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HOUSTON April, 2009. WALL STREET AND MY STREET. The following is just my perspective. I was a lookout at Pearl Harbor. May not be dependable. Am certainly not responsible ***Redneck disclaimer.

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HOUSTON April, 2009

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Houston april 2009

HOUSTON

April, 2009


Houston april 2009

WALL STREET

AND

MY STREET


Houston april 2009

The following is just my perspective.

I was a lookout at Pearl Harbor.

May not be dependable.

Am certainly not responsible

***Redneck disclaimer


Houston april 2009

This has myreality written all through the process. It is not necessarily “right” but appropriate for ME.

…it fits my age (old), tolerances (not very) and blood pressure (very high)…


Houston april 2009

… it does not matter how frequently something succeeds …

…if failure is too costly to bear…

Optimizing…..over confidence….believing Wall Street

BERNIE MADOFF!!!


Houston april 2009

…in the land of…..

“TRILLION DOLLAR BAND AIDS”

AND

“SITUATIONAL ACCOUNTING RULES”


Houston april 2009

PLANNING FOR

(AND DEALING WITH)

FAILURE***

***FAILURE = BAD DECISION OR LOSING MONEY


Houston april 2009

NO

INDICATOR OR SYSTEM

GIVES

CONSTANT ADVICE


Houston april 2009

"You can't simply plan to get a 10% return

because that's the number you need"


Houston april 2009

“I don’t care about the economy,

I just need to make some money”


Houston april 2009

Winning by NOT LOSING

20%, 20%, 20%, 5% beats 30%, 30%, 30%, -20%.

15%, 15%, 15%, 5% beats 25%, 25%, 25%, -20%.

20%, 10%, 5%, 5% beats 30%, 20%, 15%, -20%.

5%, 5%, 5%, 5% ties 15%, 15%, 15%, -20%.

It doesn’t matter what year the -20% occurs in examples above


Houston april 2009

  • WALL STREET

  • YOU MUST STAY FULLY INVESTED AT ALL TIMES

  • IF YOU MISS THE BEST 10 DAYS OVER THE PAST 5 YEARS YOUR RETURN IS _____

  • MY STREET

  • IF YOU STAY FULLY INVESTED YOU PAY THE MANAGEMENT FEES REGARDLESS OF PERFORMANCE (FUNDS)

  • IN ANY TEST YOU RUN, IF YOU “MISS THE 10 WORST DAYS” IS ALWAYS SUPERIOR TO THE “MISS BEST 10 DAYS”


Houston april 2009

  • WALL STREET

  • ASSET ALLOCATION REDUCES THE VOLATILITY OF YOU PORTFOLIO

  • YOU CAN’T TIME THE MARKET

  • MY STREET

  • ALLOCATION REDUCES RETURNS & MAY HELP VOLATILITY

  • HAD POSITIVE RETURNS IN 2000,2001 AND 2002

  • ASSET CONCENTRATION (INCREASES RETURN AND VOLATILITY)


Houston april 2009

  • WALL STREET

  • THE MARKETS ARE EFFICIENT

  • THE MARKETS ARE RATIONAL

  • MY STREET

  • WHO BEST TO EXPLOIT INEFFICENCIES THAN INDIVIDUALS

  • IF THE MARKETS ARE RATIONAL (THEN MAYBE WE INDIVIDUALS ARE NOT)


Houston april 2009

Range Of Investor Emotions

Optimism“Investing isn’t so difficult”

Excitement“I’ll be able to retire early!”

Thrill “I am a brilliant investor” (Maybe I should write a book)

EuphoriaThe point of maximum risk

Complacency“It’s just a normal correction, a great time to buy”

Anxiety“If I double down it won’t take long to recover”

Denial“Its only paper losses. I’m in it for the long-term”


Houston april 2009

Range Of Investor Emotions

Desperation“What’s going on? When will it stop going down?”

Panic“I’ve lost most of my money. I may never be able to retire”

Capitulation“I’m selling everything and I’ll never own stocks again”

Depression“I wonder how cat food tastes?”

Defiance“Stocks may be going up but I’m not taking the risk”


Houston april 2009

HOW FREQUENTLY DO YOU TRADE?

HOW MUCH MONEY DO YOU TRADE?

WHAT ARE YOUR PERSONAL TOLERANCES?

There are no RIGHT or WRONG answers….but we all must know our personal answer to the three questions above.


Houston april 2009

Why we do what we do

How we do what we do


Houston april 2009

Do you have measures to determine if you have an investment “edge” ?

Do you have a process to identify and purchase leading stocks/funds/ETFs/futures?

Do you have a process to “trade up” positions you own?

Do you have “disciplines” that preserve capital?


Houston april 2009

DECISION MODELS

Market Risk Model

Asset Commitment Model

Fund Selection & Management Model

..And how they are linkedto each other..


Houston april 2009

SOME EXAMPLES OF AND “EDGE”

***DEFINITION OF “EDGE”

A positive expectancy for a profitable outcome


Houston april 2009

To trade profitable in the long run, you must know your edge….

If you have no edge, you should not trade for profit…

Establishing and recognizing your edge is a prerequisite to predicting whether trading will be profitable.


