Lazy Trader Market Playbook

I had thought the easiest trading strategy was the seasonal market timing approach of Sy Harding: buy in Nov when the MACD crosses, and sell in May when it uncrosses. Two decisions a year that deliver very high returns over the past 30 years. Now here comes another, which would be pretty funny if it didn't seem to work so well in the final throes of this Hope Rally. It may keep on working until it gets so well known it doesn't anymore, so be forewarned .. or maybe it works because it is so well known, and the powers that be are not arbitraging it away. From The Pragmatic Capitalist: 

The playbook for this market is simple:

1) Buy any dip greater than 0.25%

2) Go all-in on Friday afternoons in anticipation of the Monday rally

Comments

[David]

is the market trying to fool us into thinking that it is going higher? perhaps so... i have posted an update for those interested

http://www.tradeyourwayout.com/2010/04/spx-elliott-wave-hanging-in-there.html

[Hockthefarm]

Glen Neely feels the markets are in a period of uncertainty and that wave theory should not be used as a primary tool for trading. This period could last another 4 to 6 years.

http://www.safehaven.com/article-16362.htm

Hock

[David]

very interesting hock, what do others make of it?

[KRG]

"the current structure he (Neely) has on spx makes a whole lot of sense and with maybe one final revision he will get it spot on" - Vipul

Would like to know the revision that you have in mind..

Cheers

[Gooner70]

How did Elliott Wave perform on Equities during the 1075 -81 period, when
markets were in a series of alternating multimonth bull & bear markets, but essentially
in a large sideways range? That is perhaps the sort of market Neely is predicting.

[Chabazite]

Here is an anecdotal sign of the times. Over the summer, a significant proportion of the UK population normally migrates for a couple weeks every year to the Med or more exotic sunny locations. However, more and more BRITISH people are taking their holidays in the UK. http://news.bbc.co.uk/1/hi/uk/8610778.stm Now, the climate in the UK during the summer is always unpredictable, and quite often wet and quite cold. The past three summers have been absolutely diabolical with leaden grey skies being the norm. Something to do with the Jet Stream being too far south. Take it from me - with kids in tow it can be an absolute misery. And visiting a place like Skegness seems like the last act of desperation. So, why on earth would anyone want to hoiday here? I had to smile when the commentator said 'now that the ecomomy is improving, we hope that british 'stacationers' won't once again head overseas'. But seaside businesses are 'confident' that this year will see a continuation of the pattern. I bet they are. Maybe the economy isn't doing that great and people will continue to hunker down. Myself - I was in Antigua in January, will be in Potugal in May and Barbados in November! Its a tough life.

[DG]

Glen Neely feels the markets are in a period of uncertainty and that wave theory should not be used as a primary tool for trading. This period could last another 4 to 6 years.

Wave theory can sometimes directly inform trading, when markets are in a "predictable" period and at other times it can indirectly inform trading, i.e. when you are in a period that wave theory says is "unpredictable" you need to rely on something else.

What I don't think Neely's realized is that the "something else" is already implicit in the logic of his brand of wave theory and simply requires the application of that logic to the price behavior of "unpredictable" markets.

This requires that you "shift gears" as a trading and use one trading method when markets are "predictable" and use another when they are "unpredictable".

One of the methods available for use during the "unpredictable" phase, by the way, is simply "buy and hold" in the direction of the current trend. Neely was among those who caught the bottom in March 2009 (it's a matter of public record, so I'm not going to debate it) and if he'd simply held that long trade to now, his subscribers would have gotten more than their money's worth by him simply saying to hold on to their longs until further notice. He could have raised stops very slowly along the way.

A more active trading method would require a lot more effort during an "unpredictable" phase, since one of the keys to success is to shorten the time duration of your trades via aggressive stop movement, as well as more frequent entries. For many traders who aren't watching the market tick-by-tick, that may be impractical, making the "buy and hold" much more realistic.

