Category Archives: Uncategorized

Here’s what’s been said about AIQ TradingExpert Pro

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Larry Jacobs, Editor Tradersworld magazine wrote

“The charting function of the trading software is excellent. It is no wonder that Dan Zanger likes it. Easy to use interface, on-chart indicator library with a Color Barometer to give you an instant indication of the status of each chart.”



David Penn, Staff Writer at stocks & commodities magazine wrote

“The screening language is far less difficult than the programming language used with many other technical analysis software programs.”



Stock Trading Software Reviews wrote

“The system is very cheap at around $100 per month with so many amazing features. The user interface is very professional and one can find relatives of a stock in the group and sector tree easily and create baskets of symbols and run studies on those baskets.” 


Money Management Made Easy Review wrote

“They offer a free trial so you can test drive the program and see if it’s right for you. But be aware this one is for serious traders who know a little something about the market, but its features are incredible. “

why the Fed MUST do everything in its power to keep interest rates low

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Thursday night, I talked about the Baby Boomers and the impact they were having on government spending and the economy.  Federal entitlement programs represent a large portion of the U.S Federal budget, and when you combine these programs with the interest on the debt, there isn’t much left over to run the country.  As a matter of fact, there isn’t anything left over, and that’s why we need to borrow money every month just to keep the government running (and pay for things like Social Security, Medicare and Medicaid).
So during the Class, I polled the 61 students and asked them to raise their hand if they wanted to reduce Social Security.  Nobody raised their hand.

Then I asked if anyone was in favor of reducing Medicare.  Same thing, nobody raised a hand.

Slide3
Finally, after talking about the enormous debt that we were creating with all these programs and the problems they were creating for the economy, I asked if anyone was in favor of reducing Medicare.  Again, nobody raised their hand.  Not one person in the Class was in favor of reducing or stopping any of these entitlement programs.
After the discussion, I showed them a chart (attached) of the current debt and how it has continued to grow over the years.  I pointed out how the debt has grown independent of who was president.  It grew because the majority of people in America want their entitlements.
I then showed my students another chart (also attached) that depicts how the number of seniors will continue to grow in the next 25 years, adding to the debt.
Slide1
After discussing the problems this enormous debt was creating for the economy and the job market, we talked about how the debt could be reduced or paid off.

Slide2

I asked if anyone was in favor of increasing taxes.  Not one hand went up. I asked if anyone would vote for a politician who wanted to raise taxes.  Again, not one hand was raised. Hmmm?

So it appears that everybody wants to keep receiving the benefits, but really doesn’t want to pay for them.
Because of this, huge Federal deficits and increasing debt will likely continue in the future. So you need to ask yourself about interest rates.  Will they be going up or down?  You really don’t need Janet Yellen to tell you this.  All you need to do is think about the interest payments on the current debt.  They MUST stay low, not for the next few months, or years, but for the foreseeable future…and beyond. If interest rates start to rise, and people want to keep their entitlements, the government will have to borrow even more money, requiring even more interest to be paid to foreigners.  The debt is so big now; it will likely NEVER be paid off.
So now you can understand why the Fed MUST do everything in its power to keep interest rates low. It’s not a question of stimulating the economy anymore; it’s a matter of survival!

OK, so how do we deal with this?  Well, IF we know that interest rates will likely stay low in the future, we should focus on investments that should do well in a low interest environment.

Several come to mind, like utilities and the banks.
Utilities borrow a lot of money to keep their plants running and expand their facilities to meet the needs of a growing population. They are extremely interest rate sensitive.
I haven’t talked about the utes much on these pages, mainly because almost all of the Fed’s stimulus money was going into other sectors driving the Dow Industrials and NASDAQ technology stocks higher.  But this could start to change in the months ahead.
As the Dow moves beyond 16,000, investors, especially seniors, are becoming more risk adverse.  Most are only in the market now because they are being forced into it by the government’s low interest rate policy.  They can’t live on the interest they receive from CDs or Money Market funds.
But now that the overall market is starting to look overbought and the utilities are near their lows, they are becoming more and more attractive.
Near the end of last year, I started to talk about Consolidated Edison, ED, my favorite Christmas stock. The ‘trade’ didn’t work out this year as ED turned negative after a small pop in mid-November. The stock was in a downtrend when we first looked at it, and wasn’t ready to move higher.
But now, a clear TLB pattern has formed and the PT indicators have turned Green once again.  I’m ready to give it another shot.  So I will be buying a few shares of ED on Tuesday as a ‘trade’.  These shares will go into my IRA account. Remember, ED is still in a down trend, so I can’t fall in love with it.  But IF the PT indicators stay Green and it ‘Jumps the Ropes’, I’ll start to add additional shares.
Finding stocks to take advantage of the low interest environment will be the focus of my Big Picture Strategy for 2014.  And contrary to popular belief, not all stocks will be able to do this.  I’ll discuss why in the days ahead, but it mostly has to do with jobs and the economy.

