Engineering Professor
(EngProf6)
Hybrid Timing Model for Analyzing
Stocks and Indices
Click Here to Link to ‘My Journey’
You will find some interesting
questions and comments. You may even find something you wrote. The Mailbag is
located near the end of this web page.
On Wednesday (Oct 18) I introduced version 4.0 with a filter. It is
now Nov 27 and I still strongly believe “This is it” (more
than ever).
During the month of Oct I
developed a firm hold on the modeling work I am conducting. The results you
will see and which I will use on my journey are looking great. In addition, I
have now successfully adapted the model to an hourly basis. This will make
investing (on a short term basis) so much easier. You should note that there
are 2 modes for a primary direction (i.e. move): 1) red – down, or 2) green –
up. In addition, for each there is also the subsets of 1) turbulence or 2)
clear trend. So there are a total of 4 possibilities. If we are in a primary up
trend, we can be in ‘clear’ mode or ‘turbulence’ mode. The same applies for the
primary down trend. The label turbulence is used to signify the presence of an
opposing force that is trying to suppress the primary trend.
I have reinstated the
countdown. Several wrote to tell me that this feature is important. I agree. I
had only taken it off for maintenance. The countdown can appear at 2 locations.
If the trend is ‘clear’, then it appears on the top line with the primary
trend. If the trend is being influenced by turbulence, then the countdown
refers to the turbulent portion and is shown on the line with the turbulence
label.
If you are new to this site, be patient, scroll down a
couple of pages and you will find what the model is forecasting for the
following 15 issues:
DIA, SPY, QQQQ, OIH, SMH, IWM, OEX, EWJ and XLF {these are based on specific market averages}
and, AAPL, AKAM, ET, GOOG, STX and WMT
There are 2
classes of investors I would like to reach, in particular. If you are involved
with options, you should
consider what I have to say. You are in the first category. If you trade on the
short term (a couple of
weeks on average), then you are in the other category of investor I am
interested in. I would like to hear the ideas and opinions from members of both
categories.
One feature of my analysis is that I have a count down to a
reversal for each entity. Thus, if we consider stock XYZ, my model tells you
the current trend direction of the stock. Moreover, it tells you how many days
remain before the current trend for XYZ reverses. This information can help you
plan upcoming moves.
My Comments on the Markets
My Comments after Monday
(November 27):
Today was not
pretty for the longs. Some have asked “What is turbulence?” Today was a good
example of strong turbulence. It is an opposing force that distorts the primary
trend. The extent of the distortion is not possible to predict. Today was an
example of an extreme case. Remember, the up trend for the markets is still
intact. A reversal has not taken place. In fact, a reversal may not happen. It
is amazing what today’s drop has done to the status of the markets. Yesterday I
thought the turbulence would be prolonged and that a reversal was likely. After
today’s action, the level of turbulence has been reduced by a fair amount and a
reversal is not as likely. Naturally, ever day can lead to a change in the
outlook. I don’t know what will happen besides what I have stated. I have a
feeling that today’s drop does not mark the start of the reversal. That will
come ‘soon’ but at this point I do not know when.
My positions are
what I had going into the week. I was short AKAM and I had puts on OIH. Today’s
market drop made those positions improve my account balance. My plan is to keep
my AKAM position for the time being. I am still struggling with my OIH
position. My intent is to go long OIH by the close on Thursday. I plan to do
this by shorting the Dec 135 put. At this time I am long the Dec 130 put. OIH
is now around 138.
My Comments after Wednesday
(November 29):
I really blew
this one. I am referring to my OIH position. Today, I sold all 20 puts. I took
my loss and walked away. I should have done this much sooner. I should not have
been holding this position. The model was correct. In fact, the model is
usually correct. My second guessing the model has cost me quite a bit. I will
survive. I feel so much better after I got rid of OIH today. My account is now
at $4.7K. I can live with that. I will come back. I feel like I have been
rejuvenated. As I said on Monday, the drop on Monday cleansed the market. All
systems are go (up). I cannot see when a reversal to
the down side will occur.
