Monday, 17 March 2008

Setup Housekeeping

I've just updated my Latest Signal table to remove a couple of trading setups I no longer think are useful - those for OIH (Oil Services Holders) and XEG (Canadian Energy iShares). The problem with those two was the data started only in 2001, which I don't believe gives us enough varied market conditions for reliable testing. A second consideration is that those two setups were based on the Commitments of Traders data for crude oil, but OIH and XEG often don't move the same as crude (much less so than gold stocks vs. gold for example).

I've also temporarily taken my COTs Composite Agriculture Index offline. This one was based on the data from four of my agriculture-related setups (wheat, soybeans, corn and sugar). It gave me signals for the DBA PowerShares Agriculture Fund. The problem with the DBA setup was it used a 104-week moving average, which my research suggests may be too long for good statistical robustness in this dataset. The reason for you stats junkies: Robert Pardo's book on trading system development says your trading rules and moving average period together shouldn't use up more than 10 percent of your available degrees of freedom (including the "overhead" number of weeks before you get your first signal). In this dataset, we have about 510 weeks of data from the Goldman Sachs Agriculture Subindex (which I used to calculate the setup results). That means the trading rules plus moving average period shouldn't total more than 46. I'll update the index after I've revised those four agriculture setups in the coming weeks. Good luck this week!

6 comments:

Anonymous said...

Given the sell dates you have for gold and oil, I though I'd mention that Martin Armstrong has a cycle turn date for the 2008.225 (23rd Mar08). The logic appears to be that the strongest markets going into the turn date take a hit, so gold and oil would be the 2 top contenders. His last turn date in Feb07 nailed the top in the credit markets. From the analysis I read it would be safe to go back in once gold hits various oversold readings which might occur after 8 trading days or longer. I don't know what to make of it but interesting none the less.

Regards
Silverharp

Alex Roslin said...

Hi Silverharp,

My gut feeling is that's true - commodities being a sort of safe-haven bet so far, with banks perhaps being the beneficiaries when the market bottom is set.

Regards,
Alex

Paris said...

Alex hallo,
I would like to comment the set up for Nikkei, which so far has not worked very well. Since Japan is a major export country with low inflation, the USD/JPY rate plays a big role. I would say it is a dominant factor. I am also bullish for the Nikkei, but many japanese companies like Canon for example base their estimates for year 2008 on USD/JPY not less then 106. The current rate of 98 clearly takes out prospective profits of the japanese exporters coupled with the US economic slowdown - possibly recession. I would suggest to input in your model the exchange rate factor USD/JPY and give weight to it. But with USD bearish can the Nikkei really find support ???
For US Banks being bullish, it sounds like a miracle to believe as in April 2008 we will see a bear market for S&P500 and the DowJones. Can really banks manage to escape the slide ?? remains to be seen...
Thank you
Paris

Anonymous said...

I agree with you and my gut tells me this isn’t the big one yet and that the Dow etc will recover given how much the Dow has fallen already and will be looking cheap to non dollar holders especially. I reckon the junior gold stocks have to be the place to be for the non trading part of my portfolio and the next couple of weeks are going to provide a great opportunity to load up. It is a fascinating time right now, the two commentators I pay attention to most to set the stage are Bob Hoye and Jim Puplava, for the very reason that they don’t always agree. Bob is calling for a major credit contraction and his strategy is to short commodities and senior gold stocks in particular and accumulate gold juniors even though they may fall short term. JP has his “Oreo theory” where Q1 will be rough Q2 & Q3 will be smooth and Q4 will get rough again, his advise has been to buy juniors as well as many are gong for 25$ to 45$ per oz in the ground. Silver looks like it is breaking down as the ratio went above 50 yesterday. I think a good approach is to short the gold stock using HGD.TO or equivalent as this should offer the most leverage on the downside even more so then oil stocks. I’m guessing you should get a sell signal on your gold stocks this week!

Regards
Silverharp

Alex Roslin said...

Hi Paris,

You raise a good issue regarding the Nikkei, which is the USD/JPY rate. Updating my yen setup is on my to-do list. Please also note that that setup has a past win/loss score of 48-to-27, so the current trade could certainly fall into the losing column.

Regarding U.S. banks, this setup has an average holding period of three weeks. (See the number of trades on the Latest Signals page table.) So it's certainly not a call as to whether the banks will be in a bear or bull in 2008. It's much shorter-range than that.

Best regards,
Alex

Alex Roslin said...

Hi Silverharp,

Thanks for your thoughts. Stephen Vita, who I like to read, talks a lot these days about how the action is similar to 2000-02, when sharp counter-moves trapped a lot of people leaning too hard the wrong way.

Gold had some similar vicious moves in 2006. A lot of these bullion latecomers are unfortunately going to learn about it the hard way. This morning's action is for example more bad technical news for bullion: banks and other equities going ballistic while gold and silver are fairly docile.

Regards,
Alex