Fed day pay day

Talking about the Fed. I’m teaching a very special hour long seminar on March 13. 2014 and I’d like to see you there. During this seminar you’ll learn how to cash in on fed day and get two BONUS insights included. It’s perfect for exploiting the fed day.

Check it out and reserve your place now

The Degree Of Complexity

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This Traders’ Tip is based on “The Degree Of Complexity” by Oscar Cagigas in the February  issue of Stocks & Commodities.
The five Donchian breakout systems described by Cagigas in his article are coded using the following rules:
System Entry rule Exit rule Entry price formula Exit price formula
2 Param-Long Buy2P ExitBuy2P Buy2Ppr ExitBuy2Ppr
2 Param-Short Sell2P ExitSell2P Sell2Ppr ExitSell2Ppr
4 Param-Long Buy4P ExitBuy4P Buy4Ppr ExitBuy4Ppr
4 Param-Short Sell4P ExitSell4P ell4Ppr ExitSell4Ppr
6 Param-Long Buy6P ExitBuy6P Buy6Ppr ExitBuy6Ppr
6 Param-Short Sell6P ExitSell6P Sell6Ppr ExitSell6Ppr
8 Param-Long Buy8P ExitBuy8P Buy8Ppr ExitBuy8Ppr
8 Param-Short Sell8P ExitSell8P Sell8Ppr ExitSell8Ppr
9 Param-Long Buy9P ExitBuy9P Buy9Ppr ExitBuy9Ppr
9 Param-Short Sell9P ExitSell9P Sell9Ppr ExitSell9Ppr

The EDS code file has the backtests already set up for all of these long and short rules. In Figure 5, I show a typical setup for the pricing. In Figure 6, I show a typical setup for the exit rule.
Image 1
FIGURE 5: AIQ. Here is a typical setup for the pricing portion of the backtests.
Image 1