[vipul garg]

KRG,
spx doesnot have headroom now at 1200.for me , logically it means , that a large decline is looming a few mnths down the line.how sharp and large that decline is will dicatae the final structure .

referring to GN's spx structure : his large B ends at much lower high at 1300 levels and the current upleg begins from a higher low to give the effect of a neutral triangle.
so depending on the rise from 1050 lows (how much further it goes ) and the time taken by it will determine the labels.
for eg if spx doesnt go much beyond 1300 and undergoes a large decline , the current structure as labelled can hold. if spx goes beyond 1300 without a large time consuming decline , the point of start will have to shifted from 1300's .

hence in my opinion a final revision is likley to occur before the structure is nailed.

currently i dont favor a sustained rise beyond 1300 , but there are a few things that may support a further rise such as : euro dollar favourable movement since it is near 1.33 levels currently. moreover it has only been one year since the lows on spx which is not sufficient time in many ways for it to undergo a large decline any time soon.

[Hockthefarm]

David:

See Barker's comments regarding a 2012 bottom:

http://www.financialsense.com/editorials/droke/2010/0409.html

The real question is how the debt question resolves. E wave and every other market forcasting tool will curve fit around this resolution, like plumbers putty around a toilet regardless of outcome. That is the real Neely uncertainty. He is just admitting that the tail doesn't wag the dog.

Hock

[Eventhorizon]

Hey DG,

I did some more research on linear regressions applied to time series - it's a topic that has been bugging me for a while.

My understanding is this: you can fit a straight line, with or without an intercept value to any set of paired (x,y) data including time series. You can use any kind of measure of error between the estimate of y and the actual y, typically you use the square of the difference. You can derive a value for the slope (and intercept) of the line that minimizes the total error. Typically this is the ordinary least squares fit.

Here's where it gets tricky. You can draw inferences about the confidence intervals for the slope, intercept and estimates of y if, and only if the samples are independent and identically distributed. i.e. if you regress, say, weight (dependent) vs height (independent) for a random sample of people, we can say how accurate our estimate of a person's weight will be if we are told their height, or how much a person's weight will increase for every extra inch of height. We cannot do the same for a time series regression as the samples are not iid.

R-sq statistic works fine in either case; it is just a measure of explained vs unexplained variation.

Your analysis, if I remember right, was about how closely to the trend line an A wave held vs a B wave - essentially looking at R-Sq: A waves go more directly from start to finish while B waves waffle around more. You were not proving that the slopes were different which would require proving statistical significance of the difference. So, you're analysis was comopletely valid.

Thanks for forcing me to finally go away and research this issue - it's been bugging me a while! Hope you see this.

[Hockthefarm]

I think it is worth the wait to let global economic issues resolve. I still think they resolve the way Prechter and Dent have laid out.

China on ‘Treadmill to Hell’ Amid Bubble, Chanos Says (Update1)
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By Shiyin Chen

April 8 (Bloomberg) -- China’s property market is a bubble that may burst by as early as this year, according to hedge fund manager James Chanos.

The world’s third-biggest economy may need to keep up the pace of property investment because up to 60 percent of its gross domestic product relies on construction, said Chanos. The bubble may begin to “run its course” in late-2010 or 2011, he said in an interview on “The Charlie Rose Show” that will air on PBS and Bloomberg TV.

China is “on a treadmill to hell,” said Chanos, who said in January the nation is Dubai times a thousand. “They can’t afford to get off this heroin of property development. It is the only thing keeping the economic growth numbers growing.”

Property prices in China rose at the fastest pace in almost two years in February even after officials this year re-imposed a tax on homes sold within five years of their purchase to curb speculation and ordered banks to set aside more funds as reserves to cool lending. The boom in China’s real estate has fueled concern that China may face a collapse seen in Dubai that has hurt the ability of some of its companies to repay debt.

Since his January prediction, Chanos, the founder of Kynikos Associates Ltd, has been joined by Gloom, Doom & Boom publisher Marc Faber and Harvard University professor Kenneth Rogoff in warning of a potential crash in China’s property market.

Chinese state and local governments are among the most leveraged to property-related borrowings and the nation will “ultimately” have to nationalize a lot of the bad loans that will arise from the end of the bubble, Chanos said.

China’s Reserves

China’s foreign currency reserves will be “one asset” that can be used to fund a cleanup of the banking system, he said. The country has accumulated a record $2.4 trillion of reserves, and $889 billion of U.S. government debt, partly a consequence of its exchange-rate policy.

