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swingtradeforecaster
Market Blog
Here you will find periodic updates on our trading strategy. Successful business people will tell you that record keeping is critical to running an efficient business. When it
comes to the stock market, very few traders record and review their results.
The purpose of maintaining the Market Blog is to maintain a systematic approach to trading that prevents us from trading randomly and impulsively, the culprit behind most
trading disasters. We believe an educated consumer is the best client.
Here you will find periodic updates on our trading strategy. Successful business people will tell you that record keeping is critical to running an efficient business. When it
comes to the stock market, very few traders record and review their results.
The purpose of maintaining the Market Blog is to maintain a systematic approach to trading that prevents us from trading randomly and impulsively, the culprit behind most
trading disasters. We believe an educated consumer is the best client.
August 27, 2010
We often hear about "managing risk." Donald Rumsfeld said it best, "There are known knowns...There are known unknowns...But there are also unknown
unknowns." Here is the man guiding a war effort during a time of instability explaining there are risks we don't even know that we don't know about them (can
you say "black swan").
As money managers, we manage randomness with known probabilities in our risk management strategy. With all we do, the future is still uncertain. Our job is
not to forecast exactly what will happen but to be ready to deal with events as they come.
July 23, 2010
When professional athletes are arrested during brawls at places like night clubs and dog fights, we say, "How stupid! Why would they risk their millions of fans,
and million-dollar contracts, by deliberately putting themselves in the wrong place at the wrong time?"
Yet many investors do the same thing whenever they accept market exposure by placing a trade without considering when to exit if the trade is wrong. When
placing a new trade, our firm always is more concerned about how to get out rather than how much money we could make. We call it strategic avoidance.
July 9, 2010
Earlier this week the Tour de France racers went through a section of cobblestone roads. The ride was bumpy, to say the least, but they kept on going. Why?
Because there is no other way to the finish line! Investing works the same way. Bumpy roads simply go with the territory for successful investors.
What can you do to get ready? First, don't let yourself be surprised by not studying market history. Second, diversify your portfolio and be patient. Third, get
help when you need it. Tour de France riders have a whole team behind them taking care of the details. They know they can't do it all themselves.
Are you getting the feel of the road now? We hope so. The Tour de France will be over soon, and someone will be the winner. Your lifetime investment plan,
however, will last a whole lot longer. Stay on the course and you can be a winner, too!
June 11, 2010
In 1991, Michigan's Timid Motorist Program assisted 830 drivers across the Mackinac Bridge that is five miles long and 200 feet high. The drivers were so
scared of heights that they couldn't drive their own cars. The same year, more than a thousand motorists received assistance at Maryland's Chesapeake Bay
Bridge--also 200 feet high and four miles long.
In spite of their destination being in plain sight and a history of the bridges being safe, the drivers were paralyzed by fear. The same thing happens in the
stock market. The investing goal is in plain sight, but only a few are consistently willing to exercise discipline to reach their money destination. Instead, their
fear paralyzes them. If you can see your destination, don't let fear destroy your freedom.
May 21, 2010
A woman was once asked what one of her favorite childhood memories was, and without hesitation she responded by saying, "Being woken up out of sleep
by my dad to sit at our bay window and watch the lightning crawl across the sky during a big thunderstorm." Watching storms was fascinating for her because
she was in a safe, familiar place.
When storms arise in our investing life, as has occurred in recent weeks, it is comforting to have those around us who are familiar and safe. During the
uncertain and frightening storms of the stock market, let us remember to stay focused on our disciplined approach until these calamities have passed by.
May 7, 2010
How ironic in our last blog post we quoted Mark Twain, saying "History may not repeat, but it sure does rhyme." As we recover from the Great Recession,
books have been published spelling out how the perfect storm developed. Ever since the last crisis, investors have been trying to recoup their losses.
Unfortunately, the market correction of the past week has brought back nightmares for many. Again, quoting from our last post, we continue to handle our
managed accounts by managing risks. While making the trade a little early, we have had our client portfolios half short for several weeks. We closed that
position this week, and now we have our eyes peeled for the next opportunity. While the market waters may not be calm, our disciplined strategy remains so.
April 23, 2010
How many times has someone said, "This has never happened before" or "No one saw this coming." Mark Twain said, "By the Law of Periodical Repetition,
everything which has happened once must happen again, and again, and again ... History may not repeat, but it sure does rhyme."
Why are "black swan" events so consistently unpredictable? Markets provide us with an unending stream of opportunities. As money managers, we just have
to manage risks and preserve our client accounts while looking for those growth opportunities.
April 9, 2010
It's human nature for us to focus, most of the time, on the wrong thing. If we're not regretting the past (wrong), we're worrying about the future (also wrong)--
"wrong" in the sense that they divert our attention from the one thing that is most important: the present. The past is irretrievable and unchangeable. The
future we can plan for but cannot control. The present, however, is what we have today.
As money managers, the more investment decisions made focused on today's market conditions, the fewer regrets about the past we will have in the future.
April 1, 2010
In this age of security, we’d like to share with you – courtesy of McAfee – some tips for creating strong passwords that are hard to crack. The most important
thing to remember is that the more difficult a password is to guess, the more secure it will be. For example, if you choose a one-character password that can
be any uppercase or lowercase letter or a numeral, there are 62 possibilities. Using the same possible characters, an eight-digit password has about 218
trillion possibilities.
McAfee reports that security specialists recommend these guidelines:
For example, use the first letter of each word in a phrase, with a random number: “hard to crack this password” = “htc5tp” Use your imagination and have
some fun creating your strong passwords. Also, remember to change your password frequently, and never write it down in an obvious place.
March 12, 2010
My wife has been planning our upcoming trip to Hawaii's Big Island. For many travelers, the anticipation of a trip often outstrips the reality. Travel brochures
never show the things that can go wrong, like airport delays, long lines, overbooked hotels, pick pockets, rainy weather, or bad food--to name a few.
As traders speculating while the stock market has been rising every day or week, it seems we'll never be disappointed. As money managers, we have our
travel documents and a brochure of our accommodations. We have our investment strategy as a guidebook and daily itinerary. Currently, our guidebook is
warning us to put preservation of client capital as priority over making investments returns or gains. As we prepare daily on our investment trip to our final
destination, we are becoming more cautious over the near-term of a possible bumpy ride.
February 26, 2010
If your brain had a computer chip that recorded every word you thought for seven days, how many times would it record the word "worry?" "I'm worried about
you..." or "I've been worrying about..." or "I worry that we won't be able to..." The Richard Carlson book "Don't Sweat the Small Stuff" is a point well taken. That
doesn't mean there aren't important issues in life and serious decisions to be made. It's just that worrying does not make any impact on the outcome. Besides,
we have heard the medical profession state that worrying is a form of stress, and stress is bad for you.
Every day, many investors wake up worrying if the market, and their nest egg, is going up or down that particular day. That's how we can help as money
managers who rely on a time-tested investment strategy to make those buy and sell decisions. Instead of worrying, do something that is good for you.
If you'd like to learn more, we encourage you to contact us for more details and see if our program fits with your other investments and your risk tolerance.
February 12, 2009
We spend a lot of time researching and analyzing the markets. This week we came across a quote that we found both humorous and true. Economist and
author John Kenneth Galbraith said, "There are two types of forecasters, those who don't know and those who don't know they don't know." We would add a
third type. As money managers, we know we don't know what will occur in the markets. While we don't know exactly what will happen, just like your local
weatherman, our model can make "scenarios" we can follow that have served our client accounts well over the past several years.
January 29, 2010
Colonel Harland Sanders was recently rescued from the river. He was covered in mud and his hands were missing. But his legendary smile was still there, and
when he was found he was standing upright. Twenty-four years ago, some crazed baseball fans had taken the statue of Colonel Sanders from the front of a
KFC restaurant in Osaka and thrown it in the river. They were upset because they thought the colonel resembled a hated member of a rival team. The colonel
stayed submerged until discovered by workers building a walkway along the river.
Sometimes we feel we're in over our heads. We talk about drowning in a sea of red ink. While the NEW YEAR hasn't been very "HAPPY" for buy & hold folks,
we can stand upright and keep our smile knowing we have virtually side-stepped the damage. While we have no opinion whether the recent market action is
just another correction, or another bear market move down, we believe these are not waters to sink in, but waters to swim in. Let us help you stay afloat.
January 15, 2010
Statistics show that most investors who lose money over the long-term do so because they become fearful after suffering losses in a bear market, and don’t
become interested again until the next bull market has been underway for a long time. The cycle then repeats. The exit from the stock market continues even
as the rally in the stock market progresses. Between July 31 and year end, investors pulled $46 billion out of domestic equity funds and pumped $177 billion
into taxable bond funds. The public is not aboard this bull market, and remain on the sidelines.
This has created trading days with low volume, and the beneficiaries of the new bull market have primarily been professional traders at hedge funds, banks
and other institutions. In fact, investment banks have been reporting large profits due primarily to their trading and investments. While competing with the "big
boys" in the market, our trading has been very quiet YTD. We have rejected two trade setups in the past few weeks due to their low probability of success. In
hindsight, both trades would have been stopped out near breakeven. Another setup is likely in the days ahead. For now, cash is king!
January 1, 2010
As mentioned in our last post, "What to do when studies reveal that investors, professional and amateur alike, are their own worst enemy?" PIMCO's Mohamed
El-Erian says, "The first thing is a forward-looking asset allocation...Secondly, finding the vehicles that are stable enough to express that allocation. And,
thirdly, risk management. It is not enough to be diversified..."
As evidenced in the past couple years, diversification works until it doesn't. To help protect our client accounts from known and unknown risks, we will continue
to monitor stock market activity in the new year on a daily basis. Our investment process will only accept systematic risk when deemed favorable to do so, and
limits exposure to market risk when our models are unfavorable.
December 18, 2009
Can you beat the market? In a 2005 Financial Review article, Burton Malkiel provides data from a 30-year study which shows that most professional money
managers of stock mutual funds underperform the S&P over all time periods. This fact may help explain why, according to a recent Morningstar study update,
over half of the mutual funds it tracked had NO personal manager investment. Can you blame them?
Dalbar, Inc. conducted a Quantitative Analysis of Investor Behavior (QAIB) study in 1994. Dalbar confirmed previous studies that show many investors were
not participating in long-term mutual fund returns because of frequent switching among funds. The 2009 Dalbur update includes a “Guess Right Ratio” that
measures how often the average equity fund investor makes an accurate investment decision based on the market environment. This ratio measures how
often the average investor buys low and sells high. Over the 20-year period covered in the study, Dalbar found that the average investor behaves irrationally.
What to do when studies reveal that investors, professional and amateur alike, are their own worst enemy? More next time...
December 4, 2009
We make no attempt to predict the future because it is simply an impossible task. Nobody knows exactly what is going to happen tomorrow. Someone reading
this update may find these comments rather strange coming from a professional money manager firm since our job revolves around speculating market
direction and outcomes!
However, like a weather forecast, this is not to say that we don't formulate a forward-thinking approach to market analysis as we firmly believe it is important to
be aware of all of the possibilities of price and direction. It's almost like preparing yourself for things that could happen, even if they don't happen. We attempt
to anticipate all of the possible outcomes by letting winning trade ride when we're right, and cutting losses quickly when we're wrong.
November 13, 2009
Depending on whom you talk to, in which sport, "The best defense is a good offense" or "The best offense is a good defense." Perhaps they both have value
in different situations. But when it comes to investing, our advisory firm is going with "the best offense is a good defense" when managing money.
