Super Stock Picker Forum

Hello,

Our portfolios' historical performances and the recent stock market crash clearly indicate that we can improve our performances if we can reduce the volatility of our strategies. Also, smaller drawdowns are important to help people stick to our strategies without unnecessary stress.

Our idea is then to introduce a Market Timing indicator that generates UP and DOWN signals based on the TSX trends. Obviously, when the trend is UP, it indicates that it is a good time to be invested and when the trend is DOWN, it is the time to stay on the side lines.

Our indicator is based on the TSX because this is the best available index that tracks our portfolios' broad market. Our indicator is then generated by using a few moving averages.

So, by definition, this is a trailing indicator. That means that we are not trying to guess the future, but we simply look at the recent past to extract the current trend. It is not perfect, it does not detect the exact tops and bottoms of the market, but it does a great job of extracting the most important trends. You'll see how it helps our volatile strategies to stay on the right side.

We have now made enough progress in our research to share those preliminary results with you. You comments and feedback will help us to make it as useful as possible for you.

In the next post, I will show you the results of this indicator on the TSX from 04 to Oct 08.

The attached files (picture and Excel file) gives you the results of our Market Timing indicator from 04 to 08.

The indicator is updated every day. If on a given day, the signal is UP then the next day performance is taken into account, and if the signal is DOWN, then there is no change registered on the next day.
You can see these results in the column "UP Only".

The opposite is also done in the column "DOWN Only" in order to track the performance of the TSX when the indicator is DOWN, but as our main objective is to isolate the main UP trends (the same direction as the long term natural bias of the market), the "DOWN Only" performances are not so great, expect with the help of the last stock market crash.

If you would to consider investing following only our indicator, a possible way would be to use a 2 times bullish ETF and follow the UP Only signals. You can see such results in the "2x UP Only" column. Volatility is back of course, due to the 2x leverage, but this strategy brings a decent long term performance, when the broad market is almost back where it has started.

Now, a few important points about our indicator:
- It is updated daily. This is not in sync with our portfolios updates that can be weekly or monthly. That would then generate more commission expenses, but this is the price to pay to get that extra protection.
- A shift of one day makes a difference. We publish the results of our timing using the close price of the day the signal is generated and the next day open price. In one case, you buy at the close if a new UP signal is generated TODAY. In the other case, you buy the next day open price when a new UP signal is generated. While the second option makes it much easier, it also brings the performances down. You'll see with the results of this indicator on our portfolios that it would have a huge impact. We propose to solve this by publishing a LEADING indicator BEFORE THE CLOSE of the market. It would be published via a feed and on the website. So, you will be able to react fast if a new signal is generated. Everyday, we would also record the CONFIRMED indicator that should be the same as the LEADING indicator except in a few little number of occurrences (huge move in the last minutes of trading or when the trend is very weak)

PS: Do not forget that you need to be logged on the forum to get access to the attached documents.

Here is when starts the interesting part. You'll see here how the addition of our Market Timing indicator changes the behavior of our portfolios.

We'll show you an example of each type of portfolios, to see that the indicator helps all kind of portfolios, except the Low PEG Ratio.

In any case, we'll keep on publishing both types of portfolios, only raw data or with the addition of the Market Indicator.

Back to the Ultimate Price Momentum v4 portfolio. Let's see what's changed with the addition of the Market Timing:
- Lower Max drawdown: Now - 24.35%, occurred in end 07/beginning 08.
- Reduced current drawdown: - 7.38% during the current stock market crash.
- Increased All Time annualized return: + 110.66%
- Improved 2008 performance: + 42.64%

See attached picture and Excel file to get more details.

Wow, this looks very intriguing! Almost too good to be true?
Where on the website will the indicator be posted / updated daily?
Will email subscribers be offered the updates via email?
Thank you kindly for all your continued efforts...
Strict SSP UPMV4 follower (losses and all),
Scott.

Hello Scott,

This indicator is really nothing fancy, KISS always works best.

Regarding the updates, the leading indicator will be available on the website everyday at the time it will be calculated and distributed through a RSS feed.
The confirmed indicator will go the same way plus it will be shown in the daily emails with the regular orders.

