I have some very exciting news for those that follow me and have used some of my work.  Starting on June 1st I will be partnering with Tom Malone (TomTheTrader) at TTTHedge.com.

Tom is the best tape reader I have every met, his style and skill complement my trading style perfectly.  We offer two types of trading service.  The first our Email Service where you will receive market updates, intraday trade alerts and a morning call and evening wrap-up of what we traded and how we performed and now twitter alerts too!  For you pro's out there or you full time traders we offer a Traders Service where you will join our live trading room with Tom  talking us through the morning session and preparing the traders for the day, with updates throughout the day.  You will be with a team of successful traders both profession and full-time that trade all instruments from bonds, options, futures as well as stocks and ETFs.

Our unique three timeframe portfolio managing system as well as risk and hedging makes this room what I think is THE BEST out there.  Portfolio management and risk and size adjusting are the key to successful trading and I have not found any other service that teaches or uses these techniques.  You will be able to track live our portfolios and see what we are trading and how we are performing. We are 100% honest and exposed, all for you benefit.

We are running a new member mid-year special of $50 to join the email service for the rest of the year, or $125 for the traders service. These are incredible deals and I hope you give us chance to show you what we can do together!

Take a few minutes and check out our new website at: TTTHedge.com.

Happy Trading

-RLT

We just ended another week and another month.  I now have a chance to catch-up on our Zweig vs. Roubini track as well as the Zweig 4% mechanical trading model.  Trying to pin Roubini down on his trade recommendations is proving to be fairly tough since he really is talking about the economy versus the stock market, but even Roubini blurs the lines like in April when he called CNBC host Cramer a "buffoon".   I noticed in this Reuters article dated May 28th, that the Roubini's famous "L" shaped recovery has changed to a "U" shaped recovery, that's good news.  In my reading of the article he appears to be moving to a more bullish position, and has stopped calling economist who call for some positive economic growth this year "delusional".  From last months review Roubini did not believe the bottom was in place in the markets so I "read" that as staying in cash therefore I am going to continue that Roubini recommendation as I don't see any new market calls this month.

 

March 18th ZBT update: (Long)

The Zweig Breadth entry of course is an entry on the firing of the Zweig Breadth Indicator.  For those not familiar with this indicator it is simply the 10 day moving average of the percentage of advancing issues on the NYSE. (To be technical.. it ignores unchanged issues).  It serves as a broad market indicator of the underlying strength of the market. For the overbought and oversold levels Zweig draws a line at 40% for the oversold level and at 61.5% for overbought.  A tend day move from oversold to overbought is called a Zweig Breadth Thrust (ZBT) and has been historically accurate in calling the market bottoms. On March 18th these requirements were met and out tracking trading system entered the markets long.  We have no exit strategy for this system, but we will hold it for at least a year to verify that the thrust works for a 1 year return.  For a more detail explanation you can read my post Zweig vs. Roubini.

Since entering on March 18th buying SPY we have been in the market 72 days and are up 14.33% on our portfolio. A 100 share investment on SPY has earned $110.60 vs. the Roubini cash return of .04% and $4 return on the same amount of cash investment.  Roubini can only win this game now if the March lows are not the real lows and the market returns to lower lows.  After two months this is seeming less and less likely.

Zweig 4% Mechanical System: (Long)

For the background information on this system read my post Zweig 4% trading model - Thanks to Ned Davis.  Since writing this post our system exited on May 15th.  This was unusual for a bull market off the bottom since this trade on average last almost a year.  This Friday's (5/29) close of the Value Line Index triggered another buy, so we re-entered our aggressive tracking stock RRY (2x Russell ETF) at the closing price of $20.  This is an entry that I don't think I would make discretionarily.  Personally, I am positioned short here waiting for a correction in the 10-20% range (secretly thinking even larger), but a mechanical system is a mechanical system and the buy signal is a buy signal.  What makes this entry even more painful is that I don't believe the spike in the last half hour at the close on 5/29.  On a day when volatility was down, volume had been relatively light all day, the run up knocked out all the short stop losses that triggered a huge short squeeze rally catapulting the market to its high close.  Light days will do that to you, lull you to sleep, convince you that your stops are safe and off you go for an early weekend.  Ouch...

So now my Zweig entry is based on a price that I don't believe and that this close will appear like a double top. I am fairly sure that the market will be sell off on Monday and Friday's close will appear like a failed breakout. Officially we are long RRY at 22.00 entry. (Unofficially I would wait until sometime Monday for a better entry).

As always.. these charts are live and you can revisit the site to see the latest results by simply clicking on the image -

Happy Trading

RLT

Is it over?  How will we know?  The answer of course is we don't, but we can get clues from near past behavior.  Following is a spreadsheet of the state of the the current pullback in several indexes.  You can see that we are right near or at the statistical average of all the pullbacks from the start of the current bull run. (the way I count it there have been 8 retracements)

So we sit right in the sweet spot.. How will we know that the current retracement will be larger than the past.  A couple of clues.  The first will be when the majority of the indices moves below the +1 standard deviation number.  You can see that the N100 that has led the pullback is already at 105%.  The second clue is when the the indexes approach the 100% number on the Max column.  This represents that the pullback in that index is at the maximum of the the previous 8 retracements.  This is a live spreadsheet and the values as they cross 100% will begin to light-up as we hit new lows.