While our trading activity has been somewhat muted lately, don't assume we aren't watching for an opportunity to appear so we can pounce. It will and we will.
If you would like to hire us to help you navigate the uncertain stock market, contact us and someone will contact you within 24 hours of receiving your info.
October 30, 2009
How many of you are ahead of where you were at the top of the bull market two years ago? Mark Hulbert asked this question in a recent MarketWatch.com
article. He gives two interesting facts. First, of the Hulbert Financial Digest's database, "It turns out that 71 of those 450 portfolios, or 16%, are today ahead of
where they were two years ago....Not a very high percentage, to be sure..."
The second, "The comparable percentage among U.S. domestic equity funds is a lot lower, according to the good people at Lipper, the fund tracking
company: Just 83 funds in that category made money over the two years through this past Sept. 30, which amounts to just 1.2% of the 6,930 funds for which
they have data over that period." For us, we have worked hard to protect our client accounts, which have grown in excess of 10% during this same period.
October 16, 2009
There is a fascinating CNN/Money article entitled How much risk can you stand? The article elaborates upon four basic ideas of determining your risk level. A
useful feature in the article is a link to a free risk-tolerance test in questionnaire format from FinaMetrica. The test, which is based on extensive research,
normally costs $30. But CNN/Money has arranged free access to it through November 30th via this risk-tolerance test link.
October 2, 2009
Jeff O'Dell is a University of Virginia student with a personal interest in his research. The biomedical and engineering student is working on a new type of body
armor for American soldiers. Most body armor can be damaged by one shot from an armor-piercing bullet; but the vest designed by O'Dell and his fellow
students should be able to withstand as many as 32 rounds per plate. "It could save my own life," O'Dell said. That's because O'Dell is a soldier who has
served in Iraq and Afghanistan and expects to be deployed again in the near future.
We have been developing a new "investing armor" for use with our upcoming S&P 500 Exchange-Traded-Fund (ETF) strategy. Every day when managing
client money we need to take all steps to protect against "market bullets." If you would like to be added to our new ETF waiting list, please contact us for info.
September 18, 2009
John Hussman made a recent comment on hussmanfunds.com, "Investing isn't about specific forecasts, but about repeated actions and long-term discipline."
While our trade duration time is much shorter, we could not have said it better in explaining our philosophy of managing money. We take market risk in periods
where our strategy deems favorable(either long or short), and avoid market risk where the strategy is unfavorable. What we focus on is making base hits while
avoiding large losses. This approach helps reduce market exposure and market risk compared to a passive Wall Street buy-and-hold approach. We sleep well.
September 4, 2009
You're entering a war zone when visiting the Connecticut Valley Historical Museum. The largest display of toy soldiers in the world is arranged in dramatic
scenes to tell the history of war in miniature. Twenty different world battles from ancient Egypt to World War II are refought using detailed, individually-sculpted
figures. It reminds us that the history of the world has repeatedly been determined by wars and their outcomes.
It often feels like we're also entering a war zone when we invest in the markets, but we aren't toy soldiers and our battles aren't miniaturized. We're more apt to
be victorious when we realize it's often like we're at war. Like any soldier, we must remain disciplined and follow the orders of our trading plan in every situation.
August 14, 2009
Research shows that newborn babies have no fear of the dark. After spending nine months in the darkness of the womb, we put nightlights in the nursery so
we can see them, not so they'll be unafraid. As we start growing, many children develop night fears imagining creatures outside their windows or monsters
under their beds. As we age, those nighttime fears become more sophisticated. Many of us struggle every night with letting go of our worries so we can sleep.
Since before and after Charles Ponzi's pyramid scheme in the 1920's, investors worry about having their money "Madoff" with. We find Ken Fisher's new book
How To Smell A Rat a quick read on detecting the 5 signs of financial fraud when hiring a money manager. To help, we've posted our Due Diligence Document
on our homepage which compliments and addresses the concerns in this new book.
July 31, 2009
Our web home page says, "Swing Trade Forecaster offers a low correlation to the broad stock market." Our results YTD prove that point, but it's beginning to
become ridiculous. Our equity curve this year rose at the market fell into its March lows. We have steadily given back some gains ever since as the market
has risen during its largest "bounce" since the early 1930's. While unhappy with the results over recent weeks, we continue to remain diliogent and follow our
strategy...even when it hurts. It has been said, "this too shall pass," and we can't wait.
July 17, 2009
You understand that these are painful and historic times. A Spectrum Consulting survey says global wealth destruction exceeds $13 trillion(30% loss) with 90%
of affluent investors saying this is the worst financial crisis they've ever seen. Studies show that crisis and stress can lead to serious health issues. It can also
strain relationships.
If the volatile markets are creating anxiety for you, you could just stay the course hoping things work out. Whether they do or not, you can take charge and try
something new. Figure out what's wrong and contact us and let us help make your money work for you.
July 3, 2009
After months of waiting, Proshares introduced their new 3x leveraged S&P500 Index ETF's this week. Leveraged ETF's can be great, but you must use them
correctly. Leveraged ETFs are mainly intended for swing trading, meaning a few days at most. Hold a trade longer and the results will start to vary wildly.
Fortunately, we have a time-tested framework for decision making. This framework, a disciplined approach to swing trading, offers the potential for ETF gains.
In addition to our exisitng Rydex strategy, we believe leveraged ETF's can be a great tool. We will do our best to educate investors about these ETF's, and
keep you posted about a new opportunity coming soon from Swing Trade Forecaster.
June 18, 2009
A lost motorist asked a farmer for directions. "Where is the main highway to St. Louis?" Answer: "I don't know."
"Well, where is the highway to Memphis?" Answer: "I don't know."
"Where does this highway go?" "I don't know." "You don't know much do you?" "No, but I ain't lost."
Have you ever tried going on a road trip without a map? Trying to plan your life and investments can be just as ineffective. We can head in the general
direction of where we know we should be, but without a guide, we'll be just like the lost motorist, asking everyone else for directions.
This strategy is a time-tested map for our journey. Without it, you may wander life's investment highways, not knowing where they lead. When you find yourself
making plans for your investing life, remember this adventure needs a guide you can count on. Contact us and let us help you.
June 5, 2009
When designing a bridge, the engineer must take into account three different, but equally important loads: the dead load, which is the weight of the bridge
itself; the live load, which is the weight of the daily traffic it must carry; and the wind load, which is the pressure of the storms that beat on the bridge. The
engineer then plans for bracings that will bear all three loads.
How strong are your investment bracings? Every time before we commit in the stock market, our model evaluates each trade set-up against the potential
volatility or systematic risk we may experience during the time frame we may be invested. Our model, consisting of trade signals and our volatility filter which
overlays the system, only allows those trades with the higher probability of success. Interested in learning how these bracings can help you? You've worked
hard in creating your nest egg - let us work hard building it for you.
May 15, 2009
A recent trend in medicine suggests that a key factor in increasing human lifespan is calorie reduction--simply eating less food. Researchers have found that
the less processing of food the body is asked to do, the fewer negative side effects that lead to aging or premature death. It's like your car--the fewer hours
the engine runs, the longer it will last.
We approach investing the same way. While we can eat and drive less, why not trade less also. This strategy has historically been in the safety of the Rydex
U.S. Government money market fund over half of the time and trades only when the model indicates chances are probable for a gain. We will continue to
remain patient and wait for favorable market trade setups to appear. Remember, past performance does not guarantee future favorable results.
April 24, 2009
Why are Isaac Newton’s three Laws of Motion (inertia, resultant force, reciprocal action) called laws? Because they are universal physical certainties that have
never been proved not to govern the situations to which they apply - including the markets. We've recently experienced the most volatile period ever, enough
to cause motion sickness. Two weeks ago we said, "our protective volatility filter...may allow our managed account to move to a 100% invested position."
Day-to-day stock market volatility has dropped in half since last Fall. However, it still remains very high historically. Our investment stance remains cautious
and no more than 50% invested in our managed accounts for now.
April 10, 2009
We have just posted on our home page a Special Report entitled MARKET TIMING. WHAT IF?
March 20, 2009
What if you were to win an all expense paid, first-class trip around the world, but while checking your baggage at the airport you stubbed your toe? Would you
say, "I wish I had never won this trip! Look! I've stubbed my toe!"? No. You'd say, "This momentary discomfort cannot compare to the enjoyment of the trip
we're about to take."
Well, this week we stubbed our toe. It appears the market is setup similar to when we made our January 31 comments suggesting a "cold draft." This week we
began preparing for a likely substantial pullback. We stubbed our toe by positioning 50% short Tuesday morning at NDX 1159. With a NDX 1187 weekly close
we're a little early. On a more positive closing note, for the first time in over a year, our protective volatility filter which overlays the trading model may allow the
managed accounts to move to a 100% invested position. Taking it day-by-day, we'll see what happens next week...
February 27, 2009
On the hit TV show The Biggest Loser, contestants must work hard every week to drop pounds so they can continue being on the show. They are held
accountable by a gigantic scale that reveals their weight in front of millions of Americans. Going into the contest, they know weight loss doesn’t just happen;
they have to fight for it by breaking old habits and creating new, healthy ones. To lose weight and get healthy, they do whatever it takes to achieve their goal.
This should be our mentality as investors. In our Janaury 31 post, we said "we sense a cold draft is making its way to Wall Street..." In response, we have
been side stepping the increasing volatility and market risk by hiding in cash. By protecting our client nest eggs, we will be well on our way to remaining in the
Top 1% off all active money managers again in 2009. Please don't hesitate to contact us if we can help you and your nest egg during these uncertain times.
February 6, 2009
We have been talking with lots of people who have been utterly demolished by their brokers and financial advisers. The amount of carnage is rather
shocking. The vast majority of mutual funds, hedge funds, and asset managers got destroyed last year. If you are hurting, you are not alone. Don’t beat
yourself up over this. Instead, learn from the losses and move on.
Best-selling author Micheal Lewis in this short YouTube clip offers some good advice discussing how to protect your money. It is refreshing to hear critical
thinkers make sense. You should send this clip to everyone that you care about.
January 31, 2009
From birth, we are fearful of the unknown and gravitate towards things that make us feel good. Just as the weather forecast prepared us for a Winter ice
storm this week, market forecasts can help us plan our money moves. Like the current Missouri weather, we sense a "cold draft" is making its way to Wall
Street in the days ahead.
With this market forecast, we're prepared but will make no predictions. We will simply continue to monitor the situation daily and react to any situations or
opportunities. After one month, we're off to a fast start in the new year with the "stock strategy" up over 7% YTD(exceeding all of 2008 gains) in a down market.
January 16, 2009
Winston Churchill said, "It is always wise to look ahead, but difficult to look further than you can see." While hindsight is 20/20, most annual predictions about
the economy and the markets usually become laughable within a few weeks. Evaluating the consensus of a grouping of market gurus only makes it harder to
decipher where the markets are going. Rather, like your local weatherman, we take it one day at a time not forecasting more than a weekly time frame. Our
experience has been this process is more accurate, and keeps us from being the laughing-stock. To learn more, feel free to contact us for more information.
January 2, 2009
One of the worst years since the '29 crash, 2008 will go in the record books. While stocks and our strategy started last year off on a down note, that's where
their paths diverged. After getting knocked down last January, the stock market went on to continue its decline for the remainder of the year while we quickly
adjusted our stock strategy into a more defensive posture as price volatility and market risk were becoming more apparent. From the early year lows, the
strategy rose steadily ending 2008 providing our clients with absolute returns, net of all fees and expenses.
Economic indicators are still looking grim. While the current decline may or may not be over, it appears the bear market will have a few more years to prowl.