Chanos was one of the first investors to foresee the 2001 collapse of Houston-based energy company Enron Corp. The investor said he is short-selling Chinese developers as well as companies supplying building-related materials to the country, without identifying any stocks.

In a short sale, investors bet on declines in securities by borrowing stock to sell on the expectation it can be purchased at a lower price before handing it back.
///
Never in our history has government been so full of chit for so long. Their desire and ability to push the "pay up" side of the ledger out to future generations is the only thing preventing an account.
Wave that!

Hock

[DG]

Eventhorizon,

Thanks for bringing an outside perspective on that analysis! I'm glad to hear that your additional research led to a conclusion in favor of my analysis. :)

You are correct that my concern was not with the slopes of the respective lines, but with the amount of variation around the fitted line.

While nothing in my analysis is meant to excuse Neely's trading performance, at least I was trying to go about the right way of showing that he is intuitively correct about B-waves being less predictable than A-waves.

Where this has practical application for me is that when we are in a more "predictable" phase of the market, Neely's trading recommendations are much more reliable, obviously. I suppose the best comparison would be to compare Neely's trades during those times to other methods, to see if he's really "adding value" or if he is actually benefiting less than others from the increased predictability of the markets. That would require a significant investment of my time and resources, so it's not really worth it from my perspective. In some respects, that's Mark Hulbert's gig.

Then, when you layer in even more trade filters, you can get to the point where you're getting 75-80% winning trades on a Weekly timeframe. Your main problem is then identifying the transitions between wave types. I've worked out something I think will work, but haven't had a chance to test it in real-time, since we haven't had a transition at the relevant degree. For practical purposes, I've aimed my analysis at Neely's Minor Degree Progress Labels. My initial tests of the next higher Degree (Intermediate) showed that the lack of "predictability" on in the Minor Degree Progress Labels tended to get drowned out by the larger level of predictability in the Intermediate level labels.

If Neely did this on the front-end and didn't bother issuing a recommendation UNLESS all these criteria were met, he would have only have issued about 50-60 trade recommendations since August 2006, but his winning percentage would have gone up significantly, as would have his returns, except on the Weekly, where returns are higher using only the filters on trade type (don't short on weakness, for example). I think the issue is that the Weekly trading methods are good enough at capturing significant reversals that you are better off making almost every trade. Personally, I'm about quality over quantity, so I would have been fine with this.

My end conclusion is that anyone using Neely's trading service simply AS-IS is cheating themselves out of much better returns. As I've said before, there is no need to throw away the entire NeoWave method, you simply need to fine-tune it and it is definitely something with which an individual trader can create his/her own personal long-short hedge fund. I'd love to see Neely do as much analysis on his trading as I've done on it, actually, because I think he'd then offer even more value to his subscribers.

Now that Neely seems to be looking for some new methods, I may hit him up again with my findings and the implications.

[JT]

"Neely was among those who caught the bottom in March 2009 (it's a matter of public record, so I'm not going to debate it) and if he'd simply held that long trade to now, his subscribers would have gotten more than their money's worth by him simply saying to hold on to their longs until further notice." - DG

Could have, should have, would have.
But he DIDN'T.

[DG]

Could have, should have, would have.
But he DIDN'T.

Posted by: JT | Friday, April 09, 2010 at 02:28 PM

Yeah, that's exactly what I said. I thought that was pretty clear from my original post, so I'm not quite sure why you thought it needed to be repeated.

Look, I understand that you're a Carl Futia man, but, quite frankly, optimizing Futia's methods in the same way I'm trying to optimize Neely's methods would be a waste of my time because there isn't as much potential to work with with Carl's stuff. It is what it is and you can't really tweak it to make it any better, at least not in any way I've seen. As I already showed, even without having stayed on the long side since last March, Neely's recommendations since October 2007 blow Carl's away.

So, you follow Carl's trading methods and I'll follow my modified version of Neely's. That way both of us will be happy.

[Roger D.]

http://www.screencast.com/users/parisgnome/folders/Default/media/b0fa939f-b224-442d-96e9-729c74647b43

Roger D.

