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Engineering Professor (EngProf6)

        Hybrid Timing Model for Analyzing Stocks and Indices

 

Date:  Wednesday, October 18, 2006     (after the close) 

 

Those who have been here before know that I am following 15 issues as listed below. Last Tuesday I introduced version 4.0 of the model. I started analyzing 4 issues (AAPL, AKAM, DIA and GOOG). Then, last Wednesday I added 2 more issues (SPY and QQQQ). A tabulation of the moves for 2006 is shown for each of these by following the links. You will note that this upgrading of the model to version 4.0 has led to a substantial change in the results. Take a look by clicking on the links.

 

Today (Wednesday) I introduced version 4.0 with a filter. I now strongly believe “This is it”.

 

During the last week I have 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 3 modes for a move: 1) red – down, 2) green – up, and 3) yellow – turbulence (for both up and down primary trends). Read the comments for last Friday for more explanations. 

 

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

 

 

 

 

 

Check out the links at the bottom of this page.     

    

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.

 

Some comments about technical models and how they perform as compiled by ‘tradingmarkets’. Click here.

 

 

 

                                         

 

          My Comments on the Markets

 

My Comments after Friday (October 13):

 

I have erased my previous daily comments because I believe that I am entering a new time frame. The model has now been refined to the point that I am happy – I am satisfied – I am confident. And, I’ve carried out some testing of the model with data on an hourly basis. It looks great. The testing is preliminary but the results are exciting. So with a daily and hourly model, I am rapidly approaching the point when I will ‘officially’ begin my quest to convert 5K into 1M.

 

With regards to the model, it is necessary to point out that the results given in the tables is not what occurs in real time. Think of the results in the tables as optimum. In actual fact, about ½ of the moves will disappear. This does not mean that the performance is worse. In fact, it can actually be an advantage to eliminate some of the moves. I won’t go into details at this point but eventually it should become clear.

 

Another point about the model is that it now generates 3 states. Taking back a move (i.e. confirmation) is gone. A stock can be in an up cycle (indicated as green). It can be in a down cycle (indicated as red). Or it can go into turbulence mode which is indicated as yellow. For example, let’s assume issue SPY is in a down trend. And then the model signals turbulence. This means that the issue continues in a down cycle until the turbulence dissipates. Naturally, it is also possible the turbulence may become a reversal to the up side. During stretches of turbulence, the stock will make attempts at going against the primary trend. If these attempts have roots, then a reversal will be forthcoming. If they are not, then the primary trend will persist.

 

One last point is that I will now start analyzing the issues I will be investing in on an hourly basis and will make comments based on hourly results on this web site, as appropriate. This should refine my strategy. While this analysis is still preliminary, I am confident that the hourly analysis will prove to be very useful. Stay tuned.

 

My Comments after Monday (October 16):

 

Today, the market hung in as all eyes looked at the 12K Dow. At this point, I have limited comments. We need to see more data to clarify the turbulence issue. As soon as that happens and we realign, I will start my journey and I will add the data for the other issues. While it may not be obvious to you yet, the results from the model are exciting. Stay tuned – I think you will be impressed once we close out the current moves and can start anew.

 

My Comments after Tuesday (October 17):

 

As time marches on, I get more and more impressed (and confident). You may have noted that AAPL, GOOG and AKAM are in up cycles. They remain there. Today AKAM was down. View this as an opportunity to participate in the current up cycle of AKAM.

 

The market averages are in down cycles but are now being influenced by turbulence. I continue to watch them closely. 

 

With regards to my journey, I am reducing the number of issues I will invest in. At this point, I am looking at SPY, QQQQ, DIA and SMH. My strategy will be to sell a call spread in a down trend. A credit call spread involves shorting one call and buying another call. So I will be shorting a call option which is worth more (lower strike price) than the call option which is bought.

 

When the direction reverses, I buy back the call option I shorted to cancel the position. I am then left holding the long call of the spread. This will allow me to participate in the up move. When the direction reverses back to the down, I will short a call once again to create a credit call spread again. And this process simply repeats itself. That’s why I want to focus on only a few issues (the 4 I mentioned above).

 

My Comments after Wednesday (October 18):

 

You will note that today I placed DIA, SPY and QQQQ all in up cycles with turbulence. Why am I doing this. Because these are the true trading moves. The moves you find in the tables are not trading moves. They use as much as 3 forward points to back date moves. This approach is great for tabulating moves but it is difficult to completely align with the moves because it is hard to pick the starting and end points in real time.

 

Fortunately, I have come up with a filter that reduces the number of moves you see in the tables by a sizeable amount (as much as ¾ of the moves disappear). Thus, the model determines the primary trend and then the filter maintains that direction when secondary moves (i.e. turbulence) appear. So, from this point on, we will be looking at version 4.0 with the filter.

 

For DIA, SPY and QQQQ I am leaving out the starting points of the current moves because they all go back to late August. This fact is also true for GOOG which started in an up cycle in early September. AKAM started on its current up cycle in late August. And finally we have AAPL. Its up cycle started in mid-July. Remember, these are the trading moves obtained with the filter. The moves in the tables, on the other hand, are a tabulation of all the moves without the filter in place.

 

I am excited by what I see and am ready to start my journey. The target of Nov 1 stands. So stay tuned.

 

Good luck to all.