Instead of simply asking "what can I do to survive," we ask the question "what can we do to prosper despite the economic crisis?" When adversity hits, there
are always opportunities created by market conditions as a result of the adversity. We pledge to be ready to "pick up any low lying fruit."
December 19, 2008
At the start of 2008, unregulated hedge funds were acknowledged as the investment of choice. Wealthy investors and major institutions, including other
hedge funds, banks, pension plans, charities, and even endowments at Harvard and Yale were proud to be among those accepted into the money fold.
Now near the end of 2008, hedge funds remain in the headlines - mostly unfavorable. Industry reports indicate performance results have mirrored the broad
market decline, which has been one of the worst bear markets in history. Many imploding funds have been invoking "gates" not allowing investors to withdraw
their money from the funds. And now we have news of Bernie Madoff, alleged to be the largest Ponzi scheme in history.
Trust will need to be restored to Wall Street in coming years - and it will take years. In response, in an effort to provide greater transparency in addition to
disclosures required by law, we have just posted a white paper on the website entitled "Due Diligence Report" which is similar to questionnaires we receive
periodically from large prospective clients. We believe a more informed consumer creates a better working client relationship in the long run.
December 5, 2008
We are experiencing some of the largest price swings in the history of the stock market, with previous similar periods including 1929, 1973, 1987 and 2002. To
survive in this market you must examine how this volatility can affect your trading strategy, and learn how to adopt to this new environment. While the saying,
"the bigger the risks you take, the bigger your returns" may be true in general, when risks get too high it doesn't always mean a similar increase in returns.
Our trading edge will come from any ability to correctly identify acceptable market risk. With volatility now at historic peaks we remain prepared for swift, sharp
moves in either direction. As a result, we have not exceeded a 50% invested position in leveraged stock index funds since January of this year. You may not
always be able to take volatility to the bank, but high volatility can almost always take you to the cleaners.
November 21, 2008
The stock market continues in its highly volatile ways as the downtrend continues. For some perspective of the bear markets during the 108 years since 1900,
the most recent correction currently ranks as the fourth largest in magnitude (only the corrections beginning in 1906, 1929, and 1937 were greater) and is the
most severe correction of the post-World War II era.
The markets dislike uncertainty, and it shows as this bear is more fierce than any in recent memory. Even so, we continue to plod along with capital
preservation utmost at this time while our equity curve remains near records levels. For anyone who is looking to add some certainty to the uncertainty that
exists in a business with no guarantees, please contact us and see what we may be able to do for your portfolio or nest egg.
November 7, 2008
The dictionary defines fear as apprehension, anxiety, or dread. It's a common occurrence in most every life and it can stop you in tour tracks.
What feeds your fear? For many it's the unknown. We find security in the predictable. But when insecurity sets in, fear follows.
What feeds our fear in our lives also feeds our fear in the markets. Admit your fear and acknowledge you don't have to know what's going to
happen. That's the purpose for a good risk management system. Attempting to make money when the odds favor your trading edge, while
avoiding risk when the odds are not acceptable can help dampen any market fears you may have. During the recent months of historic
volatility and uncertainty our strategy continues to plod along trying to keep our head above water with whatever the markets throw our way.
October 24, 2008
It appears that 2008 will be the worst year on record for hedge fund performance, reports Hedge Fund Research which says its main index is
down 10% YTD. Not everyone has been able to liquidate, such as the numerous hedge funds whose sole broker was Lehman Brothers. Many
funds are unable to access their accounts to sell even while their portfolios have declined. Morgan Stanley has stated that at least 30% of all
hedge funds will go out of business.
In his book Lone Survivor, Navy SEAL Marcus Luttrell recounts his teammates experience of fighting 200 Taliban on Operation Red Wing.
Prior to the events of that deadly fight, Luttrell describes how brutal and intense his SEAL training was. He spends several chapters giving
vivid word pictures of the demanding drills they were put through in order to prepare for situations they knew they would find themselves in;
dangerous, unpredictable and deadly. Take an inventory of your stock market "survival skills." If you need help fighting the stock market,
contact us and let us help you survive the battle.
October 10, 2008
Are you one of the many swing traders that takes the same level of risk notwithstanding the market conditions? There is a better way to
mitigate market risk.
In March of this year we added a volatility filter to our money management rules. Traders must understand that not all market conditions
present the same odds for a particular trade.
Using the modified version of the Swing Trade Forecaster system can be an intelligent way to participate in the markets, while reducing the
risks of getting caught with big positions on a whipsaw reversal which can lead to loss on trading positions. With active money management
skills we will continue to dampen market volatility while protecting and growing client accounts.
September 26, 2008
One may wonder why anyone would pay us to keep client funds in cash. They don't. They pay us to know when to be in cash. For many
investors, the best advice right now is “Don’t just do something - sit there!” Decisions made in haste rarely look wise in hindsight. Those
with a prudent strategy and long-term perspective should be able to ride out the storm. Unfortunately, few individual investors fit this profile
and this is the point where we can be of help.
September 19, 2008
If your broker or advisor thought the market was topping and convinced you to sell your positions, you'd most likely be upset with them if the
market then went higher and would likely move your money elsewhere. But if the market drops you may get upset about the market, but you
won't blame them for that as they will tell you to stay "disciplined" and invested.
So the broker or advisor stands to lose everything by being negative and wrong on the market, and very little by being positive on the market
even when it's in a bear market. Wall Street has defined being "disciplined" as allowing them to control your money forever. Prudent
investing is aligning your investment positions with reality. If you're looking for someone to help guide you regardless of market conditions,
we suggest you contact us.
August 29, 2008
How many things in life, besides death and taxes, are absolutely certain? When we stop and analyze life's contingencies, it becomes apparent
that very little in life is certain. The stock market is an area in which we can feel very uncertain and insecure about the outcome. While not
certain, we will continue to plod along taking advantage of opportunities that come our way. Even while the NDX fell 59 points this week, the
strategy gained 29 NDX points.
August 15, 2008
On December 9, 1914, disaster struck the laboratories and factories of inventor Thomas Edison. Great geysers of green flame, fueled by
chemicals, shot into the air, and the fire departments of eight nearby towns rushed to the scene. Edison walked into the yard, his hands
folded across his chest and watched saying to his son, "Where's Mother? Get her over here, and her friends, too. They'll never see a fire like
this again."
Within three weeks, the Edison factories were restored to some semblance of order and were soon running at two shifts. While not a
disaster, our recent small percentage trade drawdown can seen as a set-back. Like Edison, don't quit. Don't panic. Don't give up.
August 1, 2008
The NDX ended the week down 20 points while the strategy gained 37 NDX points. Practicing "buy & hold" as an investment strategy with this
volatile stock market has to be very difficult. This is where Swing Trade Forecaster comes in, as we are daily looking for opportunities to
protect and grow our client accounts. Having the flexibility to adjust to changing markets, we expect decreasing volatility and a more
trending stock market in the days and weeks ahead.
July 25, 2008
By managing our client accounts on a daily basis, we seek to offer an alternative strategy compared to "buy & hold" which hangs on even
during bear market declines. For example, this week our Stock program mirrored the NDX performance while we spent 80% of the trading
week in cash, as stocks bounced up and down. Through active management our objective is to achieve higher returns with less risk.
July 18, 2008
While we have had three consecutive errant trades in recent weeks, our money management rules kicked in with all three trades saving the
day. While being breakeven over the past month has allowed the strategy to relative outperform the broad stock market, we have
underperformed the money fund which would have been a better choice. Looking forward, we are expecting to buy any likely pullback early
in the coming trading week.
July 11, 2008
Investors would like to take some comfort that they are investing like the pros. It's comforting to know that the people running your accounts
have their money, and their family's cash, mixed into the same strategy as yours. All too often it's not and the managers don't have enough
belief in what they are doing to actually live by it. That's the conclusion to be drawn from a new Morningstar study which found that nearly half
or more of fund managers don't invest in their own funds. We would never recommend a program to any of our clients that we do not invest
in personally. When we tell you we'll look after your money just as if it were our own, it's because we have our own money invested alongside
with our clients in every Managed Account we recommend.
July 4, 2008
Sir Isaac Newton said, "I can calculate the motion of heavenly bodies but not the madness of people." The emotions of hope and fear have
been on full display in recent days in the stock market. Actually, these emotions have been part of the markets ever since its inception. And
while it's difficult to contain emotions all of the time, we continue to follow our trading plan in an almost robotic manner during these volatile
days. The result is knowing we can sleep better at night.
June 27, 2008
Headlines this week suggest this will be the worst June for the Dow Jones Industrial Average since 1930. Even worse, stocks are on track for
the worst returns at the end of this decade (2000-2009) since the decade of the 1930's. Can you say breakeven? You'd at least be positive
with all your money in cash earning interest.
Speaking of cash, that's where we've been hiding this week. We are actually seeing some positive developments in our model and may
dabble in the market before the upcoming holiday period.
June 20, 2008
We warned a month ago of the recent market volatility. We hoped that the warning would make us less prone to being pushed to and fro by
our emotions. We were only attempting to be a little bit of a calming influence. While we are always looking to take advantage of trading
opportunities, our model has been more cautious during current market conditions. The correct stance is to try and read some of the trends
while protecting capital by moving to cash when appropriate. For example, we closed out our latest breakeven trade we'd been holding since
last week avoiding the damage on Friday.
June 13, 2008
It is interesting two things we can learn from last weekends Belmont Stakes. First, popular opinion was Big Brown was unbeatable. Like in
horse racing, bets and trades in stocks can get lopsided with everyone thinking the same way. Secondly, the jockey used wise risk
management techniques when realizing after coming out of the gate that his horse wasn't right. Like horses, when a trade isn't working it is
also best to simply get out of the way and save your capital.
June 6, 2008
Trade management is a process that includes account and risk management, portfolio construction, and position sizing and scaling. We
utilize trade management procedures to limit risks. Our goal is to produce a smooth equity curve from absolute returns. Two weeks ago we
said, "our work is suggesting...rising volatility..." We have been experiencing big up days which are followed by big down days in the stock
market.
Often the best thing to do is nothing. We will not stop trading, rather we will attempt to control this volatility risk by accepting only those
trades which clear the hurdles of our filtering mechanisms in an attempt to minimize any potential drawdowns. Our work suggests there will
be plenty of opportunities in the days ahead. We will be patient realizing that cash is our friend.
May 30, 2008
We understand that the only thing certain in the markets is uncertainty. Last week we said, "our work is suggesting...rising volatility in the
weeks ahead." We only aim to prepare clients for the realities of trading. Our job is as much about managing client expectations as it is
managing client accounts. We only want you to be prepared for the unexpected.
We closed another profitable trade this week ending up in the money fund. The correlation between rising volatility and falling stock prices is
relatively high. Therefore, we are watching for opportunities to make small gains should the markets correct during the next few weeks.
May 23, 2008
Explaining volatility has never been easy, especially because the market goes through cycles of either increasing or decreasing volatility. The
most recent change in volatility our research found was during mid March when volatility was moving higher as stocks were moving lower.
Investors in recent months have had a reprieve from the emotional roller coaster earlier this year.
Even as we closed another trade with a small gain this week, our work is currently suggesting that another cycle may be forming with a period
of rising volatility in the weeks ahead. While not afraid of volatility and the uncertainty is causes, we look to continue to take advantage of any
price movements in stocks.
May 16, 2008
There's a lot of truth in Aesop's fables. One of the classics is the story of the ant and the grasshopper in which the grasshopper spends the
summer hopping around, singing and having fun. The ant, on the other hand, stays focused diligently storing food for the winter. Today, we
might call the ant a "self-starter." The story illustrates the principle that diligence and hard work pay off in the long run.