Hello Louise,

KISS means Keep It Stupid Simple.

The three next posts give you examples of how our Market Timing indicator affects the performances of our portfolio.

First, we go with the Price Momentum Weekly portfolio. Its figures look like this:
- Max drawdown: - 27.29%
- Current drawdown: - 3.50%
- All Time annualized return: + 77.03%
- 2008 performance: + 20.53%

Graph and Excel files attached as well.

Now, let's look at what the results are for the Earnings Estimate Upgrades weekly portfolio:
- Max drawdown: - 19.67%
- Current drawdown: - 11.84%
- All Time annualized return: + 19.67%
- 2008 performance: -1.96%

To finish with these reports, here are the figures for the Low PEG Ratio portfolio:
- Max drawdown: - 32.77%
- Current drawdown: - 32.77%
- All Time annualized return: + 25.48%
- 2008 performance: -17.90%

Market timing

So, if there is a down signal, does that mean that we should sell all of our positions?

Yes, that's what is done to get to the results shown in this thread.

When the trend is down, we are out of the market, and when the trend is up, we are 100% invested as usual.

Hi SSP,

As you can imagine, I have downloaded most of your .xls files. 
Even if the "recipe" for the UP / DOWN signals adds to your secret recipes, I'm still studying your other calculations.
But this is just for my own fun (I like numbers and calculations as you start to know me).
It is hard to follow, because your calculations since 2004 seem to have "adapted" the TSX in one way or another.
But I understand this was needed to back test and produce the sheets and figures of how (retrospect) the portfolio would have behaved if this UP / DOWN signalling system had been implanted.

But just a little question: the Timing.xls shows in its first columns, in the same line as the date:
DATE   TSX Close   TSX Open
Is this open the Open of the date written or the next morning Open? If it's from the same date, why would you make the second column the close and the third one the open?


OK lets get practical.

You have already answered one of my questions through Bryan's  question: when the DOWN signal appears, we quickly move out with all the portfolio(s) content(s), ASAP.

But then you write:



If we got out of the market for some times, and then comes an UP signal, with which stocks do we get back in?

Assuming that the DOWN signal has been lit up for many days in a row, will there be new BUY orders when it "turns green?"
Or do we get back in with those stocks that were in the portfolio before we all jumped out?

Louise

I think its safe to assume that we get back into the same positions when an up signal is given.

What would the chart look like if we bought a reverse ETF like HXD.to when we get a down signal and sold when an up signal is given?

When does this start?

Hello Louise,

Regarding your first question, there is no special meaning in the orders of the Close and Open columns. They are both for the day given in the Date column.

Now, about the IN and OUT movements due to the signals:
You have to see our timing as an add-on to our regular portfolios.
When the signal is UP you duplicate the portfolio content, and when the signal is DOWN, you are all cash. When the signal is UP again, you buy whatever stocks are now in the portfolio. They could be the same or new ones depending on the length of the DOWN signal and the activity in the portfolio.

The orders will keep on being generated for the portfolios you currently know even when the timing is DOWN. This way, we will keep on tracking the performances of the portfolios without timing.

At the same time, we will record the performances of the portfolios with the addition of the timing to give you a way to compare both, in terms of performances and volatility.

Day to day, it will translate in receiving the exact same orders as what you get now plus a timing indicator for those who wish to follow it.

Hello bryanmcn,

When a new UP signal is given you have to get back in whatever positions the portfolio you follow is currently holding.
Let's say you're following UPM v1. When a DOWN signal comes in, you sell everything. When a UP signal comes, then you buy whatever the UPM v1 (the former one, without timing) is holding.

We can do a test with your proposition of buying a bearish ETF when a DOWN signal is flagged. But, as you can see in the TSX timing results, the performances when accounting only the DOWN signals are not so great (except in the last few months, but I expect this to be an exception). We'll see the exact results to be sure.
But our feeling is that when a DOWN signal is there, cash is a safe position, or you might have you own idea of bearish strategies (bearish ETF, short, put options, ...)

Regarding timing, we are currently coding the timing indicator in our system. We also have to write the pages that will explain and present this indicator. This could take a few weeks to complete. At the same time, we are tracking the indicator in the Excel sheet published there. So, if you are interested, we could publish the current value of the indicator on the forum for the mean time.

