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Engineering Professor (EngProf6)

        Hybrid Timing Model for Analyzing Stocks and Indices

 

Date:  Friday, October 27, 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 and where the $5K is at.

               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 – raw data) are reduced to as little as ¼ when the filter is implemented.

 

 

Check out my mailbag for a new posting.

 

On Wednesday (Oct 18) I introduced version 4.0 with a filter. I now strongly believe “This is it”.

 

During the last couple of weeks 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 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

 

 

 

 

 

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 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.

 

My Comments after Monday (October 23):

 

In my last publication I introduced my trading account and my positions in the My Journey link. Today’s up action in SPY and QQQQ made my positions increase by about 25%. I closed those positions today rather than wait until tomorrow. I then got a credit put spread (bullish) on STX. You can see what I did on my brokerage statement. Check it out.

 

The issues I am currently analyzing on this page (there are 8 of them) are all in up cycles. At this point, things are looking good. However, many of these moves started as far back as July. So, sooner or later, we will start seeing the reversal on the horizon. For now, it is still far off. Stay tuned.

 

My Comments after Tuesday (October 24):

 

Today I took up a bearish position in OIH. I acquired a credit call spread (bearish strategy). Details are in ‘My Journey’. So I now have a put spread on STX and a call spread on OIH. The markets are in a turbulence regime. They all point up but there is the turbulence which is moderating the drive upward. I am awaiting when we will point down so that we can start with a fresh direction. Tomorrow I may acquire some calls in QQQQ. I sold some a couple of days ago and they are now cheaper.

 

My Comments after Wednesday (October 25):

 

In the ‘My Journey’ section you can see what trades I made, what I now hold and how much my 5K is now worth. So far it has been exciting. But, I must confess that oil has thrown me for a loop. I didn’t do my homework one day and ended up with a loser – a bearish position in OIH. I still hold that position – it’s only 1 and a half days old and today I added to it. So now the bulk of my holdings are bearish positions on OIH. I am still confident – especially if OIH is down tomorrow - about this strategy.

 

On another front, I have received a number of interesting letters which I hope to publish this weekend.

 

My Comments after Thursday (October 26):

 

I have made an adjustment to the commentary for each issue. You will note that you now have the number of days remaining whether it is for the primary trend or if it is for turbulence. This will help you (and me) see more clearly where each issue is going. You should note that several issues (like AAPL and GOOG) will move into turbulence on Friday for a number of days. Several other issues like QQQQ and OEX should do so on Monday. On the trading front, I did nothing today.

 

My Comments after Friday (October 27):

 

Friday is what I will call an example of turbulence in an up trend. It is what makes you put on your seat belt. It makes you wonder if you haven’t made a mistake. It makes you question your judgment (and my model). It cleanses the system. I went into Friday being short oil services (OIH), and I ended the day on a losing note because I jumped the gun on the model by about an hour. Incidentally, I also jumped the gun getting into the OIH position. Read My Journey for more.

 

The major market averages all remain in primary up cycles. However, they are all now experiencing turbulence, which should dissipate in about a week. What happens during turbulence is that the primary direction remains intact but the net change for such a period will tend to be less than when it is a clear trend. So turbulence is an opposing force which is smaller (i.e. weaker) than the primary trend. Nonetheless, it consumes some of the primary trend.

 

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        Primary Direction: UP   Started on   xx    Days Remaining: xx 

              Starting Price:   xx       Current Price:     120.84   

              Turbulence          Days Remaining: 5

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, for about 5 more days as noted above.

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

 

 

SPY       Primary Direction: UP   Started on   xx    Days Remaining: xx 

              Starting Price:   xx       Current Price:     137.94

              Turbulence          Days Remaining: 7

S&P 500 Fund (SPY) is in a primary UP cycle. Note the yellow and the turbulence label. The primary trend is up but there is an opposing force that is the result of turbulence.  At this time we have 7 days of turbulence. During this time the up trend will be challenged by the opposing turbulence force. Note that the length of turbulence was halved today for both SPY and DIA. Stay tuned.