FIGURE 6: AIQ. Here is a typical setup for the exit portion of the backtests.
The AIQ code and EDS file can be downloaded from www.TradersEdgeSystems.com/traderstips.htm, and is also shown below.
!THE DEGREE OF COMPLEXITY
!Author: Oscar G. Cagigas, TASC Feb 2014
!Coded by Richard Denning 12/7/13
!www.TradersEdgeSystems.com
! CODING ABBREVIATIONS:
C is [close].
H  is [high].
L  is [low].
O is [open].
PEP  is {position entry price}.
PD     is {position days}.
! PARAMETERS:
donLen1 is 40.
donLen2 is 15.
atrLen is 20. 
atrMult is 1.0.
atrStop  is 4.0.
maLen1  is 10.
maLen2  is 100.
rsiLen is 14. 
rsiUpper  is 70.
rsiLower  is 30.
atrMult2 is 0.6.
minMov is 0.01.
!------------------------------------------------------------------
! AVERAGE TRUE RANGE (AS DEFINED BY WELLS WILDER)
WWE is 2*(atrLen-1).
TR  is Max(H - L,max(abs(valresult(C,1) - L),abs(valresult(C,1)- H))).
ATR is expAvg(TR,WWE).
ATR1 is valresult(ATR,1).
!------------------------------------------------------------------
!! RSI WILDER
!To convert Wilder Averaging to Exponential Averaging use this formula:
!ExponentialPeriods = 2 * WilderPeriod - 1.
U  is C-valresult(C,1).
D  is valresult(C,1)-C.
eLen is 2 * rsiLen - 1.
AvgU  is ExpAvg(iff(U>0,U,0),eLen).
AvgD  is ExpAvg(iff(D>=0,D,0),eLen).
rsi  is 100-(100/(1+(AvgU/AvgD))).
!----------------------------------------------------------------
!BASIC SYSTEM 2P (2 parameters):
HHdL1 is  highresult(H,donLen1,1).
HHdL2 is  highresult(H,donLen2,1).
LLdL1 is lowresult(L,donLen1,1).
LLdL2 is lowresult(L,donLen2,1).
Buy2P if H > HHdL1.
ExitBuy2P if  L < LLdL2.
Sell2P if L < LLdL1.
ExitSell2P if H > HHdL2.
Buy2Ppr is max(O,HHdL1 + minMov).
ExitBuy2Ppr is iff(ExitBuy2P,min(O,LLdL2 - minMov),C).
Sell2Ppr is min(O,LLdL1 - minMov).
ExitSell2Ppr is max(O,HHdL2 + minMov).
!-----------------------------------------------------------------
!FOUR PARAMETER SYSTEM 4P:
Buy4P if H > HHdL1 and valrule(TR < atrMult*ATR,1).
EB4P1 if L < LLdL2.
EB4Pval is PEP - atrStop*valresult(ATR,PD).
EB4P2 if L < valresult(EB4Pval,1).
ExitBuy4P if EB4P1 or EB4P2. 
Sell4P if L < LLdL1 and valrule(TR < atrMult*ATR,1).
ES4Pval is PEP + atrStop*valresult(ATR,PD) .
ES4P1 if H > HHdL2.
ES4P2 if H > valresult(ES4Pval,1).
ExitSell4P if ES4P1 or ES4P2. 
Buy4Ppr is max(O,HHdL1 + minMov).
ExitBuy4Ppr is iff(EB4P1,min(O,LLdL2 - minMov),
iff(EB4P2,min(O,valresult(EB4Pval - minMov,1)),-99)).
Sell4Ppr is min(O,LLdL1 - minMov).
ExitSell4Ppr is iff(ES4P1,max(O,HHdL2 + minMov),
iff(ES4P2,max(O,valresult(ES4Pval + minMov,1)),-99)).
!----------------------------------------------------------------
!SIX PARAMETER SYSTEM 6P:
SMA1 is simpleavg(C,maLen1).
SMA2 is simpleavg(C,maLen2).
Buy6P if H > HHdL1 and valrule(TR < atrMult*ATR,1) 
and valrule(SMA1 > SMA2,1).
EB6P1 if L < LLdL2.
EB6Pval is PEP - atrStop*valresult(ATR,PD).
EB6P2 if L < valresult(EB6Pval,1).
ExitBuy6P if EB6P1 or EB6P2. 
Sell6P if L < LLdL1 and valrule(TR < atrMult*ATR,1) 
and valrule(SMA1 < SMA2,1).
ES6Pval is PEP + atrStop*valresult(ATR,PD) .
ES6P1 if H > HHdL2.
ES6P2 if H > valresult(ES6Pval,1).
ExitSell6P if ES6P1 or ES6P2. 
Buy6Ppr is max(O,HHdL1 + minMov).
ExitBuy6Ppr is iff(EB6P1,min(O,LLdL2 - minMov),
iff(EB6P2,min(O,valresult(EB6Pval - minMov,1)),-99)).
Sell6Ppr is min(O,LLdL1 - minMov).
ExitSell6Ppr is iff(ES6P1,max(O,HHdL2 + minMov),
iff(ES6P2,max(O,valresult(ES6Pval + minMov,1)),-99)).
!---------------------------------------------------------------
!EIGHT PARAMETER SYSTEM 8P:
Buy8P if H > HHdL1 and valrule(TR < atrMult*ATR,1) 
and valrule(SMA1 > SMA2,1) and valrule(RSI >= rsiUpper,1).
EB8P1 if L < LLdL2.
EB8Pval is PEP - atrStop*valresult(ATR,PD).
EB8P2 if L < valresult(EB8Pval,1).
ExitBuy8P if EB8P1 or EB8P2. 
Sell8P if L < LLdL1 and valrule(TR < atrMult*ATR,1) 
and valrule(SMA1 < SMA2,1) and valrule(RSI <= rsiLower,1).
ES8Pval is PEP + atrStop*valresult(ATR,PD) .
ES8P1 if H > HHdL2.
ES8P2 if H > valresult(ES8Pval,1).
ExitSell8P if ES8P1 or ES8P2. 
Buy8Ppr is max(O,HHdL1 + minMov).
ExitBuy8Ppr is iff(EB8P1,min(O,LLdL2 - minMov),
iff(EB8P2,min(O,valresult(EB8Pval - minMov,1)),-99)).
Sell8Ppr is min(O,LLdL1 - minMov).
ExitSell8Ppr is iff(ES8P1,max(O,HHdL2 + minMov),
iff(ES8P2,max(O,valresult(ES8Pval + minMov,1)),-99)).
!----------------------------------------------------------------
!NINE PARAMETER SYSTEM 9P:
Buy9P if H > HHdL1 and valrule(TR < atrMult*ATR,1) 
and valrule(SMA1 > SMA2,1) and valrule(RSI >= rsiUpper,1) 
and valrule(TR > atrmult2*ATR,1) .
EB9P1 if L < LLdL2.
EB9Pval is PEP - atrStop*valresult(ATR,PD).
EB9P2 if L < valresult(EB9Pval,1).
ExitBuy9P if EB9P1 or EB9P2. 
Sell9P if L < LLdL1 and valrule(TR < atrMult*ATR,1) 
and valrule(SMA1 < SMA2,1) and valrule(RSI <= rsiLower,1)
and valrule(TR > atrmult2*ATR,1) .
ES9Pval is PEP + atrStop*valresult(ATR,PD) .
ES9P1 if H > HHdL2.
ES9P2 if H > valresult(ES9Pval,1).
ExitSell9P if ES9P1 or ES9P2. 
Buy9Ppr is max(O,HHdL1 + minMov).
ExitBuy9Ppr is iff(EB9P1,min(O,LLdL2 - minMov),
iff(EB9P2,min(O,valresult(EB9Pval - minMov,1)),-99)).
Sell9Ppr is min(O,LLdL1 - minMov).
ExitSell9Ppr is iff(ES9P1,max(O,HHdL2 + minMov),
iff(ES9P2,max(O,valresult(ES9Pval + minMov,1)),-99)).
!----------------------------------------------------------------
—Richard Denning
info@TradersEdgeSystems.com
for AIQ Systems