Houston april 2009

DETERMINING THE MARKET ENVIRONMENT

LONG TERM:

Relative Strength

Price

New Highs / New Lows

Advancing / Declining


Houston april 2009

IMPORTANCE OF

LEVEL AND DIRECTION

FOR

PRICE OSCILLATOR


Houston april 2009

USE WEEKLY DATA

ASSUMES PERFECT TRADES

BIG PICTURE MARKET FORCES

MOST PRODUCTIVE: LONG OR SHORT

WHERE WE ARE TODAY


Houston april 2009

WEEKLY PRICE OSCILLATOR

LEVEL AND DIRECTION IMPORTANT

12/26 MACD

  • Mid point level 67% of time

  • Data since 1930


Houston april 2009

BIG PICTURE …. LEVEL AND DIRECTION


Houston april 2009

WHICH AREA IS MOST PRODUCTIVE FOR LONGS AND SHORTS?


Houston april 2009

12 / 26 MACD

((Mov(C,12,E)-Mov(C,26,E))/Mov(C,26,E))*100

From 1930 to Current

Above 0 levelBelow 0 level

Going UP 8.40% -0.90%

Going DOWN 1.70% -7.70%


Houston april 2009

12 / 26 MACD

((Mov(C,12,E)-Mov(C,26,E))/Mov(C,26,E))*100

From 1990 to Current

Above 0 levelBelow 0 level

Going UP 7.16% -0.08%

Going DOWN 0.40% -6.81%


Houston april 2009

12 / 26 MACD

((Mov(C,12,E)-Mov(C,26,E))/Mov(C,26,E))*100

From 2000 to Current

Above 0 levelBelow 0 level

Going UP +6.3% +3.0%

Going DOWN -1.1% -9.7%


Houston april 2009

PRICE OSCILLATOR DATA POINTS

(level only)

S&P 500 Data: (1930) 62% time >0 level

>0 LevelWeeklyMonthlyYearly

+0.21%+0.86%+10.32%

<0 Level+0.05%+0.23%+2.76%

OTC Data: (1980) 62% time >0 level

WeeklyMonthlyYearly

>0 Level+0.50%+2.11%+25.36%

<0 Level -0.11%-0.48%-5.74%

Any conclusions???


Houston april 2009

Level and direction

3-4 up/down moves per year

>0 Level, down direction = correction

<0 Level, down direction = “cat food”


Houston april 2009

COMPARING “THEN” AND “NOW”


Houston april 2009

OTC WEEKLY PRICE OSCILLATOR (19 / 39 MACD)


Houston april 2009

OTC data (Bear Market 2000, 2001, 2002) 5000 to 1300


Houston april 2009

LEVEL AND DIRECTION

USING

DAILY DATA


Houston april 2009

Price oscillator using daily data


Houston april 2009

DOMINANT MARKET THEORY

An edge

Relative measure

Jim Stack

OTC / NYSE

NDX / SPY

Russell growth / Russell value

Smoothing……macd & stochastic rsi


Houston april 2009

OTC / NYSE RELATIVE STRENGTH 11/2007


Houston april 2009

BEAR MARKET RELATIVE STRENGTH

5000

TO

1300


Houston april 2009

“THEN AND NOW”


Houston april 2009

RETURNS FOR DOMINANT MARKET

Daily 1990 SPX & Nasdaq

Relative         Ave. Ret        Ave. Ret

Strength        Nasdaq          SPX       

SmlCap        3.44%            1.83%

LrgCap        -0.36%           0.15%

% SmlCap Dominant    57.1%

% LrgCap Dominant     42.9%

For period of dominance

Data points from 1980


Houston april 2009

YEARLY NEW HIGHS & NEW LOWS (smoothed)


Houston april 2009

COMPARING “THEN” AND “NOW”


Houston april 2009

DETERMINING THE MARKET ENVIRONMENT

SHORT TERM:

Price

Highs / Lows

Advancing / Declining


Houston april 2009

ALL BUY SIGNALS ARE NOT CREATED EQUAL

VARIED EXPOSURE TO THE MARKETS IS APPROPRIATE WHEN CONSIDERING THE MARKET ENVIRONMENT


Houston april 2009

ASSET COMMITMENT

PROCESS


Houston april 2009

SELECTION PROCESS


Houston april 2009

UNDERSTANDING

“UP FROM DOWN”


Houston april 2009

5 YEAR OLD NEPHEW


Houston april 2009

SIMPLE DECISIONS

THE DECISION ZONE

Stoch(28,13)/2+RSI(14)/2


Houston april 2009

Trend measure for all mutual funds / ETF’s

65

50


Houston april 2009

Sell Zone <50

No Sell Zone >65

Fund

Decline

Fund

Rise

Trend Measure for All Mutual Funds

Our trend measures keep us with the trend


Houston april 2009

THOUGHTS AND POSITIONS FOR THE MARKETS

AT THIS TIME:

Long term: level (low) and direction (up)

Intermediate term: measures positive (but weakening)

Timing signals: 2 of 3 models are positive (long term is negative)

BE CAREFUL: A “trading” opportunity is upon us soon… ….MAYBE….SBIG


Houston april 2009

you should expect that the next 10 years won't be anything like the last 10


Houston april 2009

IN CLOSING

EVERY DAY I want to know:

What is the “dominant market”

What is the long term level and direction of weekly measures

What is the consensus of 3 timing systems

What is the intermediate term market environment


Houston april 2009

At age 66, I’m

developing a 3rd

and last career path


Houston april 2009

OUTDOOR SWING SET $49.95


Houston april 2009

ATHENS CAPITAL MANAGMENT

1-877-460-7941

[email protected]

(returns data up front)


Houston april 2009

Questions?


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