Would like to see current value . Yes.

To check the current value of our indicator, please see the thread Our Indicator Current Value (http://www.superstockpicker.com/forum/index.php?topic=746.0)

I am wondering about the balancing of the portfolio when (if ever!) a buy signal is generated.

For stocks that were in the portfolio when the last down was generated should we buy the same number of shares or the same dollar value?

For stocks added during the down signal should we weight them based on the price when the buy signal was generated or the price on the day of the up signal?

D

Hi DCA,
I guess SSP will give its own reply to this.
Somewhere else, SSP said that we should buy them, even if a sell signal was imminent.

I think what I would do would be first to check the technical state of each of the stocks in that portfolio that have not received a sell order between the beginning of the down signal and the new up signal, ie the up tp date portfolio, and not the one that we liquidated when the DOWN signal came.

Some of SSP's recommendations have done not too bad during the "DOWN" period.

As a matter of fact, if I take for example Portfolio UPM v2 in its present state, all the stocks look promising, even if some have generated losses in that portfolio performance.

I would rebuild the portfolio according to the portfolio allocation rules, not buying one if its "technicals" look too bad, in order to keep some cash for the new buy order.

But in any case, you could not buy them at the price they were when the DOWN signal came, because the allocation rules are based on the current prices.

Am I right SSP?

Louise

Hello,

When a new UP will finally come, we recommend that you buy the whole portfolio in its current state.

So, you do not care if a stock was here when the last DOWN signal came or not. All you have to do is to rebuild the portfolio as it is.

In our case, we will of course use the same allocation rules as we have always used, ie the allocation will be based on the performances of the stocks since the buy recommendation in the portfolio.

As a result, the UP and DOWN signals are just acting as a ON/OFF switch on the portfolios as you know them until now.

We are sorry for that, but the post was updated every day when the signal was about to be issued. These days, you have much more room between the alert level and the market.

Hi Louise,

I'm not sure why you complain as the post about the Indicator Current Value as been updated this morning.

The alert was set at 8491.43 for today and the market closed at 8,793.33.

We will do our best to update it daily anyway, the values would be close or not, but there is for sure less urgency when there's 1000 points between both values.

The rest of the questions are out of topic for this thread.

Hello Louise,

Nobody says there was no need to post anymore. But it is less an urgency when there is a lot of room between the market and the alert level. For sure that if the two values are a few points away from each other, then we will post everyday without a miss.

And regarding the way the information is currently presented, it was our choice to tell you about this indicator before it was ready to be released in a proper form. Another solution would have been to wait until the whole implementation would be finished, whatever time it takes and tell you nothing about it in the mean time. You choose!

Hello SSP,

I had not realized either that the indicator was not yet finished
Thank you for this explanation.
You did not have to give it to me, I am thankful that you did.
I was already sorry for the impatience I showed, and wanted to apologize.
You know how much I appreciate you, your site and this forum, and I thought (too late) that the way I asked was not too friendly.
So please accept the expression of my regrets,

Louise

Your "market timing" is great advice, but what do you do with a day like Jan. 28/29. Do you buy, then sell if it falls below the trigger price(8803)?
I think the big problem everyone has is what is the strategy to get back into the market and go long.
For example, do you slowly add or do you put it in all at once.
What "portfolio" would you start with.
Keep up the good work.

Hello 300mmm,

Obviously, there's not a unique answer to your question. It depends on everyone's way of trading.

But, we limit our answer to the way we propose to use this market timing. Then,  members are welcome to try their own stuff.

So, the way we propose to use this indicator is to literally turn on and off the portfolios when the signal changes from UP to DOWN.
When it is down, you're all in cash. When it turns UP, you're back with all the stocks that are in the portfolio at that time.
We did our best to avoid situations when whipsaws occur. But, it is impossible to get a 100% system and we have just experienced a one-day whipsaw. At that time, in theory, you'd have to buy everything on a day and sell everything on the next day.

This market timing is applicable to all our portfolios. We have only produced a few examples up to now to show you what to expect, but once fully implemented, all the portfolios will be affected the same way.