As mentioned last week, our model flipped from bear to bull Monday morning to catch some of the move up in stocks this week. We took our
profits, and like the ant, we continue to try and "lay up food for the winter."
May 9, 2008
The current Managed Account positions should be winding down early next week. While we had a nice gain this week, the cumulative effect
of the multi-week position will likely result in a losing trade. The reality is every trade will not work. Never forget, one of the least important
sets of numbers in our performance is number of wins to losses(we average around 75%). The most important statistic to watch is average
gain to average loss(we average 4:1 ratio). While most people desire to be right all the time, the recurring theme with some of the greatest
traders was that they got out of their losers quickly.
May 2, 2008
Wile E. Coyote has never caught the road runner. Every scheme that writers could imagine have backfired. Rocks have fallen the wrong way,
fireworks have exploded, anvils have defied gravity, entire cliffs have let go, and the fake tunnels painted on canyon walls remain.
We find the cartoon funny because we can relate it to the stock market attempting to thwart us. This past few week has been a challenge, but
not a failure. We must simply continue to follow the trading plan knowing that the decisions made today will affect the results later.
April 25, 2008
The main reason most people have their money invested is to make money. But, it's the focus on money that often causes people to make
mistakes and not make money. There aren't many other things in life that effects our emotions like money does. With our money on the line, it
is difficult to not let our emotions lead us to make poor decisions.
The focus of our strategy is on each trade and not the money. We need to focus on improving our trading skills rather than the dollars that
could be in our account. That's why it is important to have a trading strategy free from the emotions of fear and greed. Our mechanical
system currently turned bearish Monday, and we will stick with the current trend until it changes. With some major earnings reports out of
the way, the market may not react favorably to any upcoming economic reports
April 18, 2008
There can be drawbacks in some types of professional trading groups. For instance, some traders have a meeting each day, week, or month
to decide what the markets are going to do. And, as a trader, you are probably in trouble if you make trades against the group consensus and
lose money. Group consensus trading has nothing to do with good trading when the group is wrong.
Many traders are supposed to make trades every day, even if there is nothing to do. Someone may say, “We pay you to trade, not to sit back
and do nothing.” Well, that's exactly what we did this week. We will only accept market risk when the probabilities favor a reasonable return.
We will continue to make every effort to reduce overall portfolio risk while seeking any potential gains.
April 11, 2008
Trading and emotions are like oil and water. When you begin to think you know what the market is going to do, you're paying too much
attention to what the flow of information is saying. With nearly everyone expecting a major rally after last week, our strategy took advantage
of the midweek decline posting another small gain on the latest closed trade.
Guard against holding an opinion on the market because it may cause you to miss a turning point. If you struggle with this, consider a
mechanical market timing system. The best traders over the decades have used the simplest systems and rules while acting quickly on any
new trading signals.
April 4, 2008
We are proud to report that since inception of this Managed Account investment strategy last Fall, we have been able to outperform the Dow,
S&P, NASDAQ and Russell indexes. But more importantly, our process has provided an absolute positive return during a difficult time for the
major market averages. With all the uncertainty in the stock market, we will continue to avoid "big idea" investment themes and keep our
focus on the short-term view.
March 28, 2008
When the markets are as volatile as they have been recently from the news about the credit crisis, bank and investment banker troubles, and
bond insurers solvency in doubt, some clients may be feeling a tad emotional. Emotions created by uncertainty can complicate any well-
crafted investment strategy.
No one can ignore what's been happening in the stock market. However, it doesn't affect our timing indicator or the risk control measures we
employ on a daily basis. We are holding our 3% gains for the week into next weeks trading.
March 21, 2008
History tends to repeat, especially in the stock market. Two weeks ago stocks found an early week bottom to rally hard from. The next day a
sharp selloff is reversed higher the next day to retest the high from two days earlier. This week's stock market action was like a mirror image
with our taking small gains from another profitable trade.
If history repeats, and with our market timing indicator overbought, the next few days may see some rough sledding.
March 14, 2008
What makes the most innovative companies in the world so successful? Success is a result of many factors, but it’s clear that the key to their
long-term success has been their ability to adapt to changing environments. The same is true in the stock market, where the current
environment may have changed recently to a bear market.
Implementing a strategy with no correlation to the overall stock market can be an effective way to get returns in a difficult market. We
manage this process on a daily basis looking for trades with increased odds of reducing risk while maximizing return. Last week we "initiated
a bullish position," and we moved to a 100% cash position Wednesday.
March 7, 2008
Volatility is all around us and it's not only the markets that volatile, but our moods may be as well. If they're a little emotional in this
environment, who can blame them? Regardless of what stocks do this week, we adhere to our consistent strategy that is in effect that carry
us through times of market downturns.
We initiated a bullish position midweek, and we must now not let the recent small drawdown to allow our emotions to overcome our
disciplined approach.
February 29, 2008
While driving today a car passed me and caught my attention. On the side of the car were magnetic "ribbons" of various colors in support of
various causes. From what I could tell, the side of the car had about 10-12 of these ribbons on it. Of the dozen ribbons on the car, I'm not
sure what a single one stood for or supported. Is your investment program like this car?
With recent market volatility and uncertainty, we will continue to focus on what we can control. We closed our latest trade at the close today
with a gain of 3%. With the timing indicator becoming oversold, we are now looking for a bottom to form in the market by next week.
February 22, 2008
One day a man approached J.P. Morgan, held up an envelope and said, "I hold a guaranteed formula for success, which I will sell for
$25,000." J.P. Morgan replied, "If you show me and I like it, I will pay you what you ask." The man handed over the envelop and Morgan
opened it. He took a look at the note inside, pulled out his checkbook and paid the man the $25,000.
The note read: 1) Every morning, write a list of the things that need to be done that day,2) Do them. Taking that advice, every day we run the
models to determine whether probabilities favor us to be long, short, or in cash. We ended the week with gains from our short trade last
Tuesday morning, and will hold it into next week looking for a bottom.
February 15, 2008
One of the concerns with modern investment management is active money managers who in fact mimic an index. The last thing a client wants
to do is pay active management fees to a "closet indexer."
We believe we offer a better solution by focusing on a single strategy. We are specialists, not generalists. By sticking to our trading plan we
aim to provide consistency, and this week we closed another 2% winning trade.
February 8, 2008
Market volatility and above average daily percentage moves continued this week. Many consider volatility the same as risk. We distinguish
between the two, and while the market will do what it wants to do, we don't have to accept market risk. We can step aside, and that's exactly
what we have been doing in order to protect our capital so we can trade another day. Taking market risk to generate trading gains is great,
but secondary to not losing money.
February 1, 2008
Daily moves in excess of 1% in either direction continue in the stock market. As long as the VIX remains high, expect irrational volatility in
response to "news" to continue in the markets.
Based on our timing indicator, we believe a short-term bottom is in. However, it's approaching OB and it's an almost certainty the market will
retest its recent low area. In a time of such uncertainty, we will stand aside to avoid a potential market whiplash.
January 25, 2008
It has been said that the amateurs open and the professionals close the market. This has certainly been true in 2008 as "dumb money" is
buying at the open attempting to find a bottom, while the "smart money" takes advantage of any bounce to continue their selling programs.
This trading feels like the bear market earlier in this decade.
This week saw "a tradable bounce" we mentioned last week. However, we remain cautious as we manage our capital. Keeping our capital
intact is the key to longevity.
January 18, 2008
Have we begun a new bear market? The correction of the last three weeks has been one of the worst in history. While painful to experience,
the intensified selling this week may suggest a tradable bounce is near where stocks could move higher for several weeks.
We have been cautious and our strategy remains, "...wait for some strength to kick in." We will not trade with our own capital just to be busy
doing something. We will continue to be selective and follow our trading plan.
January 11, 2008
Last week we said, "With the indicator oversold, the market can move higher..." We nibbled at the NDX late last week, and while the indicator
has indeed risen this week, we don't have a lot to show for it.
Rather than trying to catch the low, wait for some strength to kick in. We're currently waiting for stocks to hit a low point, and in the meantime
your best play may be to do nothing by keeping some powder dry.
January 4, 2008
While we cannot know the future, we go through the daily exercise of calculating our timingindicator and determining the odds of the market
going up or down in the next few days. Likeweather forecasters, we won't always get it right, but we have been accurate often enough
tojustify our money and time. We built on last weeks momentum with the stock strategy and took profits this week of 3% from our last trade.
With the indicator oversold, the market can move higher in the days ahead. Whether the Fed intervenes with a surprise rate cut or not,
market expectations are so low it won't take much to get the crowd excited.
December 28, 2007
The Santa Claus rally likely isn't over just yet. According to Wikipedia, it officially begins in late December and continues into the New Year.
During a very challenging trading week, we took profits of 2% on our last trade, and moved to a short position by the end of the week.
December 21, 2007
Greed distorts reality. But what is worse is that part of the reality that it distorts is whether our actions are actually greedy or not. We can be
greedy, which distorts reality about how to trade, and not even know it. When the word "greed" is mentioned, it's usually thought of as being
too aggressive or ignoring the real risks associated with a trade.
Greed is not just about gaining more, it is about holding onto as well. You have to take risks in trading, you cannot get out of it, and the risks
were worth taking this week.
December 14, 2007
When people think of hope, they usually think of something they desire to happen. This kind of hope is easily seen as you hear people
express their hopes for specific gifts at Christmas. Any time you find yourself hoping in the stock market, the odds are that you are in a bad
trade that should be corrected.
While hope is a money-loser in the investment business, we continue to make headway by following our trading plan Expecting a negative
reaction to the Fed meeting, we started this past week on a cautious note, but our indicator issued a buy signal later in the week.
December 7, 2007
As you study how the American economy has moved from crisis to crisis over the last 100 years, you are reminded that financial markets are
too complex to be successfully engineered by Wall Street. At some point, the current "credit crunch" will also become history.
After being on a buy signal, our stock strategy shifted gears late last week moving to cash. We remain cautious with the our timing indicators
overbought, and look for a negative reaction to the Fed meeting result next week.
November 30, 2007
Gloom and doom in the headlines. Housing industry in the slump. Fed predicts economic slowdown. Oil and gold closing higher. Consumer
confidence at lowest level in 2 years. The lesson to learn is to forget the news. We're not smart enough to know how any news item will
affect prices. Stocks already know the news is coming because it's been priced in.
To beat the crowd you have to buy when they're selling, and take profits before the market takes them. Sounds easy anyway. We took profits
of 5% for the last trade this week. We moved to a more defensive posture today as we head into trading next week, looking for a pullback that
we can buy into.
November 23, 2007
Bull or bear? The problem is that there is so much contradictory data to support either argument. Anyone with internet access can get data
that was once only available to professionals. In fact there is so much data available that sometimes it would be better to have no data
because we end up confused.
Ignoring news and data helps eliminate trading distractions. The timing indicator remains on a buy so we expect higher prices.
November 16, 2007
To become a trader, you must begin to trade using real money. Paper trading is not a substitute. You need to trade enough money that it
affects you when you win or lose. Otherwise, you will not learn how the emotions of fear and greed affect you personally. This week should
have proven to be a good learning lesson.
In a horrible week overall, the NDX got slammed declining 8%. Sell or stay the course? We ask this simple question every day. Based on the
timing indicator, should we buy or sell? At the end of this week it remains on the buy generated on Monday.
