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Engineering Professor (EngProf6)

        Hybrid Timing Model for Analyzing Stocks and Indices

 

Date:  Friday, October 20, 2006     (after the close) 

 

 ‘My Journey’ has been initiated. Click on the following link to get to see my account and trades. Find out what what trades I am making.

               Click Here to Link to ‘My Journey’

 

I have now implemented version 4.0 with a filter. The tabulation of results in the tables are without the filter. The day to day comments are based on the results with the filter. Note that the number of moves in the tables (no filter) are reduced to as little as ¼ when the filter is implemented.

 

Check out my mailbag for a new posting.

 

On 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 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.

 

My Comments after Thursday (October 19):

 

So we now have Dow 12K out of the way. All six issues I am following are in primary, up trading, cycles. Given the extent of the up moves for the past 3 months or so for most of these issues, it will be interesting when these issues will flip to the down side.

 

My trading strategy is to be long with calls in up moves. When the direction switches to down, I go into a credit call spread which may simply entail, in some cases, shorting a more expensive call (i.e. a call with a lower strike price). When the model reverses, the short position is closed out. Alternatively, one can also purchase puts in down cycles. Remember, I only will focus on 4 index stocks (SPY, QQQQ, DIA and SMH and possibly IWM). In addition, I am also using the model to analyze on an hourly basis. This is useful to optimize the trading.

 

PS. As added on Friday. I will focus on all the issues and not just the 4 I referred to above. Sorry about that. You will see in the Friday comments that I will also invest in the equity issues I am following.

 

My Comments after Friday (October 20):

 

I have added to this site a copy of my brokerage statement showing how much I have in the account and my current positions. Click on ‘My Journey’ to link to the page I am using to detail my trading as I try to convert 5K to 1M by trading options.

 

You will note that today I currently hold call options on SPY and QQQQ. I plan to hold them until late Tuesday when I plan to sell them and go into credit put spreads (bullish strategy) for GOOG and STX. I will sell the calls of SPY and QQQQ because they are too expensive in terms of time premium.

 

For GOOG, I am looking at selling short the Nov 460 put and buying the Nov 450 put. At this time, I can get about $4.30 credit. The maximum loss is $10.00. The current intrinsic value of the spread is zero.

 

For STX, I am looking at selling short the Nov $22.50 put and buying the Nov $20.00 put for a credit of about 1 dollar. The maximum loss is $2.50 and the intrinsic value of this spread is about 40 cents. I realize that after the close on Tuesday, STX will announce its earnings. That is a risk – however, the model sees that the consensus is positive.

 

Overall, the markets are now in a zone of turbulence that will take us to the end of October. The overall trend remains up but the turbulence is opposing this trend.

 

One question some may ask is: Why am I pointing to Tuesday afternoon to flip my positions. The answer comes from the hourly model, which says that Tuesday afternoon is a good time to buy STX and GOOG (on the short term basis). You should note that all 4 issues are positive (in up cycles) for the longer term.

 

Naturally, all that I have stated about what I will do and when I will do it can change as trading resumes on Monday. But, one must first plan and then adjust and react to reality. That’s what I’m doing.

 

It’s been a long road. I began publishing this page in March ’06. Much has happened since then. At this time I feel I can do what I set out to do. Your comments are always welcome.

 

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.

 

 

 

 

ETF                     Forecast

 

DIA        Direction: UP   Started on   xx    Days Remaining: xx 

              Starting Price:   xx       Current Price:     119.95   

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 in the other direction. This turbulence will persist, based on current data, until about the end of Oct.

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:     136.84   

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 (like DIA).  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:       42.00 

NASDAQ 100 Fund (QQQQ) is in a primary UP cycle. QQQQ is like DIA and SPY. All 3 are in up cycles with turbulence. The turbulence component will last until the end of Oct. The up cycle will continue after that. Keep watching.

