My System

Today, I reveal my system in chart form, something I was not planning on ever doing and something I probably won't do again or at least for a long time. This is not a magnified look at my system which I use to update on this blog. However, this is the entire history of my system beginning in December 2003 through the present day. There are no dates listed but you will be able to gauge about where things are since you know the start date and can look at a stock chart. The line to pay attention to is the pink line (I am not going to go through what each line means). There is still some important information to garner from this chart. First and foremost, the market is without a shadow of a doubt a cyclical beast and anyone who says differently is someone you want to run away from, quickly. You will notice how important the -1000 and +1000 lines are and that they were definitive turning points on the upside and downside in the last bull market. You will also notice that except for the last two months, there was a period in the last quarter of the chart where my system was not only unable to get to the +1000 level but the lower limit shifted to below -1500. This, of course, was the bear market. What else does this chart tell us? Well, we know that when we are above +1000 there will be a day when we are going to be below -1000 again and vice-versa. We know that the recent data (we are now at +1400) is as high as it's ever been including a brief stint near this level in 2004. The one thing I don't have (yet) on this chart is how my system behaves coming out of a bear market which is why it is difficult to know if the first trip above +1000 in a new cyclical bull market will behave somewhat differently in that it will be able to correct without giving up too much in price at least for another 1 to 2 quarters. But yes, it is always best to buy when below -1000 in a bull market and now we know in a bear market that threshhold gets lowered to -1500. I hope this chart is more informative than confusing.

As for Friday's market, we moved up to +1400 which is where we were at around mid-April and the buy signal is on without a confirmation needed. Keep in mind that -1850 and +1850 are the absolute limits of my system so even if the market rallied this week possibly due to some options expiration activity, I would expect that pricewise we would come back to where we currently are at the very least. The Dollar Index had a very important day on Friday. The late November bottom in stocks saw an important peak for the Dollar while the March stock bottom saw the Dollar hit its highest point in early March since the start of its cyclical bull in March 2008. Obviously, when the Dollar heads lower, stocks tend to head higher. The Euro broke through its 200 day SMA on Friday in explosive fashion while the Dollar Index plunged through its 200 day SMA which is not really a coincidence since the Euro is around 57% of the basket. The $HGX, as expected, continues to struggle with this 95-100 level but should eventually break through and the 80-85 level continues to be the prime spot to buy. My next post will be on Tuesday. Have a great rest of the weekend!