Note: The data contained in this web site is for educational and informational purposes only and is not represented to be error-free. It is not intended to constitute a promise or
offer to buy or sell any security. Any links to information not associated with the Advisor are provided as a courtesy and do not constitute an endorsement by the Advisor of any
of the linked materials. All securities trading is risky. Past performance does not guarantee future performance. All material presented herein is believed to be reliable but we
cannot attest to its accuracy. Opinions or Investment recommendations expressed in this blog may change without prior notice. Any employees of Pickens Asset Management
LLC, an registered investment advisory firm, may or may not have investments in any funds cited above. © Copyright 2006-2010 Swing Trade Forecaster. All Rights Reserved.
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We often hear about "managing risk." Donald Rumsfeld said it best, "There are known knowns...There are known unknowns...But there are also unknown
unknowns." Here is the man guiding a war effort during a time of instability explaining there are risks we don't even know that we don't know about them (can
you say "black swan").
As money managers, we manage randomness with known probabilities in our risk management strategy. With all we do, the future is still uncertain. Our job is
not to forecast exactly what will happen but to be ready to deal with events as they come.
July 23, 2010
When professional athletes are arrested during brawls at places like night clubs and dog fights, we say, "How stupid! Why would they risk their millions of fans,
and million-dollar contracts, by deliberately putting themselves in the wrong place at the wrong time?"
Yet many investors do the same thing whenever they accept market exposure by placing a trade without considering when to exit if the trade is wrong. When
placing a new trade, our firm always is more concerned about how to get out rather than how much money we could make. We call it strategic avoidance.
July 9, 2010
Earlier this week the Tour de France racers went through a section of cobblestone roads. The ride was bumpy, to say the least, but they kept on going. Why?
Because there is no other way to the finish line! Investing works the same way. Bumpy roads simply go with the territory for successful investors.
What can you do to get ready? First, don't let yourself be surprised by not studying market history. Second, diversify your portfolio and be patient. Third, get
help when you need it. Tour de France riders have a whole team behind them taking care of the details. They know they can't do it all themselves.
Are you getting the feel of the road now? We hope so. The Tour de France will be over soon, and someone will be the winner. Your lifetime investment plan,
however, will last a whole lot longer. Stay on the course and you can be a winner, too!
June 11, 2010
In 1991, Michigan's Timid Motorist Program assisted 830 drivers across the Mackinac Bridge that is five miles long and 200 feet high. The drivers were so
scared of heights that they couldn't drive their own cars. The same year, more than a thousand motorists received assistance at Maryland's Chesapeake Bay
Bridge--also 200 feet high and four miles long.
In spite of their destination being in plain sight and a history of the bridges being safe, the drivers were paralyzed by fear. The same thing happens in the
stock market. The investing goal is in plain sight, but only a few are consistently willing to exercise discipline to reach their money destination. Instead, their
fear paralyzes them. If you can see your destination, don't let fear destroy your freedom.
May 21, 2010
A woman was once asked what one of her favorite childhood memories was, and without hesitation she responded by saying, "Being woken up out of sleep
by my dad to sit at our bay window and watch the lightning crawl across the sky during a big thunderstorm." Watching storms was fascinating for her because
she was in a safe, familiar place.
When storms arise in our investing life, as has occurred in recent weeks, it is comforting to have those around us who are familiar and safe. During the
uncertain and frightening storms of the stock market, let us remember to stay focused on our disciplined approach until these calamities have passed by.
May 7, 2010
How ironic in our last blog post we quoted Mark Twain, saying "History may not repeat, but it sure does rhyme." As we recover from the Great Recession,
books have been published spelling out how the perfect storm developed. Ever since the last crisis, investors have been trying to recoup their losses.
Unfortunately, the market correction of the past week has brought back nightmares for many. Again, quoting from our last post, we continue to handle our
managed accounts by managing risks. While making the trade a little early, we have had our client portfolios half short for several weeks. We closed that
position this week, and now we have our eyes peeled for the next opportunity. While the market waters may not be calm, our disciplined strategy remains so.
April 23, 2010
How many times has someone said, "This has never happened before" or "No one saw this coming." Mark Twain said, "By the Law of Periodical Repetition,
everything which has happened once must happen again, and again, and again ... History may not repeat, but it sure does rhyme."
Why are "black swan" events so consistently unpredictable? Markets provide us with an unending stream of opportunities. As money managers, we just have
to manage risks and preserve our client accounts while looking for those growth opportunities.
April 9, 2010
It's human nature for us to focus, most of the time, on the wrong thing. If we're not regretting the past (wrong), we're worrying about the future (also wrong)--
"wrong" in the sense that they divert our attention from the one thing that is most important: the present. The past is irretrievable and unchangeable. The
future we can plan for but cannot control. The present, however, is what we have today.
As money managers, the more investment decisions made focused on today's market conditions, the fewer regrets about the past we will have in the future.
April 1, 2010
In this age of security, we’d like to share with you – courtesy of McAfee – some tips for creating strong passwords that are hard to crack. The most important
thing to remember is that the more difficult a password is to guess, the more secure it will be. For example, if you choose a one-character password that can
be any uppercase or lowercase letter or a numeral, there are 62 possibilities. Using the same possible characters, an eight-digit password has about 218
trillion possibilities.
McAfee reports that security specialists recommend these guidelines:
- Use as many characters as possible (minimum eight)
- Include uppercase and lowercase letters
- Include numerals and punctuation marks
- Don’t use personal information, such as names or birthdays
- Don’t use words found in a dictionary
For example, use the first letter of each word in a phrase, with a random number: “hard to crack this password” = “htc5tp” Use your imagination and have
some fun creating your strong passwords. Also, remember to change your password frequently, and never write it down in an obvious place.
March 12, 2010
My wife has been planning our upcoming trip to Hawaii's Big Island. For many travelers, the anticipation of a trip often outstrips the reality. Travel brochures
never show the things that can go wrong, like airport delays, long lines, overbooked hotels, pick pockets, rainy weather, or bad food--to name a few.
As traders speculating while the stock market has been rising every day or week, it seems we'll never be disappointed. As money managers, we have our
travel documents and a brochure of our accommodations. We have our investment strategy as a guidebook and daily itinerary. Currently, our guidebook is
warning us to put preservation of client capital as priority over making investments returns or gains. As we prepare daily on our investment trip to our final
destination, we are becoming more cautious over the near-term of a possible bumpy ride.
February 26, 2010
If your brain had a computer chip that recorded every word you thought for seven days, how many times would it record the word "worry?" "I'm worried about
you..." or "I've been worrying about..." or "I worry that we won't be able to..." The Richard Carlson book "Don't Sweat the Small Stuff" is a point well taken. That
doesn't mean there aren't important issues in life and serious decisions to be made. It's just that worrying does not make any impact on the outcome. Besides,
we have heard the medical profession state that worrying is a form of stress, and stress is bad for you.
Every day, many investors wake up worrying if the market, and their nest egg, is going up or down that particular day. That's how we can help as money
managers who rely on a time-tested investment strategy to make those buy and sell decisions. Instead of worrying, do something that is good for you.
If you'd like to learn more, we encourage you to contact us for more details and see if our program fits with your other investments and your risk tolerance.
February 12, 2009
We spend a lot of time researching and analyzing the markets. This week we came across a quote that we found both humorous and true. Economist and
author John Kenneth Galbraith said, "There are two types of forecasters, those who don't know and those who don't know they don't know." We would add a
third type. As money managers, we know we don't know what will occur in the markets. While we don't know exactly what will happen, just like your local
weatherman, our model can make "scenarios" we can follow that have served our client accounts well over the past several years.
January 29, 2010
Colonel Harland Sanders was recently rescued from the river. He was covered in mud and his hands were missing. But his legendary smile was still there, and
when he was found he was standing upright. Twenty-four years ago, some crazed baseball fans had taken the statue of Colonel Sanders from the front of a
KFC restaurant in Osaka and thrown it in the river. They were upset because they thought the colonel resembled a hated member of a rival team. The colonel
stayed submerged until discovered by workers building a walkway along the river.
Sometimes we feel we're in over our heads. We talk about drowning in a sea of red ink. While the NEW YEAR hasn't been very "HAPPY" for buy & hold folks,
we can stand upright and keep our smile knowing we have virtually side-stepped the damage. While we have no opinion whether the recent market action is
just another correction, or another bear market move down, we believe these are not waters to sink in, but waters to swim in. Let us help you stay afloat.
January 15, 2010
Statistics show that most investors who lose money over the long-term do so because they become fearful after suffering losses in a bear market, and don’t
become interested again until the next bull market has been underway for a long time. The cycle then repeats. The exit from the stock market continues even
as the rally in the stock market progresses. Between July 31 and year end, investors pulled $46 billion out of domestic equity funds and pumped $177 billion
into taxable bond funds. The public is not aboard this bull market, and remain on the sidelines.
This has created trading days with low volume, and the beneficiaries of the new bull market have primarily been professional traders at hedge funds, banks
and other institutions. In fact, investment banks have been reporting large profits due primarily to their trading and investments. While competing with the "big
boys" in the market, our trading has been very quiet YTD. We have rejected two trade setups in the past few weeks due to their low probability of success. In
hindsight, both trades would have been stopped out near breakeven. Another setup is likely in the days ahead. For now, cash is king!
January 1, 2010
As mentioned in our last post, "What to do when studies reveal that investors, professional and amateur alike, are their own worst enemy?" PIMCO's Mohamed
El-Erian says, "The first thing is a forward-looking asset allocation...Secondly, finding the vehicles that are stable enough to express that allocation. And,
thirdly, risk management. It is not enough to be diversified..."
As evidenced in the past couple years, diversification works until it doesn't. To help protect our client accounts from known and unknown risks, we will continue
to monitor stock market activity in the new year on a daily basis. Our investment process will only accept systematic risk when deemed favorable to do so, and
limits exposure to market risk when our models are unfavorable.
December 18, 2009
Can you beat the market? In a 2005 Financial Review article, Burton Malkiel provides data from a 30-year study which shows that most professional money
managers of stock mutual funds underperform the S&P over all time periods. This fact may help explain why, according to a recent Morningstar study update,
over half of the mutual funds it tracked had NO personal manager investment. Can you blame them?
Dalbar, Inc. conducted a Quantitative Analysis of Investor Behavior (QAIB) study in 1994. Dalbar confirmed previous studies that show many investors were
not participating in long-term mutual fund returns because of frequent switching among funds. The 2009 Dalbur update includes a “Guess Right Ratio” that
measures how often the average equity fund investor makes an accurate investment decision based on the market environment. This ratio measures how
often the average investor buys low and sells high. Over the 20-year period covered in the study, Dalbar found that the average investor behaves irrationally.
What to do when studies reveal that investors, professional and amateur alike, are their own worst enemy? More next time...
December 4, 2009
We make no attempt to predict the future because it is simply an impossible task. Nobody knows exactly what is going to happen tomorrow. Someone reading
this update may find these comments rather strange coming from a professional money manager firm since our job revolves around speculating market
direction and outcomes!
However, like a weather forecast, this is not to say that we don't formulate a forward-thinking approach to market analysis as we firmly believe it is important to
be aware of all of the possibilities of price and direction. It's almost like preparing yourself for things that could happen, even if they don't happen. We attempt
to anticipate all of the possible outcomes by letting winning trade ride when we're right, and cutting losses quickly when we're wrong.
November 13, 2009
Depending on whom you talk to, in which sport, "The best defense is a good offense" or "The best offense is a good defense." Perhaps they both have value
in different situations. But when it comes to investing, our advisory firm is going with "the best offense is a good defense" when managing money.