My Comments after Friday
(December 1):
Friday was a
roller coaster. The market went down and then reversed and moved back up. I had
not updated this page on Thursday when I sold my 20 puts in OIH for 25 cents. I
bungled the OIH file. What I did – I hope I will not repeat in the near future.
I ignored the model, I threw good money after bad, I
sat and did nothing. That is not the way to make it. One of the readers
inspired me with the comment he made to me in an e-mail: “a big loss isn’t as
bad as a much bigger loss”.
On Thursday,
once my OIH exposure was neutralized, I bought the Dec ET 22.5 put and the Dec
SPY 139 put. I did this because the daily model was turning SPY and ET to the
up side but the hourly model had another day. Then on Friday when the down day
materialized, I sold short the Dec ET 25 put and the Dec SPY 141 put. In
addition, on Friday I flipped my bearish position in AKAM to a bullish one. I
bought back the Dec 50 call I was short and I sold short the Jan 50 put. So, in
the end I am long AKAM, SPY and ET going into Monday.
With regards to
the markets and stocks, it now appears that the next 3 weeks or so will be good
to the longs. The sharp drop we had on Monday seems to have changed the outlook
of the model for the markets and a number of stocks from one of caution to one
where there is a clear up trend. I am
looking forward to this week. I will keep a close eye on ET. Its sharp drop on
Friday brought up a caution flag which I need to asses. Stay tuned on Monday
for more insight.
My Comments after Monday (December
4):
Today, I simply
held my 3 long positions in SPY, AKAM and ET. The market did well and so my
account also did well. ET bears watching because at this time it is in a down
cycle and I am long. While perhaps only a technicality it is still important to
make sure nothing unusual happens. Remember, I never refer to the size of a
move. I simply look at trend.
Given that my
account has over $1,000 of uncommitted funds, I am considering going into a bullish
credit spread (with Dec puts) for GOOG. Come back tomorrow to see if I did.
Good luck to all.
SPECIAL
SECTION (under construction)
(How To) Grow $5,000 into $1 Million, Quickly
See how my trading is taking
shape – click the link below. Send me your feedback.
Click Here to Link to ‘My
Journey’
Stay Tuned. You
will get the opportunity to follow me as I embark on ‘my journey’ to grow $5
thousand dollars into One Million Dollars – Quickly.
The starting date
was initially set for Oct. 1, 2006. However, given the revised version of the
model (3.5) which I am trying to implement for all 15 issues, a more realistic
starting point is Nov. 1. I will announce the starting date one week in
advance.
I have decided to remove
the next day outlook. It is too much work for me to write. It detracts from the
analysis because you the reader do not see all the data. So, in an effort to
simplify the presentation, I am going back to the way it was – only focused on
the primary trend.
You should note that the tables that follow for some of the issues
will only be updated on weekends. On Dec 2, I updated the tables and there were
changes to DIA, SPY, QQQQ, OIH, OEX, AKAM, and STX.
DIA Primary Direction: UP Started on
xx Days Remaining: 16
Starting
Price: xx Current Price: 122.80
Clear
Up Trend
Dow Industrials Fund (DIA) is in a
primary UP cycle. The turbulence has dissipated. Based on what the model is
seeing, we could have 3 more weeks of up trending markets. Stay tuned.
CLICK HERE --- to view the results for DIA as generated by the model (version 4.0) for 2006 [New Dec 1]
SPY Primary Direction: UP Started on xx Days Remaining: 2
Starting
Price: xx
Current Price: 141.29
Clear
Up Trend
S&P 500 Fund (SPY) is in a
primary UP cycle for the next 2 days. After the 2 days the SPY will be followed
by 3 or 4 days of turbulence – nothing to be concerned about at this time. Then
there will be a resumption of the clear up cycle. IWM is like SPY. Stay tuned.
CLICK HERE --- to view the results for SPY as generated by the model (version 4.0) for 2006
[New Dec 1]
QQQQ Primary
Direction:
UP Started on
xx Days Remaining: 17
Starting
Price: xx Current Price: 44.26
NASDAQ 100 Fund (QQQQ) is in a
primary UP cycle. The QQQQ is no longer under the influence of turbulence. It
dissipated more quickly than it looked like it would on Friday. QQQQ is now in
a clear up trend like the DIA.
