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Chris Johnston
ParticipantChris Johnston
iamafuturestrader.comGold prices are driven by inflation. I spent several pages in a past newsletter covering this very topic. Inflation has been picking up during this gold rally off the lows of a few years ago, just look at the CPI index over that time.
Now we are hearing the jawboning about reduced inflation pressure, and bingo down goes the price.
ParticipantChris Johnston
iamafuturestrader.comIf gold does break 574.50 on a closing basis the game is over for good in that market. Until that time the long term trend is still up. I do not see a short term buy spot at this point, it is basically in a range here. However, as per a blog post I submitted awhile back, this chart pattern is eerily reminscient of many great commodities tops if it breaks that low at 574.50. Huge parabolic run up, then a sharp drop, then a rally up that fails to make new highs. The key to that is that it has the break the low of the first sharp pullback to complete the top pattern.
Interesting times there right now. The bulls need to show up fairly soon. I have been recommending looking for short term buy patterns, but none have developed yet. That recommendation will be cancelled if that low goes.
ParticipantChris Johnston
iamafuturestrader.comPW – there is plenty of chaos, but there is some order that can be dialed in. I do not know of reading material on re cycles because I determined that from my own research. However, I do have developer friends that have also mentioned it so there must be something written somewhere about it. Seasonal effects on commodity prices have been a fairly regular occurence that repeat. In fact there is actually seasonality to certain days of the year in many markets.
Some of my cyclical analysis calls for late 2008 to be a buy spot for RE.
ParticipantChris Johnston
iamafuturestrader.comSD – no that is not what I am saying. What I am saying is that you cannot determine cycles by price alone. Momentum moves that detach themselves from fundamentals can run so much further in price that what we can ever project. I would argue that these price extensions are actually part of the fundamentals. They happen often, Gold at $725 just a bit ago is another example. When this is happening, coupling time cyclical analysis can help us make a better estimate of when the cycle is due to end.
This cycle has ended right on schedule time wise in RE although late in price, and it is how I determined to wait until 2005. Predicting price with price alone is something alot of traders try to do, and why many of them get blown out. I learned this lesson through the school of hard knocks, believe me! The ten year cycle has repeated itself fairly close to on schedule a few times in RE.
The stock market low of 2002 went really far in raw price dollars, but not in time. Combining the two in that case also worked very well. The fundamentals actually are what create the cycles in the first place. Supply and demand are what determine the major price turns. Demand was certainly extended by the financing aspect of all of this. However, my argument is that in my world of KISS (Keep it simple stupid) I did not need to over analyze 100 different variables. I just focused on two and basically got it right.
My question is which is easier, analyzing a wide array of very fluid numbers and trying to come up with an overall bias, or just looking at larger picture cyclical things and not sweating the small stuff? For me I take the latter approach.
My little pea brain loves to go off on tangents and over analyze things, so I have learned to keep it focused. I know this is probably controversial but I do tend to think a little different from the crowd. At times though it does make me the village idiot!
ParticipantChris Johnston
iamafuturestrader.comI have a slightly different view on this. As alot of folks know here by now, I study cycles a great deal. I sold my house in 2005 in the fall due to my cyclical analysis telling me that the 10 year cycle was due. So, in my mind the correction is starting right on schedule.
What studying cycles in time does, is take the parabolic price moves out of the evaluation. Regardless of how far the stock market fell during it’s correction, it did make a cycle low almost to the week when it bottomed. Alot of people tried to fade it on the way down due to absolute price judgements, and were early and got strampled.
RE in 2003 was very extended price wise, but not time wise. The same logic was used by alot of people calling an end to the run just based on price alone. They were also early. I have to admit that I also thought at that time the price extension could not last, but once I began studying the historical cycles I thought it would go itleast until 2005, and it did here in OC, SD is about 6 months ahead of us.
In summary, I think you need a confluence of price and time to identify cycles in asset classes. I require both in my trading and on average it works well.
I am sure I will be pummelled in here for this post, but my actions matched my words and this was my logic behind the decision. In my mind we have a critical time point now with dropping long term rates. Will it save the day and keep this afloat? I say no for the same reason, cycles in time and price say otherwise. Swing away I have a good chin!
ParticipantChris Johnston
iamafuturestrader.comYou mentioned oil in your post, that is why I responded to it. Price changes in oil do not effect stock price swings at all from my research.
If you just read my website sections on discretionary trading you will understand why I do not bother with all of these other arbitrary things. I in no way represent that my way is the only way to go, only that it is what I do.
For those who want to synthesize these massive amounts of data collectively, and come to a decision of when to buy and sell, I will leave this thought. Most managers do not beat the S&P 500 each year, and many of them have very powerful people in research staffs doing exactly the same thing. That is very tough competition, yet beating them does not even assure you of beating the averages.
You have to learn to look at things differently from the herd to get ahead. My way is one way of doing that, and there are others.
Please, let’s just move on. We are comparing completely different approaches to investing, and we will never resolve this.
ParticipantChris Johnston
iamafuturestrader.comPoway, I would say that this trade is not for you to worry about. I probably should have never mentioned this as it has become a can of worms.