While our trading activity has been somewhat muted lately, don't assume we aren't watching for an opportunity to appear so we can pounce. It will and we will.
If you would like to hire us to help you navigate the uncertain stock market, contact us and someone will contact you within 24 hours of receiving your info.
October 30, 2009
How many of you are ahead of where you were at the top of the bull market two years ago? Mark Hulbert asked this question in a recent MarketWatch.com
article. He gives two interesting facts. First, of the Hulbert Financial Digest's database, "It turns out that 71 of those 450 portfolios, or 16%, are today ahead of
where they were two years ago....Not a very high percentage, to be sure..."
The second, "The comparable percentage among U.S. domestic equity funds is a lot lower, according to the good people at Lipper, the fund tracking
company: Just 83 funds in that category made money over the two years through this past Sept. 30, which amounts to just 1.2% of the 6,930 funds for which
they have data over that period." For us, we have worked hard to protect our client accounts, which have grown in excess of 10% during this same period.
October 16, 2009
There is a fascinating CNN/Money article entitled How much risk can you stand? The article elaborates upon four basic ideas of determining your risk level. A
useful feature in the article is a link to a free risk-tolerance test in questionnaire format from FinaMetrica. The test, which is based on extensive research,
normally costs $30. But CNN/Money has arranged free access to it through November 30th via this risk-tolerance test link.
October 2, 2009
Jeff O'Dell is a University of Virginia student with a personal interest in his research. The biomedical and engineering student is working on a new type of body
armor for American soldiers. Most body armor can be damaged by one shot from an armor-piercing bullet; but the vest designed by O'Dell and his fellow
students should be able to withstand as many as 32 rounds per plate. "It could save my own life," O'Dell said. That's because O'Dell is a soldier who has
served in Iraq and Afghanistan and expects to be deployed again in the near future.
We have been developing a new "investing armor" for use with our upcoming S&P 500 Exchange-Traded-Fund (ETF) strategy. Every day when managing
client money we need to take all steps to protect against "market bullets." If you would like to be added to our new ETF waiting list, please contact us for info.
September 18, 2009
John Hussman made a recent comment on hussmanfunds.com, "Investing isn't about specific forecasts, but about repeated actions and long-term discipline."
While our trade duration time is much shorter, we could not have said it better in explaining our philosophy of managing money. We take market risk in periods
where our strategy deems favorable(either long or short), and avoid market risk where the strategy is unfavorable. What we focus on is making base hits while
avoiding large losses. This approach helps reduce market exposure and market risk compared to a passive Wall Street buy-and-hold approach. We sleep well.
September 4, 2009
You're entering a war zone when visiting the Connecticut Valley Historical Museum. The largest display of toy soldiers in the world is arranged in dramatic
scenes to tell the history of war in miniature. Twenty different world battles from ancient Egypt to World War II are refought using detailed, individually-sculpted
figures. It reminds us that the history of the world has repeatedly been determined by wars and their outcomes.
It often feels like we're also entering a war zone when we invest in the markets, but we aren't toy soldiers and our battles aren't miniaturized. We're more apt to
be victorious when we realize it's often like we're at war. Like any soldier, we must remain disciplined and follow the orders of our trading plan in every situation.
August 14, 2009
Research shows that newborn babies have no fear of the dark. After spending nine months in the darkness of the womb, we put nightlights in the nursery so
we can see them, not so they'll be unafraid. As we start growing, many children develop night fears imagining creatures outside their windows or monsters
under their beds. As we age, those nighttime fears become more sophisticated. Many of us struggle every night with letting go of our worries so we can sleep.
Since before and after Charles Ponzi's pyramid scheme in the 1920's, investors worry about having their money "Madoff" with. We find Ken Fisher's new book
How To Smell A Rat a quick read on detecting the 5 signs of financial fraud when hiring a money manager. To help, we've posted our Due Diligence Document
on our homepage which compliments and addresses the concerns in this new book.
July 31, 2009
Our web home page says, "Swing Trade Forecaster offers a low correlation to the broad stock market." Our results YTD prove that point, but it's beginning to
become ridiculous. Our equity curve this year rose at the market fell into its March lows. We have steadily given back some gains ever since as the market
has risen during its largest "bounce" since the early 1930's. While unhappy with the results over recent weeks, we continue to remain diliogent and follow our
strategy...even when it hurts. It has been said, "this too shall pass," and we can't wait.
July 17, 2009
You understand that these are painful and historic times. A Spectrum Consulting survey says global wealth destruction exceeds $13 trillion(30% loss) with 90%
of affluent investors saying this is the worst financial crisis they've ever seen. Studies show that crisis and stress can lead to serious health issues. It can also
strain relationships.
If the volatile markets are creating anxiety for you, you could just stay the course hoping things work out. Whether they do or not, you can take charge and try
something new. Figure out what's wrong and contact us and let us help make your money work for you.
July 3, 2009
After months of waiting, Proshares introduced their new 3x leveraged S&P500 Index ETF's this week. Leveraged ETF's can be great, but you must use them
correctly. Leveraged ETFs are mainly intended for swing trading, meaning a few days at most. Hold a trade longer and the results will start to vary wildly.
Fortunately, we have a time-tested framework for decision making. This framework, a disciplined approach to swing trading, offers the potential for ETF gains.
In addition to our exisitng Rydex strategy, we believe leveraged ETF's can be a great tool. We will do our best to educate investors about these ETF's, and
keep you posted about a new opportunity coming soon from Swing Trade Forecaster.
June 18, 2009
A lost motorist asked a farmer for directions. "Where is the main highway to St. Louis?" Answer: "I don't know."
"Well, where is the highway to Memphis?" Answer: "I don't know."
"Where does this highway go?" "I don't know." "You don't know much do you?" "No, but I ain't lost."
Have you ever tried going on a road trip without a map? Trying to plan your life and investments can be just as ineffective. We can head in the general
direction of where we know we should be, but without a guide, we'll be just like the lost motorist, asking everyone else for directions.
This strategy is a time-tested map for our journey. Without it, you may wander life's investment highways, not knowing where they lead. When you find yourself
making plans for your investing life, remember this adventure needs a guide you can count on. Contact us and let us help you.
June 5, 2009
When designing a bridge, the engineer must take into account three different, but equally important loads: the dead load, which is the weight of the bridge
itself; the live load, which is the weight of the daily traffic it must carry; and the wind load, which is the pressure of the storms that beat on the bridge. The
engineer then plans for bracings that will bear all three loads.
How strong are your investment bracings? Every time before we commit in the stock market, our model evaluates each trade set-up against the potential
volatility or systematic risk we may experience during the time frame we may be invested. Our model, consisting of trade signals and our volatility filter which
overlays the system, only allows those trades with the higher probability of success. Interested in learning how these bracings can help you? You've worked
hard in creating your nest egg - let us work hard building it for you.
May 15, 2009
A recent trend in medicine suggests that a key factor in increasing human lifespan is calorie reduction--simply eating less food. Researchers have found that
the less processing of food the body is asked to do, the fewer negative side effects that lead to aging or premature death. It's like your car--the fewer hours
the engine runs, the longer it will last.
We approach investing the same way. While we can eat and drive less, why not trade less also. This strategy has historically been in the safety of the Rydex
U.S. Government money market fund over half of the time and trades only when the model indicates chances are probable for a gain. We will continue to
remain patient and wait for favorable market trade setups to appear. Remember, past performance does not guarantee future favorable results.
April 24, 2009
Why are Isaac Newton’s three Laws of Motion (inertia, resultant force, reciprocal action) called laws? Because they are universal physical certainties that have
never been proved not to govern the situations to which they apply - including the markets. We've recently experienced the most volatile period ever, enough
to cause motion sickness. Two weeks ago we said, "our protective volatility filter...may allow our managed account to move to a 100% invested position."
Day-to-day stock market volatility has dropped in half since last Fall. However, it still remains very high historically. Our investment stance remains cautious
and no more than 50% invested in our managed accounts for now.
April 10, 2009
We have just posted on our home page a Special Report entitled MARKET TIMING. WHAT IF?
March 20, 2009
What if you were to win an all expense paid, first-class trip around the world, but while checking your baggage at the airport you stubbed your toe? Would you
say, "I wish I had never won this trip! Look! I've stubbed my toe!"? No. You'd say, "This momentary discomfort cannot compare to the enjoyment of the trip
we're about to take."
Well, this week we stubbed our toe. It appears the market is setup similar to when we made our January 31 comments suggesting a "cold draft." This week we
began preparing for a likely substantial pullback. We stubbed our toe by positioning 50% short Tuesday morning at NDX 1159. With a NDX 1187 weekly close
we're a little early. On a more positive closing note, for the first time in over a year, our protective volatility filter which overlays the trading model may allow the
managed accounts to move to a 100% invested position. Taking it day-by-day, we'll see what happens next week...
February 27, 2009
On the hit TV show The Biggest Loser, contestants must work hard every week to drop pounds so they can continue being on the show. They are held
accountable by a gigantic scale that reveals their weight in front of millions of Americans. Going into the contest, they know weight loss doesn’t just happen;
they have to fight for it by breaking old habits and creating new, healthy ones. To lose weight and get healthy, they do whatever it takes to achieve their goal.
This should be our mentality as investors. In our Janaury 31 post, we said "we sense a cold draft is making its way to Wall Street..." In response, we have
been side stepping the increasing volatility and market risk by hiding in cash. By protecting our client nest eggs, we will be well on our way to remaining in the
Top 1% off all active money managers again in 2009. Please don't hesitate to contact us if we can help you and your nest egg during these uncertain times.
February 6, 2009
We have been talking with lots of people who have been utterly demolished by their brokers and financial advisers. The amount of carnage is rather
shocking. The vast majority of mutual funds, hedge funds, and asset managers got destroyed last year. If you are hurting, you are not alone. Don’t beat
yourself up over this. Instead, learn from the losses and move on.
Best-selling author Micheal Lewis in this short YouTube clip offers some good advice discussing how to protect your money. It is refreshing to hear critical
thinkers make sense. You should send this clip to everyone that you care about.
January 31, 2009
From birth, we are fearful of the unknown and gravitate towards things that make us feel good. Just as the weather forecast prepared us for a Winter ice
storm this week, market forecasts can help us plan our money moves. Like the current Missouri weather, we sense a "cold draft" is making its way to Wall
Street in the days ahead.
With this market forecast, we're prepared but will make no predictions. We will simply continue to monitor the situation daily and react to any situations or
opportunities. After one month, we're off to a fast start in the new year with the "stock strategy" up over 7% YTD(exceeding all of 2008 gains) in a down market.
January 16, 2009
Winston Churchill said, "It is always wise to look ahead, but difficult to look further than you can see." While hindsight is 20/20, most annual predictions about
the economy and the markets usually become laughable within a few weeks. Evaluating the consensus of a grouping of market gurus only makes it harder to
decipher where the markets are going. Rather, like your local weatherman, we take it one day at a time not forecasting more than a weekly time frame. Our
experience has been this process is more accurate, and keeps us from being the laughing-stock. To learn more, feel free to contact us for more information.
January 2, 2009
One of the worst years since the '29 crash, 2008 will go in the record books. While stocks and our strategy started last year off on a down note, that's where
their paths diverged. After getting knocked down last January, the stock market went on to continue its decline for the remainder of the year while we quickly
adjusted our stock strategy into a more defensive posture as price volatility and market risk were becoming more apparent. From the early year lows, the
strategy rose steadily ending 2008 providing our clients with absolute returns, net of all fees and expenses.