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

[New]

 

 

QQQQ  Primary Direction: UP   Started on   xx    Days Remaining: xx 

              Starting Price:     xx     Current Price:       42.21 

              Turbulence          Days Remaining: 3

NASDAQ 100 Fund (QQQQ) is in a primary UP cycle. The current up cycle was re-evaluated today and turbulence was found. The turbulence has 3 days of duration and then a clear up trend should resume. Let’s see what will happen.

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

[New]

 

 

OIH        Primary Direction: DOWN   Started on   xx    Days Remaining: 11 

              Starting Price:     xx     Current Price:       134.77 

              Clear Down Trend

Oil Services Holders (OIH) is in a primary DOWN cycle. Because of today’s large drop, OIH is now out of turbulence and into a clear down trend. Even though OIH is in a down cycle, the hourly model has OIH in a short term up cycle for the next 16 hours of trading. Stay tuned.

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

                                    [New]

 

 

SMH      Stay Tuned.

 

 

IWM       Stay Tuned.

 

 

OEX      Primary Direction: UP   Started on   xx    Days Remaining: xx 

              Starting Price:     xx     Current Price:       640.57                

Turbulence          Days Remaining: 9

The S&P 100 Index (OEX) is in a primary UP cycle. On Friday, the up trend was re-evaluated and turbulence was found. This is seen to persist for 9 days at this time. Each day this is reassessed.

The overall current up move that OEX is in started in mid July (like AAPL). Naturally, this is the filtered trading move. The unfiltered moves (or raw data) 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 past move was the biggest loss for OEX this year. This is for the unfiltered raw data as shown in the table. With the filter, this has been a good move that stretches back to July.

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

                  [New]

 

 

EWJ      Stay Tuned.

 

 

XLF       Stay Tuned.

 

 

       

                  

 

 

Stock                  Forecast

 

AAPL    Primary Direction: UP   Started on   xx    Days Remaining: xx 

              Starting Price:  xx        Current Price:  80.41

Turbulence          Days Remaining: 13

Apple Computer (AAPL) is in an UP cycle according to version 4.0. AAPL is now faced with turbulence for the next 13 days. You should note that AAPL resembles GOOG.

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

 

AKAM   Primary Direction: UP   Started on   xx    Days Remaining: 11

Starting Price:  xx        Current Price:  46.45  

Clear Up Trend         

Akamai Technologies (AKAM) is in a primary UP cycle according to version 4.0. AKAM has 11 more days in its current up cycle.  Don’t let Friday’s drop rattle your nerves. Keep watching.

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

 

ET         Stay Tuned.

 

GOOG  Primary Direction: UP   Started on   xx    Days Remaining:  xx 

              Starting Price:    xx        Current Price:    475.20       

Turbulence          Days Remaining: 14

Google (GOOG) is in a primary UP cycle according to version 4.0. GOOG is now faced with turbulence in an up trend for the next 14 days. Naturally, this length can change on a day by day basis. GOOG now resembles AAPL. A number of issues went into turbulence mode on Friday. This means that the up trend will be moderated for the next little while because of the opposing influence of the turbulence. Stay tuned.

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

 

 

STX       Primary Direction: UP   Started on   Friday, October 13    Days Remaining:  1 

              Starting Price:    21.65        Current Price:    22.17        Profit:  0.52

              Clear Up Trend

Seagate Technologies (STX) is in a primary UP cycle that started on Oct 13. According to the model, STX still has only 1 day remaining in the primary trend. At the close on Monday, the filter comes into play and it will determine whether there is a reversal or if it is only turbulence. From this vantage point, it will be a reversal to a down cycle. So, at the close on Monday, STX will go into a down cycle for the next few weeks. Keep watching.

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

 

I have received some mail as of Oct 24 which I will post on the weekend. Meanwhile, it was Oct 20’06 and I posted a message at that time.

 

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’.