggregate.

Typically these high readings happen in bullish environments and those tend to be supportive in the short term at least. As to what will happen - who knows?

As I was playing around with the parameters of the test I inputed the MACD level as well. notice in the chart it is above the 40 level. If I add this parameter to the backtest what do you think this does? Lessens the number of trades but average winners increase dramatically in the shorter timeframes.

5 days - 0.94%

10 days - 1.58%

20 days - 1.79%

Pretty Dramatic - I love this stuff…..

Have a Great Night!

Dave Johnson

What are the parameters and qualifications that I look for when evaluating a system? Having been a serious system tester and designer for some time I thought I might pass along some of the things I am looking for. Just some very basic concepts for now. The Collective2.com site is a great place to see real trading in action. Contrary to all the BS system sellers out there touting 150% returns with no risk the markets are quite efficient. Efficient in that any one set of rules applied consistently will have periods of out performance and periods of under performance. Holy Grails do not exist in trading nor on the Collective2 site.

No system is infallible in all market conditions. Having tested virtual every sort of entry and exit imaginable I believe I can say that fairly certainly. Can anyone point to a trading system with verifiable results that was perfect? That called every top and bottom perfectly? Of course not. So when evaluating a system having unrealistic expectations is going to leave you disappointed. Realism and reality are going to have to be hallmarks in your journey. I am going to try and give you some basics to use when evaluating trading results and systems.

In order to group systems in a way that makes comparision easier I always want to compare systems that have similiar holding periods. I dont want to see a trend system based on daily bars that holds an average of 100 days compared to a swing trade system that holds 5 days on average. These holding periods also tend to have some general characteristics that are similiar throught that group like drawdowns from tops and volatility.
Let us go over to the Collective site and do some system sorting on their grid. It’s this grid which helps that sorting process. One drawback with this tool is its inabilty to sort amoung multiple columns but we will have to make due for now. I am only going to look at stock systems so I only check that off. In the filter area I only want profitable systems. If I check off ’smooth equity curves” I am esentially only focusing on Sharpe Ratios above 1. Sharpe ratio is a critical component to understanding and evaluating systems. It tells us essentially the reward to variabilty ratio. How big are the wiggles compared to the returns. Two systems may have doubled your money over the course of the past year but if the variabilty/volatility is higher in one compared to the other the less volatile system will have a higher Sharpe ratio. A ratio above 1.5 in systems is rare and impressive over the long haul and above 2.0 rarer still. Anyway lets sort some systems.

I have sorted some stock systems by the average trade length - you can see they range from 4 weeks to 6.8 weeks. Now lets look at systems that have a reasonable time traded and a Sharpe ratio over 1.3. This leaves me with 3 systems that I might look a bit further into. One of the things I do not like right off is that the realism factor in each of these systems is relatively low. I like these above 75 generally. The lower rated systems tend to trade in less liquid and wider bid/ask environments. Meaning the ability to match system results could be impacted.

Of these 3 systems lets look at annualized return (underlined in red). How do I quantify these returns? I have 68.7%, 132.6% and 42.4%. Is the one thats highest best? Actually we don’t know because that system could be trading a 2 times leverage and the 42.4% on at 1 times. It would require further investigation. Also the highest in terms of Sharpe and Annual returns is a somewhat newer system that only has 22 trades so far. But one to keep an eye on.

When designing systems I look for these same sorts of parameters. Ultimately I want high returns, smooth equity curve, realism, and one that does not require a case of antacid to trade through. On my old blog I gave out picks to a swing system for one year before the market opened and did 40%, but tracking the trades was a pain so now John and I use C2 to prove ourselves over time. John, who also writes for this blog, being a former Microsoft programmer and system designer and myself being a trader and system designer made a good team for not only this blog but for our endevours in system design. We wanted to create systems the average working guy could use to enhance his portfolio performance or highlight interesting setups here on the blog.