Regarding which portfolio to use with this timing, you have to choose the one you prefer in terms of performances, volatility, strategy, etc...

Hi SSP,

Thank you for taking the time to answer questions.

I like to use margin, when bullish on the market. On the flip side, I like to go mostly to cash when things are tanking. Your MTI is a great way of deciding when to get in and out. I have been using it and it is helpful. I know it’s used primarily as a tool to improve your portfolios performance, however in a rising tide, all boats tend to get lifted, therefore my question.

I was wondering your thoughts on the use of margin and the alert level.  In particular, I am curious as to your opinion on the relationship between the difference of the alert level and the market. Say we go 100% on margin on an up signal. Subsequently the market continues to rally and the difference between the market and the alert level increases. At some point it would be wise to reduce the margin to zero. In my opinion, that would be when the difference is at its maximum. Would you agree with this? If you do, and looking at the history, what is a ball park figure for this maximum difference? If you don’t agree, would you have any other suggestion to someone who likes to use margin, and monitors your indicator.

Hi Sawyer,

    I am not sure what you meant by 100% margin but it is playing with fire unless you have a saftey valve.  (IE I have a non-tax deductible line of credit at a higher interest rate that I can use to balance out the partially tax deductible, low interest rate margin call)

    That said, I think the spread between the MTI and the current TSX index can be treated as an indicator of market stability.  So the smaller the spread the less you should be in margin.

     Keep in mind two things -- the MTI indicator is new (new is dangerous), and it is linked to the TSX index which is heavily weighted in favour of certain types of stocks.  (If your portfolio is not index related the MTI may not be reliable.)

    One thing I have been meaning to do since the introduction of the MTI is to work out what percentage of SSP calls are on the Index.

D

Hi DCA,


How many are there? Only the S&P/TSX 60?  ???

Well here's a place to search..

S&P/TSX 60 Index  (http://S&P/TSX 60 Index)

SMF in certainly not to be found there!

Here's another link: S&P/TSX Composite Index  (http://www.investcom.com/cgi-bin/nameindustry/index.cgi?ID=1&string=3&exact=yes&300=yes&T60=)

If you are patient enough to do the search, we'll all be grateful  :D !

But we getting a little bit out of topic...
If you find interesting things, let us know, maybe in a new topic  ;)

Louise

Hi DCA (SSP),

Yes I do have a safety valve when using margin. I guess maybe I shouldn't have used the term, 100% on margin. Let's just say the max margin one is willing to use, if willing to use margin at all.

Not sure I understand your point about non-tax deductible line of credit. As long as you are borrowing money to invest in stocks, whether it is from your brokers margin account or your personal line of credit, all of the interest is tax deductible. (in Canada, not sure about US)

I like your comment about the spread between the market and the MTI being a measure of market stability. I hadn't thought of it that way and would be interested if SSP would agree.

I am mainly invested in TSX stocks and right now am very bullish on energy. From a seasonality point were are in the sweet spot for energy. Mid February until the beginning of May as the historic best time of year to be in these stocks. I like stocks like SU and COS.UN or more conservative XEG.

So this brings us to two possible scenerios.

1) Max out on the margin one is willing to use, as soon as the MTI gives us a buy.
2) Wait until the spread between the market and MTI is maximum and then go out on margin.

Any thoughts SSP?

 

Hello,

These are definitively interesting thoughts. But, unfortunately, we cannot comment a lot as the MTI has not been built with that in mind.

It seems natural that there is some kind of information in the spread between the alert level and the market. If you think at times like nowadays, the alert level and the market can not get far from each other and we are caught with whipsaws. If we can get a nice and long trend, the spread should become bigger and get some kind of stability.

What level should be considered? No idea yet. We will publish historical values for the alert level and it will be possible to make some research with those figures.

Also, the question has been raised about the number of our stocks that are actually stocks from the TSX index. I do think our recommendations coming from the index are a very small minority.

Hi SSP

Would it be possible to have the past history of Market Timing Indicator since inception? The only info I could get on the forum is as follows:

Date Signal
17-MAR-09 UP
11-Feb-09 DOWN
05-Feb-09 UP
29-Jan-09 DOWN
28-Jan-09 UP

WOuld it be possible to have the changes prior to 28 jan 09 and after 17 march 09?