[DG]

This count remains on track.

http://yfrog.com/b8spydaily5p

The max target for .G is probably up around 121.8 SPY (1.618X wave-.E).

The expectation would be that once the SPY reaches that minimum target, we'd have a larger correction than any since the February low.

Even if that happens, it will be unknown if "the high" will have been put in on this particular rally or not. If the reversal and decline get larger than the one from the January high to the February low, it will boost the odds that a top is in.

[JT]

"So, you follow Carl's trading methods and I'll follow my modified version of Neely's. That way both of us will be happy." - DG

Darrin, this might be a bit of a surprise to you, but I follow my very own KISS technical system that has kept me in this bull move longer than you or anyone else you know.

If you want to continue to be a "follower" of someone else's methodology ( Neelys ) be my guest. I'd rather follow my own. At least that way, when I am in error, it is because of myself... and not because I "followed" someone else.

Good Luck with Being a Follower.

:)

[DG]

If you want to continue to be a "follower" of someone else's methodology ( Neelys ) be my guest. I'd rather follow my own. At least that way, when I am in error, it is because of myself... and not because I "followed" someone else.

Good Luck with Being a Follower.

We all ultimately pull or don't pull the trigger on a trade of our own volition, so whether you're following someone else's methods or your own, you are either right or wrong, even if your only "error" was in following that particular recommendation.

As I have said before, were I to invent a method of market analysis from scratch, the end result would be very close to NeoWave anyway. That is how my mind works, in terms of quantification, rigid rules and pattern recognition. Why else would I have been drawn to NeoWave over other methods of analysis? So, to that extent, I don't see any need to re-invent the wheel here. I do see a need to optimize the method based on my empirical observations of how it plays out in the translation from theory to practice and that's what I've done.

[Greg]

"Glen Neely feels the markets are in a period of uncertainty and that wave theory should not be used as a primary tool for trading. This period could last another 4 to 6 years."

What a joke if true. Yeah, that's really helpful. Translation: Believe in me and my "scientific theories, whatever" for about a year, miss a HUGE rally, and if you - still - care about my opinion please don't listen to what I sell for another 4 to 6 years. You are on your own now. Develop your own theories. Pay me the fee but don't pay attention to what I say for 4 to 6 years. Otherwise I am a guru.

Nice.

[Wave Rust]

Listen here if you haven't already.

Neely Feb. 25, 2010 interview -- predicts that markets are unpredictable

http://www.neowave.com/company-feb2010interview.asp

Bob Prechter's marketing response should be:

"See! I knew there was a reason why I was wrong for so long! It just shows to go ya, Elliott Wave Principles are predictive of unpredictable times. Sign up here. We're predicting in unpredictable times and we know it. We're better than you are in these unpredictable times. Sign up now!"

Sorry Glenn and Bob ,,, just having a spoof on our lovely wavery slavery! :))

wave rust

[Ashish]

DG
"This count remains on track.

http://yfrog.com/b8spydaily5p

The max target for .G is probably up around 121.8 SPY (1.618X wave-.E).

The expectation would be that once the SPY reaches that minimum target, we'd have a larger correction than any since the February low.

Even if that happens, it will be unknown if "the high" will have been put in on this particular rally or not. If the reversal and decline get larger than the one from the January high to the February low, it will boost the odds that a top is in."

DG- my hunch says your April 20th call will be a great one. Not sure if that would be the top, nevertheless a tradable move.
Best!

[DG]

Thanks, Ashish!

[Zendo]

If these EW guru or follower can materialize their BS (including their back testing statistic, backward looking empirical observation, non scientific proven predictions) into organic fertilizer, given the fertilizer price has gone up so much for past 10 years, they'll all be rich and no need to count more waves, but counting their dollars in the bank. I love their BS.... so useful and delighting to have... btw direct consumption of fertilizer will poison you, beware!

[DG]

Zendo,

You do realize that you can easily prove that what I've said is "BS" by running the same statistical tests and showing that I've misrepresented the findings, right?

That would be a more powerful refutation than simply asserting, without any proof whatsoever, that I'm BSing.