Economic indicators are still looking grim. While the current decline may or may not be over, it appears the bear market will have a few more years to prowl.
Instead of simply asking "what can I do to survive," we ask the question "what can we do to prosper despite the economic crisis?" When adversity hits, there
are always opportunities created by market conditions as a result of the adversity. We pledge to be ready to "pick up any low lying fruit."
December 19, 2008
At the start of 2008, unregulated hedge funds were acknowledged as the investment of choice. Wealthy investors and major institutions, including other
hedge funds, banks, pension plans, charities, and even endowments at Harvard and Yale were proud to be among those accepted into the money fold.
Now near the end of 2008, hedge funds remain in the headlines - mostly unfavorable. Industry reports indicate performance results have mirrored the broad
market decline, which has been one of the worst bear markets in history. Many imploding funds have been invoking "gates" not allowing investors to withdraw
their money from the funds. And now we have news of Bernie Madoff, alleged to be the largest Ponzi scheme in history.
Trust will need to be restored to Wall Street in coming years - and it will take years. In response, in an effort to provide greater transparency in addition to
disclosures required by law, we have just posted a white paper on the website entitled "Due Diligence Report" which is similar to questionnaires we receive
periodically from large prospective clients. We believe a more informed consumer creates a better working client relationship in the long run.
December 5, 2008
We are experiencing some of the largest price swings in the history of the stock market, with previous similar periods including 1929, 1973, 1987 and 2002. To
survive in this market you must examine how this volatility can affect your trading strategy, and learn how to adopt to this new environment. While the saying,
"the bigger the risks you take, the bigger your returns" may be true in general, when risks get too high it doesn't always mean a similar increase in returns.
Our trading edge will come from any ability to correctly identify acceptable market risk. With volatility now at historic peaks we remain prepared for swift, sharp
moves in either direction. As a result, we have not exceeded a 50% invested position in leveraged stock index funds since January of this year. You may not
always be able to take volatility to the bank, but high volatility can almost always take you to the cleaners.
November 21, 2008
The stock market continues in its highly volatile ways as the downtrend continues. For some perspective of the bear markets during the 108 years since 1900,
the most recent correction currently ranks as the fourth largest in magnitude (only the corrections beginning in 1906, 1929, and 1937 were greater) and is the
most severe correction of the post-World War II era.
The markets dislike uncertainty, and it shows as this bear is more fierce than any in recent memory. Even so, we continue to plod along with capital
preservation utmost at this time while our equity curve remains near records levels. For anyone who is looking to add some certainty to the uncertainty that
exists in a business with no guarantees, please contact us and see what we may be able to do for your portfolio or nest egg.
November 7, 2008
The dictionary defines fear as apprehension, anxiety, or dread. It's a common occurrence in most every life and it can stop you in tour tracks.
What feeds your fear? For many it's the unknown. We find security in the predictable. But when insecurity sets in, fear follows.
What feeds our fear in our lives also feeds our fear in the markets. Admit your fear and acknowledge you don't have to know what's going to
happen. That's the purpose for a good risk management system. Attempting to make money when the odds favor your trading edge, while
avoiding risk when the odds are not acceptable can help dampen any market fears you may have. During the recent months of historic
volatility and uncertainty our strategy continues to plod along trying to keep our head above water with whatever the markets throw our way.
October 24, 2008
It appears that 2008 will be the worst year on record for hedge fund performance, reports Hedge Fund Research which says its main index is
down 10% YTD. Not everyone has been able to liquidate, such as the numerous hedge funds whose sole broker was Lehman Brothers. Many
funds are unable to access their accounts to sell even while their portfolios have declined. Morgan Stanley has stated that at least 30% of all
hedge funds will go out of business.
In his book Lone Survivor, Navy SEAL Marcus Luttrell recounts his teammates experience of fighting 200 Taliban on Operation Red Wing.
Prior to the events of that deadly fight, Luttrell describes how brutal and intense his SEAL training was. He spends several chapters giving
vivid word pictures of the demanding drills they were put through in order to prepare for situations they knew they would find themselves in;
dangerous, unpredictable and deadly. Take an inventory of your stock market "survival skills." If you need help fighting the stock market,
contact us and let us help you survive the battle.
October 10, 2008
Are you one of the many swing traders that takes the same level of risk notwithstanding the market conditions? There is a better way to
mitigate market risk.
In March of this year we added a volatility filter to our money management rules. Traders must understand that not all market conditions
present the same odds for a particular trade.
Using the modified version of the Swing Trade Forecaster system can be an intelligent way to participate in the markets, while reducing the
risks of getting caught with big positions on a whipsaw reversal which can lead to loss on trading positions. With active money management
skills we will continue to dampen market volatility while protecting and growing client accounts.
September 26, 2008
One may wonder why anyone would pay us to keep client funds in cash. They don't. They pay us to know when to be in cash. For many
investors, the best advice right now is “Don’t just do something - sit there!” Decisions made in haste rarely look wise in hindsight. Those
with a prudent strategy and long-term perspective should be able to ride out the storm. Unfortunately, few individual investors fit this profile
and this is the point where we can be of help.
September 19, 2008
If your broker or advisor thought the market was topping and convinced you to sell your positions, you'd most likely be upset with them if the
market then went higher and would likely move your money elsewhere. But if the market drops you may get upset about the market, but you
won't blame them for that as they will tell you to stay "disciplined" and invested.
So the broker or advisor stands to lose everything by being negative and wrong on the market, and very little by being positive on the market
even when it's in a bear market. Wall Street has defined being "disciplined" as allowing them to control your money forever. Prudent
investing is aligning your investment positions with reality. If you're looking for someone to help guide you regardless of market conditions,
we suggest you contact us.
August 29, 2008
How many things in life, besides death and taxes, are absolutely certain? When we stop and analyze life's contingencies, it becomes apparent
that very little in life is certain. The stock market is an area in which we can feel very uncertain and insecure about the outcome. While not
certain, we will continue to plod along taking advantage of opportunities that come our way. Even while the NDX fell 59 points this week, the
strategy gained 29 NDX points.
August 15, 2008
On December 9, 1914, disaster struck the laboratories and factories of inventor Thomas Edison. Great geysers of green flame, fueled by
chemicals, shot into the air, and the fire departments of eight nearby towns rushed to the scene. Edison walked into the yard, his hands
folded across his chest and watched saying to his son, "Where's Mother? Get her over here, and her friends, too. They'll never see a fire like
this again."
Within three weeks, the Edison factories were restored to some semblance of order and were soon running at two shifts. While not a
disaster, our recent small percentage trade drawdown can seen as a set-back. Like Edison, don't quit. Don't panic. Don't give up.
August 1, 2008
The NDX ended the week down 20 points while the strategy gained 37 NDX points. Practicing "buy & hold" as an investment strategy with this
volatile stock market has to be very difficult. This is where Swing Trade Forecaster comes in, as we are daily looking for opportunities to
protect and grow our client accounts. Having the flexibility to adjust to changing markets, we expect decreasing volatility and a more
trending stock market in the days and weeks ahead.
July 25, 2008
By managing our client accounts on a daily basis, we seek to offer an alternative strategy compared to "buy & hold" which hangs on even
during bear market declines. For example, this week our Stock program mirrored the NDX performance while we spent 80% of the trading
week in cash, as stocks bounced up and down. Through active management our objective is to achieve higher returns with less risk.
July 18, 2008
While we have had three consecutive errant trades in recent weeks, our money management rules kicked in with all three trades saving the
day. While being breakeven over the past month has allowed the strategy to relative outperform the broad stock market, we have
underperformed the money fund which would have been a better choice. Looking forward, we are expecting to buy any likely pullback early
in the coming trading week.
July 11, 2008
Investors would like to take some comfort that they are investing like the pros. It's comforting to know that the people running your accounts
have their money, and their family's cash, mixed into the same strategy as yours. All too often it's not and the managers don't have enough
belief in what they are doing to actually live by it. That's the conclusion to be drawn from a new Morningstar study which found that nearly half
or more of fund managers don't invest in their own funds. We would never recommend a program to any of our clients that we do not invest
in personally. When we tell you we'll look after your money just as if it were our own, it's because we have our own money invested alongside
with our clients in every Managed Account we recommend.
July 4, 2008
Sir Isaac Newton said, "I can calculate the motion of heavenly bodies but not the madness of people." The emotions of hope and fear have
been on full display in recent days in the stock market. Actually, these emotions have been part of the markets ever since its inception. And
while it's difficult to contain emotions all of the time, we continue to follow our trading plan in an almost robotic manner during these volatile
days. The result is knowing we can sleep better at night.
June 27, 2008
Headlines this week suggest this will be the worst June for the Dow Jones Industrial Average since 1930. Even worse, stocks are on track for
the worst returns at the end of this decade (2000-2009) since the decade of the 1930's. Can you say breakeven? You'd at least be positive
with all your money in cash earning interest.
Speaking of cash, that's where we've been hiding this week. We are actually seeing some positive developments in our model and may
dabble in the market before the upcoming holiday period.
June 20, 2008
We warned a month ago of the recent market volatility. We hoped that the warning would make us less prone to being pushed to and fro by
our emotions. We were only attempting to be a little bit of a calming influence. While we are always looking to take advantage of trading
opportunities, our model has been more cautious during current market conditions. The correct stance is to try and read some of the trends
while protecting capital by moving to cash when appropriate. For example, we closed out our latest breakeven trade we'd been holding since
last week avoiding the damage on Friday.
June 13, 2008
It is interesting two things we can learn from last weekends Belmont Stakes. First, popular opinion was Big Brown was unbeatable. Like in
horse racing, bets and trades in stocks can get lopsided with everyone thinking the same way. Secondly, the jockey used wise risk
management techniques when realizing after coming out of the gate that his horse wasn't right. Like horses, when a trade isn't working it is
also best to simply get out of the way and save your capital.
June 6, 2008
Trade management is a process that includes account and risk management, portfolio construction, and position sizing and scaling. We
utilize trade management procedures to limit risks. Our goal is to produce a smooth equity curve from absolute returns. Two weeks ago we
said, "our work is suggesting...rising volatility..." We have been experiencing big up days which are followed by big down days in the stock
market.
Often the best thing to do is nothing. We will not stop trading, rather we will attempt to control this volatility risk by accepting only those
trades which clear the hurdles of our filtering mechanisms in an attempt to minimize any potential drawdowns. Our work suggests there will
be plenty of opportunities in the days ahead. We will be patient realizing that cash is our friend.
May 30, 2008
We understand that the only thing certain in the markets is uncertainty. Last week we said, "our work is suggesting...rising volatility in the
weeks ahead." We only aim to prepare clients for the realities of trading. Our job is as much about managing client expectations as it is
managing client accounts. We only want you to be prepared for the unexpected.
We closed another profitable trade this week ending up in the money fund. The correlation between rising volatility and falling stock prices is
relatively high. Therefore, we are watching for opportunities to make small gains should the markets correct during the next few weeks.
May 23, 2008
Explaining volatility has never been easy, especially because the market goes through cycles of either increasing or decreasing volatility. The
most recent change in volatility our research found was during mid March when volatility was moving higher as stocks were moving lower.
Investors in recent months have had a reprieve from the emotional roller coaster earlier this year.
Even as we closed another trade with a small gain this week, our work is currently suggesting that another cycle may be forming with a period
of rising volatility in the weeks ahead. While not afraid of volatility and the uncertainty is causes, we look to continue to take advantage of any
price movements in stocks.