CLICK HERE --- to view the results for QQQQ as generated by the model (version 4.0) for 2006
[New Dec 1]
OIH Primary
Direction:
UP Started on
Wednesday, November 15 Days Remaining: 2
Starting
Price: 140.82 Current Price: 146.56 Profit: 5.74
Oil
Services Holders (OIH) is in a primary UP cycle. OIH is now in a clear up trend
for the next 2 days. Beyond that, it now looks like OIH will simply move into
turbulence. A reversal is not yet to be seen. Keep watching.
CLICK HERE --- to view the results for OIH as generated by the model (version 4.0) for 2006 [New Dec 1]
SMH Primary
Direction:
UP Started on
xx Days Remaining: xx
Starting
Price: xx Current Price: 34.64
Turbulence Days
Remaining: 2
Semiconductors Holders (SMH) is in a primary UP cycle
but it has 2 days of turbulence remaining. Beyond that, it is very likely that
SMH will go into a clear up trend.
IWM Primary
Direction:
UP Started on
xx Days Remaining: 2
Starting
Price: xx
Current Price: 79.32
Clear
Up Trend
Russell’s
2000 (IWM) is in a primary UP cycle. It has shaken off the turbulence for the
next 2 days. Then there are 4 days of turbulence and then it is back into an up
trend. IWM is like SPY. Stay tuned.
OEX Primary Direction: UP
Started on xx
Days Remaining: 16
Starting Price: xx
Current Price: 652.21
Clear Up Trend
The
S&P 100 Index (OEX) is in a primary UP cycle for the next 16 days. OEX
now resembles DIA.
CLICK HERE --- to view the results for OEX as generated by the model (version 4.0) for 2006
[New Dec 1]
EWJ Primary Direction: UP
Started on xx
Days Remaining: 2
Starting Price: xx
Current Price: 13.99
Clear Up Trend
The
Japan Fund (EWJ) is in a primary UP cycle with 2 days remaining. EWJ will then
slip into turbulence but still in an up trend.
XLF Primary Direction: UP
Started on xx
Days Remaining: 16
Starting Price: xx
Current Price: 35.95
The
Finance Index (XLF) is in a primary up cycle. The turbulence has dissipated. XLF is now in
line with the market averages like DIA, OEX and QQQQ at this time. Stay tuned.
AAPL Primary Direction: UP Started on
xx
Days Remaining: xx
Starting Price: xx
Current Price: 91.12
Turbulence Days Remaining: 8
Apple
Computer (AAPL) is in a primary UP cycle but is now under the influence of
turbulence for the next 8 days. One positive for AAPL is that the markets are
pointing up.
CLICK HERE --- to view the results for AAPL as generated by the model (version 4.0) for 2006
AKAM Primary Direction: UP Started on
Thursday, Nov 30
Days Remaining: 16
Starting Price: 48.87 Current Price: 49.15 Profit: 0.28
Clear Down Trend
Akamai
Technologies (AKAM) is now in a primary UP cycle. AKAM should do well for the
next 3 weeks – like the Dow. I am long AKAM and I will certainly watch the
events closely. Stay tuned for details.
CLICK HERE --- to view the results for AKAM as generated by the
model (version 4.0) for 2006
[New Dec 1]
ET Primary Direction: DOWN Started on
xx Days Remaining: 3
Starting Price: xx Current Price: 23.48
Clear Down Trend
E*Trade (ET) is in a primary DOWN cycle. It was in an
up cycle for 1 day only and during that time the hourly model was pointing
down. Then on Friday, ET squeaked into a down cycle. The length is now 3 days. One
positive is that the hourly model went into up mode at the close on Friday for
2 days. Thus, if ET can hold the 23.50 level for the next 2 days, all will be
fine for the longs (like me). However, given the circumstances, it is important
to watch ET carefully until the trend realigns with ‘my’ investment. Stay
tuned.