Ok, so you now have some basic tools to sort and scan. Some of these systems are run by some very very good system designers and traders. Not all of them, but there are some really good ones I can attest to. In the coming weeks I am going to do some interviews with traders I think are very knowledgable from this site. Many of these traders I have interacted with at some level over at the Wealth-Lab site. This is the desktop software I use to do portfolio level testing of my systems.I am of the opinion that unless you have some sort of verifiable track record it is difficult for me to assign any value to your opinion. This is why I always encourage other bloggers to start a C2 system. Let us see what you can do. Or how about the systems on TV where they tell us how good they are, or the typical pitches you hear from the unscrupulous. Prove it in real time. Real position sizing. Real Emotions. That is what Collective 2 does. It allows us to sort through the BS and find quality systems. You job is to determine which won’t blow up in the end.

Have a Great Night!

Dave Johnson

I hear many trading “rules” that through my backtesting I have been able to debunk, but the one that I hear most frequently is that during market weakness a trader should focus on the stocks that have held up the best. In a market downswing if you are comparing 2 stocks the one that fell the least or has a higher RSI reading would be the better candidate right? We’ve all heard this but does this theory hold water?

I ran some very simple tests to show you what the data looks like. Here are the rules of this backtest:

Condition : McClellan Oscillator is below -100 (a pullback in the market)

I ran 4 separate backtests on the Nasdaq 100 stocks over the last 5 years. In order to trigger a trade the pullback condition must be met and the individual stocks can be in one of 4 classifications:

RSI under 25

RSI 25 -50

RSI 50-75

RSI 75-100

The 5 period RSI is used in each of these cases. I will now exit the trade after 5 days. Here is a graphic showing the results of that test:

Of principle concern in the test I want to see what the average profit and loss per trade in each of these RSI segments will be. Notice how as RSI increases the average profit declines. The most trades and the most common area for stocks would be in the 25 to 50 RSI reading after the market pullback. Also I should note that I allocated 1% of equity to each trade which allows us to hold every Nasdaq 100 stock. You can see this by the very low exposure readings but this allows me to ensure that I am seeing every trade.

Of particular interest is when you compare the 50-75 group to the under 25 group you will notice about the same number of trades occurred. Yet the average winner in the “weaker” group is 42% larger than the “stronger” group with readings of 0.97% and 0.68% respectively.

I have seen this demonstrated in not only the Naz 100 but also in any other grouping of stocks I have tested whether it is the SP500, Russell 1000, and any random grouping of symbols in not only bull markets but bear markets as well.

So do we have the Makings of a Market Myth? I think we do.

Have a Great Day!

Dave Johnson

On Monday morning I posted a headline that caught my eye. Remember last weekend? What were we worried about? Growth Fears. Thats right. Time to go short right?

Here we are on Friday. Dow had the best week since April I believe. BEST.

What can we learn from this? A week where people flail their ams shouting how horrible forward performance will be, yet it ends up being the best week in 5 months. Stick to YOUR plan. And don’t be diverted by the headlines.

This is by no means a bullish rant. The chart is clearly at a crossroads but I implore you to always be extremely wary of the “obvious” trade. It is never ever that easy.

People in the blogospere who understand this “it is what it is” concept are few and far between..

The best blogs out there in my opinion are:

Stephen Vita - original and daring but willing to ride a trend

Bob’s advice for stocks- Bob is not only a gentleman but a market maven when researching IBD type growth stocks

Dr. Brett’s site - as a trader if you have not been here you haven’t been anywhere - best of breed

Technically Speaking with Ron Sen- a must read who makes being a contrarian almost anti-contrarian. A trader with an eye most closely aligned with my own.

HeadlineCharts - a new one for me but one I enjoy reading and find to be unemotional and extremely helpful inside the big picture

In my blogroll you will find others I find either enjoyable to read or helpful in trading. All come highly recommended in my opinion.

One thing these guys all have in common is that they post regularly. John and I tend to post rather infrequently and a bit irregularly. My only excuse is that I try to avoid the mundane and hop on the most salient points I see developing in the markets. Obviously these tend to trigger at extremes. My hat is doubly off to those that I have highlighted above, who gracefully weave frequent quality commentary with highly enjoyable reading. Hats off Gents.

Have a Great Weekend!