All of those discretionary things you mention are not part of the rules for this trade, so I have no idea what influence they would have. None of those things you mention are part of the setup for this trade. I showed you in the newsletter two months ago that lack of correlation between stock and oil prices. I am not sure how much more definitively it could be proved than what I presented.
There have been many stock rallies during periods of declining earnings historically. I am a rule based trader, if something is not part of the rules for a trade I do not care what it is saying. The rules are based on years and years of research, and finding repititive patterns in the markets. I trust in my research and tune out all the noise.
The 30 yr has already rallied a good amount, enough to support a stock rally. Let’s just forget about this and go back to bickering about RE. The OC numbers for July just came out and our incredibly ugly, the bulls are really going to struggle spinning these numbers. This fall is really going to be interesting in RE.
ParticipantChris Johnston
iamafuturestrader.comAnx – I am not sure why you try and antagonize me, I do not believe I have ever done anything to warrant this. These things I mention are commonly known things in the fund management world. The sharp mid year corrections in years ending in 7 historically is there, just look at a stock chart of the DOW back to 1900. It is of the utmost importance to be aware of large scale cycles when you are a market timer like I am. They do not always repeat in exact fashion.
As far as the track record on my site. That just reflects the actual results of the system that is featured in the daily trading service, which was created and put into play in Feb of 2004. I have other systems that I use that are not on the site with longer track records. The % return depends on an individuals money management style.
I risk anywhere from 5 to 20% of my accounts on any one individual trade which can make the return percentages very high in good years. 2004 was a triple digit year, 2005 was in the high 70’s percentage wise, and this year it is at approximately 33% YTD(the system has not done as well this year as the last two so far).
You could also figure returns based on the margin of a bond contract which is $2000, however, that makes the return percentage disproportionally high and hence is misleading. Also, a trader should have his margin in T-bills yielding 5% at all times, which also adds to the return, but is not part of trading results.
As a result of all of this, it is hard to state a specific return percentage. I have entered an international trading contest with this system this year, which will provide an actual return % for a full year utilizing all of the trades from the daily trading service. That is the best way I could show a return for someone to see, in an independently audited fashion. I was in first place at one point, and have currently slipped out of the top 3. They only list the top 3, so I do not know where I stand exactly. I only know that the return is currently at 33%, the guy in third is at 44% currently.
At one point I was up 61% and then the system took a couple of losses. I hope this answers your question.
ParticipantChris Johnston
iamafuturestrader.comStrictly by the rules of this cycle, it is a 2 year hold. That does not guarantee that is starts right on the dime in the fall. We just know from history that the fall represent s the best buying time window. As we put all of the pieces together in constructing an investment or trade, we want to have all the best pieces. I showed the difference between buying stocks in July and exiting in November vs. buying them in November and exiting in May in the newsletter last month. That just by itself shows the difference timing can make.
I will not hold the stocks for 2 years. Years ending in 7 (2007) are notorious for intra year sharp declines, so I will want to dodge that if I can. I do recall finding one year that was very close to a scratch trade with this cyclical pattern, but I do not have that info in front of me right now.
The one comment about earnings that I would make is as follows. They are not dropping yet, you are assuming they will and you may or may not be right. For trading purposes and research, we can only view historically what they were doing at the time of an entry into a trade. We cannot factor in what we thought they would do in the future. There is no way to project back in time and know what our opinion might have been at a specific point in time, as to what earnings would do in the future.
Right now earnings are not dropping, so history would show for example that a trade entered on 8/15/06 was done during a period of increasing earnings. That chart I sent you (poway) on Lennar showed the uptrend in their earnings over the last 12 months. Even though we all expect that to change, currently their earnings as reported are still good.
As a result research into Lennar stock trading in relation to earnings done today would have to feature increasing last 12 month earnings as a variable.Hope I did not get too technical with this.
ParticipantChris Johnston
iamafuturestrader.comSD my web site address is http://www.iamafuturestrader.com and I also have a blog that has a link to it from the bottom of the first page of my site. The link is in the midst of the last paragraph of text. The direct link is http://iamafuturestrader.blogspot.com/.
I cover something related to these types of things each day. Often I discuss commodities in the blog since so many people are interested in that nowadays.
The newsletter is a pay service that is $250/yr. If you send me an email to [email protected] I could send you a copy of one of the newsletters so that you could get a feel for what it typically covers. It may or may not be for you, depending on your interests. I do cover what I expect in the stock market upcoming in every edition, that is one of the basic staples of it. Typically I will also cover other markets that are either in the news like GOLD or Oil, or one that is set up for an upcoming trade.
ParticipantChris Johnston
iamafuturestrader.comAll of the reasons why I went to cash in stocks are the reasons I explained in my newsletter the last 3 months. The seasonals, the commercials, and the bond market divergence. My plan all along was to exit in April/May and gear up for the fall rally. Seasonals do not always work right on the dime, but they do provide a good general framework to look for opportunities. The market has not yet fallen as far as I thought it would by now, so maybe it will not. I will just wait until the fall, and see if this trade is set up properly. If today were Nov 1st, it would not be a go due to the commercials not being heavily long at this point.