GOOG Primary Direction: UP Started on
xx
Days Remaining: 16
Starting Price: xx
Current Price: 484.85
Google
(GOOG) is in a primary UP cycle. On Monday, GOOG went into a clear up trend and
it should resume its climb up. I am considering going long GOOG on Tuesday. Stay
tuned.
CLICK HERE --- to view the results for GOOG as generated by the model (version 4.0) for 2006
STX Primary Direction: DOWN Started on
Wednesday, November 1
Days Remaining: 6
Starting Price: 22.26
Current Price: 26.02 Loss:
3.76
Seagate
Technologies (STX) is in a primary DOWN cycle. The turbulence has dissipated. As
a footnote, I have reviewed STX to assess why the model is wrong. What I found
was that on Nov 15 ’06, the model just missed putting STX in an up cycle. A
move size of an additional 10 cents would have caused the flip to the up. In
addition, at the time, the hourly model was pointing up. Had that happened, STX
would have remained in an up cycle until today and beyond. Those are the breaks
– that’s the way life is.
CLICK HERE --- to view the results for STX as generated by the model (version 4.0) for 2006 [New Dec 1]
WMT Primary Direction: DOWN Started on
xx Days Remaining: 9
Starting Price: xx
Current Price: 46.29
Clear Down Trend
Wal-Mart (WMT) is in a primary DOWN
cycle that has 9 days of length remaining.
SPECIAL SECTION (under construction)
(How To) Grow Your
Wealth Quickly
and, after I complete my objective,
Anyone Can Make a Million Quickly
I have invested over the years but I’ve had
difficulty making a good return. In retrospect, I didn’t have the discipline or
a model to be ‘successful’. All this changed when I started to use a model of
price movements. It just so happens that I developed what I refer to as the
hybrid timing model which evaluates cyclic price movements in the financial
markets.
My past investment universe included stocks, options
and futures. Again, in retrospect, I could not succeed because I was not able
to get a handle on the time trends of the issues I was investing in. So about 7
years ago, I stopped my active investing strategy (except for a few buy and
hold stocks). During this time, I fiddled with mathematics to try to get a
handle on how short term moves occurred in the markets.
In early 2006 I came to the conclusion that the model
I had developed was of sufficient accuracy to be of value in the short term
investing arena. During the last 4 months I have been posting some of the real
time results from the model on this web site. I am very pleased with the
results. Recently, I started to invest (with real money) in some of the issues
I follow (in particular, the market barometers). I started with stocks (or
ETF’s) but I have now moved to options for my speculation funds.
I have set a target for myself. My objective is to
convert $5,000 into 1 million dollars in 2 years. Hence, the title of my work:
‘Grow Your Wealth Quickly’. My plan is to use options to carry this out. My
official starting point for this endeavor is Oct. 1, 2006 (revised to Nov.
1’06). I realize this is a lofty goal but I feel I am up to it. I will report
my progress on this site. It will be one heck of a show, in real time. You will
get to see with real money what can be accomplished with the model.
Based on what I have learned, I have concluded that
one needs to use options (or futures) to make money quickly (or to loose it
quickly). One problem with the simple buying of call and put options is that
this practice is a bit like buying lottery tickets. The odds are stacked against
the buyer. Investing in stocks is much safer but too slow for accumulating
wealth quickly. Thus, several conclusions I have made, regarding my speculative
funds, are:
1)
I will not invest in stocks,
2)
I will invest in options,
3)
I will focus on credit option spreads.
So what
are option spreads? Simply put, an option spread is a strategy (in its simplest
form) that involves 2 calls (or 2 puts). The investor buys 1 call and sells
short another call with a different strike price. For a credit spread, the
investor sells a more valuable option and buys a cheaper option for a net
credit to one’s account. This can be done with both calls and puts.
Let’s
consider the SPY ETF that mirrors the S&P500. I am writing this on Sunday,
July 30’06. Let’s consider the August 2006 contracts. Credit spreads can be
created with calls if you think the trend is down. Credit spreads for an up
market would be created with puts.