 

 

SPECIAL SECTION (under construction)

 

 (How To) Grow $5,000 into $1 Million, Quickly

 

                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.

 

 

 

 

ETF                     Forecast

 

DIA        Direction: UP   Started on   xx    Days Remaining: xx 

              Starting Price:   xx       Current Price:     xx   

Dow Industrials Fund (DIA) is in a primary UP cycle. Note the yellow on the up direction. This means there is turbulence. The primary trend is up but there is an opposing force that is trying to pull DIA down.

CLICK HERE  --- to view the results for DIA as generated by the model (version 4.0) for 2006    

 

 

SPY       Direction: UP   Started on   xx    Days Remaining: xx 

              Starting Price:   xx       Current Price:     xx   

S&P 500 Fund (SPY) is in a primary UP cycle. Note the yellow on the up direction. This means there is turbulence. The primary trend is up but there is an opposing force.  Stay tuned.

CLICK HERE  --- to view the results for SPY as generated by the model (version 4.0) for 2006 

 

 

QQQQ  Direction: UP   Started on   xx    Days Remaining: xx 

              Starting Price:     xx     Current Price:       xx 

NASDAQ 100 Fund (QQQQ) is in a primary UP cycle. QQQQ is like DIA and SPY. All 3 are in up cycles with turbulence. Let’s watch for a clarified situation.

                             CLICK HERE  --- to view the results for QQQQ as generated by the model (version 4.0) for 2006 

 

 

OIH        Stay Tuned.

 

 

SMH      Stay Tuned.

 

 

IWM       Stay Tuned.

 

 

OEX      Stay Tuned.

 

 

EWJ      Stay Tuned.

 

 

XLF       Stay Tuned.

 

 

       

                  

 

 

Stock                  Forecast

 

AAPL    Direction: UP   Started on   xx    Days Remaining: xx 

              Starting Price:  xx        Current Price:  xx      

Apple Computer (AAPL) is in an UP cycle according to version 4.0. Take a look at the tabulation of the results for 2006. You should note that the moves shown in the table are the maximum number of moves. In real time, the number of moves will be reduced by about ½ or more and the starting and ending points will be adjusted accordingly by the filter I have developed.

CLICK HERE  --- to view the results for AAPL as generated by the model (version 4.0) for 2006    

 

AKAM   Direction: UP   Started on   xx    Days Remaining: xx 

Starting Price:  xx        Current Price:  xx      

Akamai Technologies (AKAM) is in a primary UP cycle according to version 4.0. The primary trend for AKAM is up. However, AKAM is now experiencing turbulence. Turbulence is manifested as an opposing force that acts against the primary force.

CLICK HERE  --- to view the results for AKAM as generated by the model (version 4.0) for 2006 

 

ET         Stay Tuned.

 

GOOG  Direction: UP   Started on   xx    Days Remaining:  xx 

              Starting Price:    xx        Current Price:    xx       

Google (GOOG) is in a primary UP cycle according to version 4.0. The reversal is on the horizon. However, it appears to be turbulence. In fact, today GOOG went into turbulence mode. Hence, the yellow labels. The primary trend remains in the up mode. So stay tuned to find out what will happen.

CLICK HERE  --- to view the results for GOOG as generated by the model (version 4.0) for 2006    

 

 

STX       Stay Tuned.

 

WMT     Stay Tuned.

 

 

 

 

SPECIAL SECTION (under construction)

 

 (How To) Grow Your Wealth Quickly

and, after I complete my objective,

Anyone Can Make a Million Quickly

 

Introduction

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.

 

My Target

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.

 

Methodology

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.

 

Examples of Credit Spreads

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.

 

Food For Thought

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

 

It is Oct 1’06 and I am posting one new message.

 

Message #1:

Header:  The problem with the model

Time:    September 29, 2006 6:31:55 PM

Text:

A mathematical predictor  model will fail too often when events that effect the company and then the stock are unpredictable. A mathematical way to say this might be to say that when a company’s income or loss is subject to dramatic change by unforseen events,  that the standard deviation from the mean in your model will be large. The opposite would be true when the company is less likely to be affected by those events. Therefore, your model will not work well for smaller companies, for high tech companies that may be affected by competitive changes in the market place and for other high growth situations. It should work well for large cap companies whose trend is related to years and decades of typical growth. Examples might be utility stocks, large retailers and large financials. In these cases the standard deviations would likely be small and the model will be accurate more often.  Good luck.

 

My Reply to Message #1:

I agree with the views of the writer. The model will be more accurate for larger, ‘more stable’ companies. It will also be more stable for indices. It is one of the reasons why I focus my options investments on ETF’s and indices (like SPY, QQQQ, DIA, OEX etc..). They provide smoother data. 

+++++++++++++++++++++++++++++++++++

 

 

 

Message #2:

Header:  Model performance on the DIA

Time:   August 3, 2006 11:39:10 AM

Text:

I took the dates from your 1.1a proformance listing.  Your prices do not match actual market data in many cases however, the approximate gains/losses tend to match.   It is interesting to note how late the model turns often are.   Typically much more than a day.

 

My Reply to Message #2:

The writer has a good point which I have now addressed. I have speeded up the model. The model should be faster and more accurate. There will be however, more moves. I think the model is now improved. This is especially important for the option players.

+++++++++++++++++++++++++++++++++++

 

 

 

 
FORECASTING

 

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’.