I have no idea if there is any correlation between consumer spending and stock rallies and declines. I have never studied that. It is tough to use government reports for study due to all of the revisions that occur over time with them.
ParticipantChris Johnston
iamafuturestrader.comThe simplest way to explain the earnings relationship is as follows. The market is anywhere from 6 months to a year ahead of the earnings. A rally now indicates future increased earnings, not current. A decline now indicates future decreased earnings not current. Earnings are not currently declining. Even the RE firms have increasing 12 month earnings right at this moment, just plot the numbers.
ParticipantChris Johnston
iamafuturestrader.comThis is one of the most widely known cycles in the stock market. I am not sure how anyone could look at something like this that has outperformed the market as a whole by this magnitude, and conclude that.
There are many people, myself included, that have track records of beating the market. These types of tools are what you use to do it. The reason why they do continue to work, and always will, is that the average person thinks their arbitrary opinion of the economic conditions at hand supercede cycles. What if your opinions are wrong? What if we do not have a big recession, and a big RE selloff?
As a result, they will kick this info aside and “wait until it is safe” to go in. March 2000 was the last “safe” time. The “safe” point they choose is typically where people like me are exiting (selling).If everyone acted properly in accordance with cycles like this, they would probably diminish in their effectiveness.
Timing RE is much harder due to having much less historical data, and also that nature of the asset and it’s lack of liquidity. I do sense in here in general, a very obstinate nature in opinions. It is one thing to have strong opinions as most of us do, but what about considering the other side occasionally. I am constantly forced to do this due to the nature of my business. I have to maintain the flexibility in my thinking to admit to a trade being no good, and getting out of it. Often at times that can mean, completely reversing my position based on the facts at hand.
I share the same view many of you do about the fate of RE in the next few years. However, I will venture to bet that most of you will be afraid to buy when the bottom falls out for fear of it going further. I would argue, that will be the exact time you should buy. Waiting for it to be “safe” is not a way to get ahead of the herd.
In conclusion, what about just for the moment considering that the second most powerful stock market cycle that has provided a great timing edge for over 50 years, might actually have some value? Economists make money selling you opinions, not investment advice. Most of them cannot trade their way out of a paper bag, and wouldn’t even try to. And to top this off, in the spirit of being flexible, I could be wrong! I am willing to take the loss if I am wrong and move on to the next high probability situation. There are no guarantees in life the last time I checked.
ParticipantChris Johnston
iamafuturestrader.comIn general what I meant by BS John Q Public is the following. Big Wall Street firms get fees by having people’s money invested in funds. This is why the buy and hold strategy they propogate is constantly reinforced. They cite statistics including how much your return would be reduced over time if you happened to miss the X number of largest up days by being on the sidelines trying to time the market.
Here are some stats regarding this bs. For the last 35 yrs the Buy and Hold strategy in the S&P turned $1,000 into $11,000, a 6.7% annual return. If you missed the 5 best performing days, that $1,000 becomes $150, a -5.3% return. So Mr. Wall Street says, “see you cannot time the market.” What they fail to tell you is in the next paragraph.
Here are the numbers on that same $1,000 if you were able to miss the 5 worst performing days during that same period. It becomes $987,000 a 19.3% annual return. (By the way this is from a study conducted by a friend of mine, this is not my research) My numbers however in my study came out very close to these, probably a matter of rounding decimals differently.
What this shows about as clearly as it can be shown is that missing the worst days is far more important than catching the best ones. Timing does matter a great deal. No Wall Street guy is going to tell you that when his income is contingent upon you keeping your funds fully invested.
The insiders all know of the strong bullish cyclical tendency for rallies in mid term presidential congressional election years. This is one of those. We have dropping long term rates the last 45 days, which is helping set up this rally.
Also, remember, a shifting to blue chips by the big institutions is a sign of caution for them. They tend to hold up better during down periods. They have to have their money committed, so that is a shift they make when they anticipate a drop in the market. That happened during March and April, and low and behold look what happened. I had warned in my blog of the bearishness of the Dow ouperforming the S&P. It did this due to what I have just described.
Make no mistake about it, the stock market is an insiders game. So getting in tune with what they are doing is how we as individual investors can make money and beat the market as a whole. The COT report is so helpful in determining what they are doing, and why I reference it so often.
As a trader all I can do is try and stack the odds as heavily in my favor as I can. Once I have done that, I just pull the trigger and stick to the plan. At times I am wrong as you know. I have about an 80% winning percentage as evidenced by my trading service over time. This means that 20% of my trades will be wrong. Maybe this is one of them that will be wrong. I still like the odds and will pull the trigger with a large chunk in the fall if everything sets up properly. I will follow my plan for entry and exit, and then let it play out.
There will probably be one fly in the ointment when it sets up as rarely are things perfect in the markets. If the commercials are heavily long in the fall, and the bonds hold up, the trade will be done. Any questions, send me an email at [email protected].
Last thought – there is a lot of info on the web about mid-term congressional elections and there bullishness for stocks. Do your own research.
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