Consider
the following credit spread involving calls (down SPY trend):
Buy: August 129 SPY @
$1.10
Sell: August
127 SPY @ $2.35
The cash
SPY when these option prices were retrieved was $127.98.
In this
case you would be credited with $1.25 (less commissions). The maximum loss that
you can incur is $2.00. Thus, in initiating this spread, you would be required
to deposit $0.75 which would be coupled with the $1.25 credit for a total of
$2.00 (the maximum loss). The spread has an intrinsic value of $0.98. If by
expiration (in 3 weeks), the SPY has dropped to 127 (or lower), you pocket the
credit of $1.25 you received. If the SPY closes at expiration at 128, you get
to keep $0.25 of the $1.25 credit. If SPY closes at $129 (or higher), you give
back the $1.25 credit plus the $0.75 you deposited. The bottom line is that you
are risking $0.75 to have it become anywhere from zero to $2.00. If you are
good at identifying trends, you will be a winner.
Another
credit spread involving calls of SPY is:
Buy: August 130 SPY @
$0.70
Sell: August 128 SPY @
$1.65
This
spread would yield you a credit of $0.95. The intrinsic value of this spread is
zero. You would risk $1.05 to enter this spread. If the SPY remains unchanged
(or goes down) by expiration, you pocket the entire $0.95.
Why a
credit spread and not a debit spread. My simple answer at this point is because
of the eventuality that the market (SPY) reverses. Let’s assume the SPY has
just entered a down trend. You decide to sell the Aug 127 at $2.35 and buy the
Aug 129 at $1.10 for a credit of $1.25. The cash SPY is 128. Let’s further
assume you were right with the trend and 2 weeks later the SPY is at 127 (a
drop of 1). At that point in time, there may be an issue you will need to deal
with. Expiration may (for arguments sake) be 1 or 2 weeks away. You need to go
into a credit spread involving puts. So what does one do with the call spread.
With regards to the calls you can close the spread completely or you may buy
back the call you shorted (and hopefully you will be able to buy it with the
funds you received as credit). If you only buy the call you shorted, you would
be left holding the call you bought. If you are right about the reversal to the
up side, that call will increase in price. At the same time, you would
initialize a credit spread with puts.
A $1,000 investment if doubled ten times in a row would be
worth over 1 million dollars. Can it be done? Yes – maybe not 10 in a row, but…
What you need is to have a good handle on the trend. I plan to do it. This is
my Tour de France. Stay Tuned. Naturally, your comments are welcome.
To Be Continued….
MY MAILBAG
I have received some mail as
of Nov 26 which I would like to share with you.
Message #1:
Header: McGillEngStudent01
Time: November 21, 2006 12:48:41 AM
Text:
My Reply to Message #1:
How nice of
you to write. You are an engineering student at McGill – I know it is in
At this point,
I have little doubt that the model is a viable tool for trading and yes it is
100% mathematical. The biggest obstacle I am encountering is ‘myself’ and my second guessing the model. My behavior has
landed me in several situations that I did not want to be in. I am in one of
them right now – my OIH position. I need to ‘straighten myself out’. I will get
control of myself and then we will see what can really be done.
With regards
to books, I really don’t have anything to recommend. I have formulated my own
ideas and much of what I have done is based on my engineering background. With
the web, there is no lack of information. Some of the brokerage houses also
provide good background literature.
Good luck and
keep in touch.
+++++++++++++++++++++++++++++++++++
Message #2:
Header: amkor & chipmos
Time: November 24, 2006 12:03:24 PM
Text:
My Reply to Message #2:
Ay yes, AMKR –
it does bring back memories. Unfortunately, I cannot cover it. I don’t have the
resources at this time. I can tell you that AMKR does tend to move with the SMH
index (semiconductor index). The big difference is that the magnitude of the
moves for AMKR are much bigger (both going up and going down). Keep you eyes on
SMH and see if that helps you out. It is no different than looking at SPY or
DIA to assess the market direction and then investing accordingly. Good luck.