Dave Johnson

Well that sure makes trading this week easy. Go short at Mondays open. Because “stocks are expected to extend their losses next week”. Man you can’t make this stuff up. Ok I am not saying they won’t be right but I’d put the probability at just around the levels of a coin flip. Certainly headlines such as these encourage average investors to make emotional decisions after having seen an erosion in their 401k values since mid July - but create opportunities for astute swing traders with an eye on statistical probabilities.

As always look for clues of potential intermediate turning points in emotional “guaranteed” markets that can catch the crowd leaning the other way - such as:

• those sharp up turns that leave extreme high volume footprints behind
• solid and wide reversal patterns such as inverted head and shoulders
• diamond bottoms
• double bottoms  - (support)
  
• triple bottoms  - (more support)

you get the picture.

But most likely these reversals happen after punching through an obvious area everyone is watching such as recent support or a important trendline. Be especially vigilant after gaps through these key areas. You can see a couple obvious ones as we head into this week.

So instead of fearing periods like these. Relish them because invariable one side of the boat just gets a bit too crowded. You must stay vigilant and strike when the odds (not the headlines) are in your favor and the lemmings decide they are on the wrong side of the boat.

Have a Great Night!

Dave Johnson

Let’s see IBD confirmed rally and a double/triple 9 to 1 rally.

Clearly a bullish bias going forward. Multi-Day Pullbacks should be bought in my opinion.

Have a Great Day!

Dave Johnson

This Amero conspiracy going around appears to be jumping the gun, it looks to be some sort of fantasy coin series.

Steve Previs from Jefferies, maybe you could elaborate?

Fun stuff for a long weekend………

http://www.freemarketnews.com/WorldNews.asp?nid=47425

http://codshit.blogspot.com/2007/08/nau-who-to-believe.html

Dave

I am going to limit my commentary on this subject until I know more about this. Watch the video and then read the whole link.

http://www.halturnershow.com/AmeroCoinArrives.html

Comments? If this is true…….

Dave

The compelling trade I noted last night ended up positive on the day and will not trigger an exit until T2108 crosses the value of 12 - were at 10.79 as you see below.

Have a Great Night!

Dave Johnson

With todays market selloff I was looking forward to the close to see if the T2108 indicator (% stocks under 40 day moving average) had closed in single digits. And lo and behold it had - it actually closed at a value of 8.24 today. Very low indeed. I ran a backtest to see what a close below 10 implied and how I might be able to frame a trade to the long side.

Here are the parameters of that trade.

• a close below 10 on T2108
• buy the open following the close below a 10 reading
• exit when T2108 closes above a value of 12 - (a small improvement)
• a stop-loss based upon historical deviations will be at 6%

I ran on data back to 1990 on the SP-500

It has triggered on only 6 occasions -  1990 (twice), 1994, 1998, 2001, 2002 and of course today.

Here are the results of that scan:

So the average winner is a whopping 5.7%! with only a 6 day holding period. Any other 6 day holding period would have an average change of about 0.15%. Truly volatile as John has shown in the previous two T2108 trades. Max adverse excursion on these trades was in the 5% area. So it has at times taken some adverse movement before the advance pushed through.

Here are charts of each of those signals (click to enlarge) :

The two signals close together in 1990

the 1994 setup

the 1998 setup

the 2001 setup

the 2002 setup

and where we stand today…….

And remember this would be a trade. That’s all. Well, I have framed the trade. Who’s taking it?

Have a Great Night!

Dave Johnson

We will exit MDRX at the open tomorrow. See how this mechanical stuff works? It closed today above the highs of the previous 2 days. That is the exit. Simple and unemotional. We’ll do that over and over and see what happens.

The new entry will be KWK a pick sent from a reader of the blog. Looks pretty darn nasty.  We’ll add it to the portfolio.

I also wanted to note the huge Naked Close Reversal that occurred at todays low of the day on a 5 minute chart of the SP-500 futures. It is denoted with a close above or below an an obvious breakout point. In this case below. These typically occur on big volume, near psychological woosh points, in areas of obvious stops, and in very rapid trade. In this case it was defended throughout the rest of the day.