Mike
03-22-2013, 09:31 AM
Yesterday's distribution on the NASDAQ fired an S13 Distribution Cluster sell rule. The S13 occurs when there are 4 distribution events over an 8-day period. This rule like most rules have been back tested on the NASDAQ back to 1973. An optimization study was performed that chose these specific 4 out of 8 parameters. The S13 turned the Power Trend off in addition. The combined effects is that we are now at an exposure count of +4 and portfolios on margin or "all in" are expected to raise some cash. IBD has tested a reverse pyramid scheme for coming out of the market. In the original model the following schedule was used for entering and exiting the market:
Exposure Count (Exposure)
1 (30%)
2 (55%)
3 (75%)
4 (90%)
5 (100%)
A reverse pyramid exit scheme would turn the exposure upside down, so a reduction of exposure count of 5 to 4 like the current situation would drop the recommended exposure from 100% to 70% (not 90%). Coincidentally I am currently 70% long. I will be attending the next Market School being held in San Francisco next month and will see if they have formally adopted the reverse pyramid exit scheme. Their concern expressed to me wasn't that this isn't a better strategy but it may be too complex to teach. The confusion coming from what do you do with counts that fluctuate up and down and back up.
The newsletter writers are all commenting on how cheap gold miners are right now. One ounce of gold will buy approximately 5 shares of the gold bug HUI index. This is as cheap as it has ever gotten. I am not good at picking bottoms but the GDX model should eventually land a good starter position with some legs. The flip side of the coin is that when stocks are cheap they are usually cheap for a reason.
17743
Exposure Count (Exposure)
1 (30%)
2 (55%)
3 (75%)
4 (90%)
5 (100%)
A reverse pyramid exit scheme would turn the exposure upside down, so a reduction of exposure count of 5 to 4 like the current situation would drop the recommended exposure from 100% to 70% (not 90%). Coincidentally I am currently 70% long. I will be attending the next Market School being held in San Francisco next month and will see if they have formally adopted the reverse pyramid exit scheme. Their concern expressed to me wasn't that this isn't a better strategy but it may be too complex to teach. The confusion coming from what do you do with counts that fluctuate up and down and back up.
The newsletter writers are all commenting on how cheap gold miners are right now. One ounce of gold will buy approximately 5 shares of the gold bug HUI index. This is as cheap as it has ever gotten. I am not good at picking bottoms but the GDX model should eventually land a good starter position with some legs. The flip side of the coin is that when stocks are cheap they are usually cheap for a reason.
17743