May 16, 2008
There's a lot of truth in Aesop's fables. One of the classics is the story of the ant and the grasshopper in which the grasshopper spends the
summer hopping around, singing and having fun. The ant, on the other hand, stays focused diligently storing food for the winter. Today, we
might call the ant a "self-starter." The story illustrates the principle that diligence and hard work pay off in the long run.
As mentioned last week, our model flipped from bear to bull Monday morning to catch some of the move up in stocks this week. We took our
profits, and like the ant, we continue to try and "lay up food for the winter."
May 9, 2008
The current Managed Account positions should be winding down early next week. While we had a nice gain this week, the cumulative effect
of the multi-week position will likely result in a losing trade. The reality is every trade will not work. Never forget, one of the least important
sets of numbers in our performance is number of wins to losses(we average around 75%). The most important statistic to watch is average
gain to average loss(we average 4:1 ratio). While most people desire to be right all the time, the recurring theme with some of the greatest
traders was that they got out of their losers quickly.
May 2, 2008
Wile E. Coyote has never caught the road runner. Every scheme that writers could imagine have backfired. Rocks have fallen the wrong way,
fireworks have exploded, anvils have defied gravity, entire cliffs have let go, and the fake tunnels painted on canyon walls remain.
We find the cartoon funny because we can relate it to the stock market attempting to thwart us. This past few week has been a challenge, but
not a failure. We must simply continue to follow the trading plan knowing that the decisions made today will affect the results later.
April 25, 2008
The main reason most people have their money invested is to make money. But, it's the focus on money that often causes people to make
mistakes and not make money. There aren't many other things in life that effects our emotions like money does. With our money on the line, it
is difficult to not let our emotions lead us to make poor decisions.
The focus of our strategy is on each trade and not the money. We need to focus on improving our trading skills rather than the dollars that
could be in our account. That's why it is important to have a trading strategy free from the emotions of fear and greed. Our mechanical
system currently turned bearish Monday, and we will stick with the current trend until it changes. With some major earnings reports out of
the way, the market may not react favorably to any upcoming economic reports
April 18, 2008
There can be drawbacks in some types of professional trading groups. For instance, some traders have a meeting each day, week, or month
to decide what the markets are going to do. And, as a trader, you are probably in trouble if you make trades against the group consensus and
lose money. Group consensus trading has nothing to do with good trading when the group is wrong.
Many traders are supposed to make trades every day, even if there is nothing to do. Someone may say, “We pay you to trade, not to sit back
and do nothing.” Well, that's exactly what we did this week. We will only accept market risk when the probabilities favor a reasonable return.
We will continue to make every effort to reduce overall portfolio risk while seeking any potential gains.
April 11, 2008
Trading and emotions are like oil and water. When you begin to think you know what the market is going to do, you're paying too much
attention to what the flow of information is saying. With nearly everyone expecting a major rally after last week, our strategy took advantage
of the midweek decline posting another small gain on the latest closed trade.
Guard against holding an opinion on the market because it may cause you to miss a turning point. If you struggle with this, consider a
mechanical market timing system. The best traders over the decades have used the simplest systems and rules while acting quickly on any
new trading signals.
April 4, 2008
We are proud to report that since inception of this Managed Account investment strategy last Fall, we have been able to outperform the Dow,
S&P, NASDAQ and Russell indexes. But more importantly, our process has provided an absolute positive return during a difficult time for the
major market averages. With all the uncertainty in the stock market, we will continue to avoid "big idea" investment themes and keep our
focus on the short-term view.
March 28, 2008
When the markets are as volatile as they have been recently from the news about the credit crisis, bank and investment banker troubles, and
bond insurers solvency in doubt, some clients may be feeling a tad emotional. Emotions created by uncertainty can complicate any well-
crafted investment strategy.
No one can ignore what's been happening in the stock market. However, it doesn't affect our timing indicator or the risk control measures we
employ on a daily basis. We are holding our 3% gains for the week into next weeks trading.
March 21, 2008
History tends to repeat, especially in the stock market. Two weeks ago stocks found an early week bottom to rally hard from. The next day a
sharp selloff is reversed higher the next day to retest the high from two days earlier. This week's stock market action was like a mirror image
with our taking small gains from another profitable trade.
If history repeats, and with our market timing indicator overbought, the next few days may see some rough sledding.
March 14, 2008
What makes the most innovative companies in the world so successful? Success is a result of many factors, but it’s clear that the key to their
long-term success has been their ability to adapt to changing environments. The same is true in the stock market, where the current
environment may have changed recently to a bear market.
Implementing a strategy with no correlation to the overall stock market can be an effective way to get returns in a difficult market. We
manage this process on a daily basis looking for trades with increased odds of reducing risk while maximizing return. Last week we "initiated
a bullish position," and we moved to a 100% cash position Wednesday.
March 7, 2008
Volatility is all around us and it's not only the markets that volatile, but our moods may be as well. If they're a little emotional in this
environment, who can blame them? Regardless of what stocks do this week, we adhere to our consistent strategy that is in effect that carry
us through times of market downturns.
We initiated a bullish position midweek, and we must now not let the recent small drawdown to allow our emotions to overcome our
disciplined approach.
February 29, 2008
While driving today a car passed me and caught my attention. On the side of the car were magnetic "ribbons" of various colors in support of
various causes. From what I could tell, the side of the car had about 10-12 of these ribbons on it. Of the dozen ribbons on the car, I'm not
sure what a single one stood for or supported. Is your investment program like this car?
With recent market volatility and uncertainty, we will continue to focus on what we can control. We closed our latest trade at the close today
with a gain of 3%. With the timing indicator becoming oversold, we are now looking for a bottom to form in the market by next week.
February 22, 2008
One day a man approached J.P. Morgan, held up an envelope and said, "I hold a guaranteed formula for success, which I will sell for
$25,000." J.P. Morgan replied, "If you show me and I like it, I will pay you what you ask." The man handed over the envelop and Morgan
opened it. He took a look at the note inside, pulled out his checkbook and paid the man the $25,000.
The note read: 1) Every morning, write a list of the things that need to be done that day,2) Do them. Taking that advice, every day we run the
models to determine whether probabilities favor us to be long, short, or in cash. We ended the week with gains from our short trade last
Tuesday morning, and will hold it into next week looking for a bottom.
February 15, 2008
One of the concerns with modern investment management is active money managers who in fact mimic an index. The last thing a client wants
to do is pay active management fees to a "closet indexer."
We believe we offer a better solution by focusing on a single strategy. We are specialists, not generalists. By sticking to our trading plan we
aim to provide consistency, and this week we closed another 2% winning trade.
February 8, 2008
Market volatility and above average daily percentage moves continued this week. Many consider volatility the same as risk. We distinguish
between the two, and while the market will do what it wants to do, we don't have to accept market risk. We can step aside, and that's exactly
what we have been doing in order to protect our capital so we can trade another day. Taking market risk to generate trading gains is great,
but secondary to not losing money.
February 1, 2008
Daily moves in excess of 1% in either direction continue in the stock market. As long as the VIX remains high, expect irrational volatility in
response to "news" to continue in the markets.
Based on our timing indicator, we believe a short-term bottom is in. However, it's approaching OB and it's an almost certainty the market will
retest its recent low area. In a time of such uncertainty, we will stand aside to avoid a potential market whiplash.
January 25, 2008
It has been said that the amateurs open and the professionals close the market. This has certainly been true in 2008 as "dumb money" is
buying at the open attempting to find a bottom, while the "smart money" takes advantage of any bounce to continue their selling programs.
This trading feels like the bear market earlier in this decade.
This week saw "a tradable bounce" we mentioned last week. However, we remain cautious as we manage our capital. Keeping our capital
intact is the key to longevity.
January 18, 2008
Have we begun a new bear market? The correction of the last three weeks has been one of the worst in history. While painful to experience,
the intensified selling this week may suggest a tradable bounce is near where stocks could move higher for several weeks.
We have been cautious and our strategy remains, "...wait for some strength to kick in." We will not trade with our own capital just to be busy
doing something. We will continue to be selective and follow our trading plan.
January 11, 2008
Last week we said, "With the indicator oversold, the market can move higher..." We nibbled at the NDX late last week, and while the indicator
has indeed risen this week, we don't have a lot to show for it.
Rather than trying to catch the low, wait for some strength to kick in. We're currently waiting for stocks to hit a low point, and in the meantime
your best play may be to do nothing by keeping some powder dry.
January 4, 2008
While we cannot know the future, we go through the daily exercise of calculating our timingindicator and determining the odds of the market
going up or down in the next few days. Likeweather forecasters, we won't always get it right, but we have been accurate often enough
tojustify our money and time. We built on last weeks momentum with the stock strategy and took profits this week of 3% from our last trade.
With the indicator oversold, the market can move higher in the days ahead. Whether the Fed intervenes with a surprise rate cut or not,
market expectations are so low it won't take much to get the crowd excited.
December 28, 2007
The Santa Claus rally likely isn't over just yet. According to Wikipedia, it officially begins in late December and continues into the New Year.
During a very challenging trading week, we took profits of 2% on our last trade, and moved to a short position by the end of the week.
December 21, 2007
Greed distorts reality. But what is worse is that part of the reality that it distorts is whether our actions are actually greedy or not. We can be
greedy, which distorts reality about how to trade, and not even know it. When the word "greed" is mentioned, it's usually thought of as being
too aggressive or ignoring the real risks associated with a trade.
Greed is not just about gaining more, it is about holding onto as well. You have to take risks in trading, you cannot get out of it, and the risks
were worth taking this week.
December 14, 2007
When people think of hope, they usually think of something they desire to happen. This kind of hope is easily seen as you hear people
express their hopes for specific gifts at Christmas. Any time you find yourself hoping in the stock market, the odds are that you are in a bad
trade that should be corrected.
While hope is a money-loser in the investment business, we continue to make headway by following our trading plan Expecting a negative
reaction to the Fed meeting, we started this past week on a cautious note, but our indicator issued a buy signal later in the week.
December 7, 2007
As you study how the American economy has moved from crisis to crisis over the last 100 years, you are reminded that financial markets are
too complex to be successfully engineered by Wall Street. At some point, the current "credit crunch" will also become history.
After being on a buy signal, our stock strategy shifted gears late last week moving to cash. We remain cautious with the our timing indicators
overbought, and look for a negative reaction to the Fed meeting result next week.
November 30, 2007
Gloom and doom in the headlines. Housing industry in the slump. Fed predicts economic slowdown. Oil and gold closing higher. Consumer
confidence at lowest level in 2 years. The lesson to learn is to forget the news. We're not smart enough to know how any news item will
affect prices. Stocks already know the news is coming because it's been priced in.
To beat the crowd you have to buy when they're selling, and take profits before the market takes them. Sounds easy anyway. We took profits
of 5% for the last trade this week. We moved to a more defensive posture today as we head into trading next week, looking for a pullback that
we can buy into.
November 23, 2007
Bull or bear? The problem is that there is so much contradictory data to support either argument. Anyone with internet access can get data
that was once only available to professionals. In fact there is so much data available that sometimes it would be better to have no data
because we end up confused.
Ignoring news and data helps eliminate trading distractions. The timing indicator remains on a buy so we expect higher prices.
November 16, 2007
To become a trader, you must begin to trade using real money. Paper trading is not a substitute. You need to trade enough money that it
affects you when you win or lose. Otherwise, you will not learn how the emotions of fear and greed affect you personally. This week should
have proven to be a good learning lesson.
In a horrible week overall, the NDX got slammed declining 8%. Sell or stay the course? We ask this simple question every day. Based on the
timing indicator, should we buy or sell? At the end of this week it remains on the buy generated on Monday.
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