Hi seahorse,

In this post, on page 1 of this thread, you can find more about the history of our market timing indicator:
http://www.superstockpicker.com/forum/index.php?topic=741.msg1777#msg1777

Check the attached files.

Also, there have been no new signal since Mar 17th, the indicator has been always UP.

With this information, you may still have a hole in the indicator history.
We still have to complete the indicator pages with the history of the signals and the alert levels.

If you want to get all the signals as of today, you can take the file describing the history of one the portfolio using the indicator (with the "+" suffix) and check the days when the portfolio performance does not change. That means the indicator was DOWN...

Hi seahorse,

It would be difficult I guess yo have the data prior to 28 Jan 09, because the system was not completely ready yet.

Here are the data that I have gathered either from the post where they used to be updated until they were updated both on the daily newsletter and the specific page: http://www.superstockpicker.com/market-timing.php  (http://www.superstockpicker.com/market-timing.php)

I send this but I cannot give any guaranty that each and every day is 100% correct, as I think once or twice I forgot to update, but this should give you an idea.

Louise


PS, I am sorry to reply so late, I have tried to post this spreadsheet for a while, there was a glitch in the forum program that SSP has repaired now.

it is obvious that the market timing indicator works. it's a big help. thanks.  :)

Question: right now timing is at 11749.33 If TSX drops to,say, 8000 (could happen!) would we wait til 11749.33 to reenter market or does the indicator drop in tandem with the TSX .

Hello markcle,

The alert level is updated everyday and follow more or less the direction of the index.

So, if TSX drops down to 8000, the alert level will follow lower.

Hi Jeff
Don't be too quick to praise the timing indicator. Check out the 2 Weekly Portfolios. While the "timed" version has out performed the original in the last month, it has done much worse in the past 3 and 6 months.
Bryan

Louise
We'll see.
Bryan

looks like the "Market Timing Indicator" works well.

it is amazing to see how quick the numbers can change and how quick the colors can change from green to red in that portfolio WITHOUT the use of Market Timing Indicator.

Jeff
Hard to argue with reality!
Bryan

when was the last time the indicator turned down?

The current down signal has been generated on 01/21.

Thanks
And so we can track changes;
The signal is up today - Feb 16, 2010

Ok. So here it is May 16, 2010

The MTI has been around since Oct 08.
I did some figuring;
The TSX on Nov 3, 2008 was at 9721.
If you had bought it then and sold it Friday at 12015 you would have gained 2294 points

If you had bought and sold the TSX according to the MTI in the same period you would have gained 1529 points and spent a lot more money on transaction costs.

DUH!!

Hi Bryan,

Indeed, our market timing indicator is not designed to improve the performance over the market but to reduce the volatility of your portfolios. It is a trailing indicator that will always get late after the beginning of the moves.

As a result, there is a cost in terms of performances. But the addition is that it would tell you to get out in down turns. Of course, in bull markets your results will be lower compared to the situation when you are always invested, but market corrections occur from times to times, and that's when the timing add-on kicks in.

Particularly with portfolios as volatile as the SSP ones, this is important not to stay in the market when things turn bad.

In the case of the UPM v4, I have also bring some data since Oct 08:
UPM v4: perf +48%, invested 100% of the time
UPM v4+: perf +40%, invested 62% of the time
(during that period there were 254 up days and 154 down days)

Then, if you adjust the returns with the time invested in the market, you'll noticed that the UPM v4+ portfolio did much better.

Once again, it is all about what you're looking for: raw performance or risk control.

PResently (Dec 10, 2011) the MTI  buy trigger seems to be "chasing" the TSX down to trigger a buy. Its now only about 40 points above. Have the parameters been tweeked?

No, nothing has been changed since its initial design.

What you see is only due to the current market conditions.

Bryan,  I have seen this behavior before.  More pronounce now because of the sideways skittering the market has been doing.  Unless the market moves soon I am going to have my first year of shrinkage.  Even happens to McDonalds sometimes.

D