                             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      Direction: UP   Started on   xx    Days Remaining: xx 

              Starting Price:     xx     Current Price:       636.01 

The S&P 100 Index (OEX) is in a primary UP cycle. At this time OEX is experiencing turbulence. If OEX moves up a bit (several points), the turbulence will dissipate. OEX is very much aligned with QQQQ and DIA etc..  The current up move that OEX is in started in mid July (like AAPL). Naturally, this is the filtered trading move. The unfiltered moves for OEX are compiled in the table found in the following link. You will note that the model has been very accurate for OEX. The current move will most likely result in the biggest loss for OEX this year. But that is the way it is.

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

 

 

EWJ      Stay Tuned.

 

 

XLF       Stay Tuned.

 

 

       

                  

 

 

Stock                  Forecast

 

AAPL    Direction: UP   Started on   xx    Days Remaining: xx 

              Starting Price:  xx        Current Price:  79.95      

Apple Computer (AAPL) is in an UP cycle according to version 4.0. 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:  46.19      

Akamai Technologies (AKAM) is in a primary UP cycle according to version 4.0. The turbulence that AKAM was experiencing has dissipated.

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:    459.67       

Google (GOOG) is in a primary UP cycle according to version 4.0. As you know, GOOG shot up after its earnings were released. The model caught it right on.

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

 

 

STX       Direction: UP   Started on   Friday, October 13    Days Remaining:  8  (decrease of 2)

              Starting Price:    21.65        Current Price:    22.07        Profit:  0.42

Seagate Technologies (STX) is in a primary UP cycle that started on Oct 13. According to the model, STX has 8 days remaining in the primary trend. At that point, the filter comes into play and it will determine whether there is a reversal or if it is only turbulence. So, stay tuned.

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

 

 

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 20’06 and I am posting a message I received today.

 

Message #1:

Header:   Ready for Nov 1st?

Time:    October 20, 2006 9:25:33 AM  

Text:

Hi!  I'm sorry, I don't know your first name.  But I've been reading your web site since about July, after I first saw a posting you put on

the Google message about about GOOG stock.  You see, I've been trading GOOG options since about May 2006.  I am totally new to "trading" as of this year (2006) -- for the past 20 years or so, I've been a strictly buy and hold investor - mostly with my IRA and 401K funds.

 

But when my mom passed away last year, I inherited about $15K, which I thought might be a good starting point to "play" with the market and grow that into something more.  Well, to make a long story short, I have pretty much lost all of that money -- I'm down to about $3K now after getting beat up continually by GOOG.  My biggest loss was when I bought a lot of August 430 calls and lost it all when the stock dropped after a blowout July earnings report.  Go figure.

 

So this month (Oct) I thought I would be smart and buy puts instead, since things were looking iffy for Google this quarter.  And what do you know, GOOG stock is up $30 after earnings last night.  I don't get it.  So there goes another $7K down the tube.

 

So, I'm tired of losing and want to win now.  In following your site, I see that your model is getting pretty accurate.  I would like to join

you on your journey starting Nov 1st (I don't have much more to lose ;-).  If it works, I would be glad to give testimony for your upcoming book or whatever you need.  How will you be posting your trades – in real time?  Updates to an email list?  Whatever it is... I'd like to follow your trades and watch it work -- I think it will.  But I'd have to know pretty close to real time what your trades are.

 

My Reply to Message #1:

Many thanks for your message. I am sorry to hear about your losses. Options are very risky. I stay away from stock options. I think there is less risk in the index options and there is good fluidity. I also like spreads. I plan to do a bit of everything. I am about to start ‘officially’. I want to start when the current up move becomes a down move. You can see what I will be doing on this site. You will get the idea. Remember start small – don’t get excited. There will be plenty of opportunities. Mistakes are made when we rush into moves because we think we will miss the boat. Miss one boat – take the next. So relax, pay attention, don’t get excited, be humble and spread the risk. Don’t overextend yourself. Assume that the move you are going to make will turn out to be a disaster. What will you do if that is what happens? Always keep some cash to keep the game going. Good luck.   

 

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

 

 

 

 
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’.