RedlionTrader

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