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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


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


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)…


… it does not matter how frequently something succeeds …

…if failure is too costly to bear…

Optimizing…..over confidence….believing Wall Street

BERNIE MADOFF!!!


…in the land of…..

“TRILLION DOLLAR BAND AIDS”

AND

“SITUATIONAL ACCOUNTING RULES”


PLANNING FOR

(AND DEALING WITH)

FAILURE***

***FAILURE = BAD DECISION OR LOSING MONEY


NO

INDICATOR OR SYSTEM

GIVES

CONSTANT ADVICE


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

because that's the number you need"


“I don’t care about the economy,

I just need to make some money”


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


  • 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”


  • 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)


  • 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)


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”


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”


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.


Why we do what we do

How we do what we do


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?


DECISION MODELS “edge” ?

Market Risk Model

Asset Commitment Model

Fund Selection & Management Model

..And how they are linkedto each other..


SOME EXAMPLES OF AND “EDGE” “edge” ?

***DEFINITION OF “EDGE”

A positive expectancy for a profitable outcome


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.


DETERMINING THE MARKET ENVIRONMENT edge….

LONG TERM:

Relative Strength

Price

New Highs / New Lows

Advancing / Declining


IMPORTANCE OF edge….

LEVEL AND DIRECTION

FOR

PRICE OSCILLATOR


USE WEEKLY DATA edge….

ASSUMES PERFECT TRADES

BIG PICTURE MARKET FORCES

MOST PRODUCTIVE: LONG OR SHORT

WHERE WE ARE TODAY


WEEKLY PRICE OSCILLATOR edge….

LEVEL AND DIRECTION IMPORTANT

12/26 MACD

  • Mid point level 67% of time

  • Data since 1930




12 / 26 MACD edge….

((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%


12 / 26 MACD edge….

((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%


12 / 26 MACD edge….

((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%


PRICE OSCILLATOR DATA POINTS edge….

(level only)

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

>0 Level WeeklyMonthly Yearly

+0.21% +0.86% +10.32%

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

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

WeeklyMonthly Yearly

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

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

Any conclusions???


Level and direction edge….

3-4 up/down moves per year

>0 Level, down direction = correction

<0 Level, down direction = “cat food”





LEVEL AND DIRECTION edge….

USING

DAILY DATA



DOMINANT MARKET THEORY edge….

An edge

Relative measure

Jim Stack

OTC / NYSE

NDX / SPY

Russell growth / Russell value

Smoothing……macd & stochastic rsi



BEAR MARKET RELATIVE STRENGTH edge….

5000

TO

1300



RETURNS FOR DOMINANT MARKET edge….

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




DETERMINING THE MARKET ENVIRONMENT edge….

SHORT TERM:

Price

Highs / Lows

Advancing / Declining


ALL BUY SIGNALS ARE NOT CREATED EQUAL edge….

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


ASSET COMMITMENT edge….

PROCESS



UNDERSTANDING edge….

“UP FROM DOWN”



SIMPLE DECISIONS edge….

THE DECISION ZONE

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


Trend edge….measure for all mutual funds / ETF’s

65

50


Sell Zone <50 edge….

No Sell Zone >65

Fund

Decline

Fund

Rise

Trend Measure for All Mutual Funds

Our trend measures keep us with the trend


THOUGHTS AND POSITIONS FOR THE MARKETS edge….

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



IN CLOSING like the last 10

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


At age 66, I’m like the last 10

developing a 3rd

and last career path


OUTDOOR SWING SET $49.95 like the last 10


ATHENS CAPITAL MANAGMENT like the last 10

1-877-460-7941

[email protected]

(returns data up front)


Questions? like the last 10


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