Since %max is a superset, that is hitting %max will also have the +1dev number light-up, I have included the price targets necessary to hit %max on the tracked indices:

*note - google finance does not have a symbol for either the Russell 2000 or the Value Line index.  I am using IWM as a proxy for the R2K in the % calculations.  I do not have a suitable proxy for the Value line.. If you have any good proxy ideas or a real time web source for either of these please let me know.

Happy trading..

-rlt

In Dr. Martin's Zweig's winning on Wall Street, Dr. Zweig presents a trading idea that was inspired by the work of this friend Ned Davis.  It is a very simple trading method based on weekly data from the Value Line arithmetic index.  The rule are quite simple and the results are quite impressive.

Buy - Buy when the weekly changed of the Value Line index is greater than 4% up

Sell - Sell when the weekly change is greater than 4% down

Hence the creative name the 4% model.  Remember this system was written back in 1986.  So how well looking forward did this system do?

 

 

I only have weekly data going back to 1992, but the 500% return is not so bad, and visually the draw-downs look tolerable.  The system is having it biggest problem since 1992 coming into this year as it struggles with the volatility and several 4% weeks causing it to whipsaw, but look at the value of the equity today... the equity curve is at an all time high!  Boy what I would do to be there!  The system bought in on the 3/13 bar this year and has not been shaken out yet since we have not had a 4% weekly retracement yet.

I will begin tracking this model as part of this website so we can follow it's signals.  It very rarely fires a buy or a sell.  On average it stay in a trade for 34 weeks.  In a winning trade it stays in on average 49 weeks, almost an entire year.  For a losing trade it tends to be shaken out in about 6 weeks.  So far this system has been in the current trade for 9 weeks.

To track this system we will use the Value Line arithmetic index whose symbol for TradeStation is $VAY.  We will use $VAY to trigger our system and we will buy RRY which is the Ryder 2x Russell mutual fund.  I also added a 10% stop to the strategy.  Had we traded this system since March this would be our current trade status:

Those of us who use the trin on an intraday basis know about its glitches as large volume stocks move from the advancing column to the declining volume or versa-vice.  On Thursday this happened when Citigroup hovered around the previous day's close.  It caused the trin to shoot across the magical 1.00 level from .86 to over 1.20.  Since a stock can be in only one of two states, either advancing or declining, a "state change" causes the entire volume to shift.  For most stocks this has little effect on the trin value, but with a high volume stock like Citi it can have a profound effect causing a quantum jump in the indicator.

We have identified the first problem with the trin but there is another issue with this indicator, volume.  Since volume is not dollar weighted in the trin a share of Citi at $4.00 has the same impact as a share of Goldman Sachs at $140 per share. This can swamp the indicator with low dollar high volume stocks thus not accurately present the internal machinations of the markets.

The low price of the financial's and the high volume from their daily churning have led to record lows on the trin as we have moved through this bull market and I been reluctant to use any level information only intraday trend information for trading.

 

As a project I will add to my list producing a better trin indicator.   Currently, for the record, I do apply an inverse function, (ie. I multiply the trin by -1), this allows me to see the trin as a having a direct relationship to prices.

-rlt

Wow, this is a historic bull run.  The breadth of the recovery is astounding and the ZB indicator shows an unprecedented 6x overbought condition this year.  How unusual is that you ask?  I quickly eyeballed back 20 years and could only count 15x that the indicator displayed overbought.  This year alone we have had six.  That is amazing.  Here is how the chart sits now:

Two things have me fascinated with how the charts are setting up.  First the Zweig indicator itself is in an ascending triangle. I would expect at some point the lower trend-line would break.  This would most likely be a more major 8-10% type correction.  The other area I am watching off this chart is the area around the beginning of the year (Jan 05) when the Zweig went OB and stayed there for 3 days.  This lead to a major sell-off.  The more people start talking about a run away market and the amount of money on the sidelines, the more we are likely to get this sell-off.  If we stay over-bought again tomorrow I will begin thinking major sell-off as opposed to a normal pullback.

This is the same chart zoomed in.  I did a write-up about this pattern last week.  When the Zweig moves back from overbought, usually after 1 day, a 4.5-6.5% pull back happens. If we were to get a 5% pullback to mimic the pattern established since the beginning of March, that would take us down to 860 over the next couple of days. If tomorrow keeps us overbought, I am thinking the market is setting up for a pullback that is about 2x that.  Let's see.

 

 

Since about the middle of April I have decided to become more disciplined about my scalp trading.  I have a small TradeStation account that I scalp in.  I have in the past, and still do on occasion use it to hedge what I have in my main trading account at E*Trade, this sometimes leads to oversized losses that I refill with offset gains (if I have hedged correctly), from the E*Trade account.  Trade #s 15-20 are such type of trades.  This is my profit performance curve when I am disciplined and focused:

 

The performance numbers for the 2nd half of April were:

I am looking forward to May.  If you want to trade with me and the best group of traders check out:

TTTHedge.com

We are a band of traders with TomTheTrader "reading the tape" for us and making voice calls. As a group we are making investment easy and fun.