+++++++++++++++++++++++++++++++++++
Forecasting
the markets is like forecasting the weather. Our knowledge base (I am referring
to mankind) is such that the only reliable forecasts are short term. Long term
forecasts for the weather or the markets are simply beyond our reach at this
time.
Remember
last year, the forecasters got caught up with the unusual number of hurricanes
we were having. As a result their forecasts for 2006 were worrisome to say the
least. We were told there would be as many and more. They weren’t forecasting,
they were simply extrapolating. Now as we approach the 1 year anniversary of
Katrina, we haven’t had any hurricanes to speak of.
Yes
there is Ernesto on the horizon, but as I write this, he doesn’t know whether
he should be a tropical storm or a hurricane. Try forecasting what will happen
in the next 3 days. It’s not easy, even for the pros.
As I said,
long term forecasting is beyond man’s capability at this time. Long term forecasting
of the markets parallels that of forecasting the weather. It cannot be done
with any degree of accuracy. It boils down to ‘A Random Walk Down Wall Street’.
These are my personal views.
So what
about short term forecasting? Well that is a different story. We can all agree
that short term forecasting of the weather is a reality. It is within man’s
grasp. Five or even ten day forecasts are generally quite accurate.
What I do is short term forecasting of the markets (without any detail). The model tracks the cyclic, short term trends and tells us what to look for. It assigns no magnitudes (not yet anyway). Remember, money management is equally important as the forecasting component. If you are careless and lose all your worth on a wrong move, then being right 80% of the time will amount to nothing. You need to be WISE. Good luck to all.
Announcement:
The following is an introduction as to what I am planning for the
near future.
There are several reasons why I am publishing this web site. Two
of them are: 1) to discipline myself when it comes to investing, and 2) to find
a viable, winning strategy for investing in options. My unofficial name for
this work is (How To) Grow Your Wealth Quickly. I will be using this
heading more frequently in the future and it will be the title of a book I will
write on the subject.
At this point, I am working on the ‘how to’ part of the program. I
have already formulated a preliminary strategy which I am testing with my own
money. The strategy is focused on options and more specifically the combination
of buying credit spreads and the buying of straight calls and puts. I won’t say
any more at this time besides stating that 90% of a winning strategy is
centered on getting the direction of the move right. Given that the model can
do this about 80% of the time, I am finding that being successful trading
options is viable and is, indeed, quite profitable.
Soon, I will write more about my progress and my plans. Stay
tuned.
Do you want to see past issues of this page? Click the link below.
Past Postings
of This Page – Click Here
Questions, Comments, Suggestions or whatever else you may fancy
are welcome. I can be reached
at:
engprof6@hotmail.com
Please Note This Disclaimer: The above results are generated from a mathematical model. It provides some insight into what may be expected in the short term (2 to 4 week cycles). While reliability is of highest importance, life is such that the model is not always correct. Neither is past performance necessarily indicative of future performance. Stocks, markets, and options can change greatly in value in short time spans because of unpredictable events. The model cannot foresee such events. When they happen, the model’s performance will be poor and in some cases - wrong. The user is advised to be cautious and to try to couple the results for individual stocks to those for the market averages.
One
last point I wish to emphasize. The accuracy of the model is also dependent on
the entity that is analyzed. Some entities are more amenable to the type of
analysis the hybrid timing engine
performs. Others (especially those with elevated volatilities and/or irregular
trading volumes) may not match the anticipated performance. It is up to you to
satisfy yourself that the performance is adequate and to draw your own
conclusions.
[[ Find Out About the Model – click ]]
[[ See Past Postings of This Page – Click
]]
Why Are There Events That Go AGAINST the Model? – Click Here
Interpretation of Signals - Click Here.
Find Out What Timing Did For AAPL
- Click Here
You may have noted that what I originally called a mathematical model is now called a hybrid timing engine. The term hybrid comes about because of the method of conducting the analyses. It combines several techniques into one package. The term engine refers to ‘computational’ engine – a terminology that is frequently used by researchers. Thus, the model will henceforth be referred to as the ‘hybrid timing engine’ or the ‘hybrid computation engine’.