Jay’s ‘Energetic Market Shoppers’ System

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In my previous article I wrote about a simple “system” – if you can even call it that – that involves buying retailing stocks four months out of the year and holding cash the rest of the year.  As ridiculously simple as that sounds the fact of the matter is that if you earned just 1% of annualized interest while out of retailing stocks, the system outperformed a buy-and-hold approach by a fairly wide margin.

While the results of that simple system aren’t bad, as always, one can’t help but to look for ways to improve things.  So this article will detail what I refer to as – and by the way, this is what I sound like when I refer to myself in the third person – “Jay’s Energetic Market Shoppers” System, or JEMS (clever, no?) for short.  The name is derived from the investment vehicles involved:

1. J  stands for, well, OK, Jay….

2. E stands for “Energetic”: Energy stocks have showed a historical tendency to rally in the spring so we will hold Fidelity Select Energy (ticker FSENX) during the month of April (other possibilities include tickers XLE and ENPIX).

3. M stands for “Market”: The stock market tends to perform well during November, December and January.  We are already planning to hold retail stocks during November, but for December and January we will hold an S&P 500 index fund.  For the purposes of this test we will use the S&P 500 Index itself from 1988 into 1997.  From there we will use the ETF ticker SPY.  Someone who wanted to keep it all in the Fidelity family could use ticker VFINX. (Another possibility is ticker BLPIX).

4. S is or “Shoppers”: Just as with the original system, we will hold Fidelity Select Sector Retailing (ticker FSRPX) during February, March, October and November (other possibilities include tickers XLY and CYPIX).

During May, June, July, August and September we will hold cash.
So here is the “lineup”

January                SPY
February              FSRPX
March                   FSRPX
April                       FSENX
May                       Cash
June                      Cash
July                        Cash
August                  Cash
September         Cash
October               FSRPX
November          FSRPX
December           SPY

So how does it work out?  Not too badly.  Figure 1 displays the growth of $1,000 using the JEMS System versus buying and holding the S&P 500. 

 jotm20140129-01Figure 1 – Growth of $1,000 using “Jay’s Energetic Market Shoppers” System versus buying and holding the S&P 500 since 1988.

Figure 2 displays the year-by-year results.

JEMS
S&P 500
 
JEMS
S&P 500
Annual %
Annual %
Difference
$1,000
$1,000
1988
25.4
12.4
7.0
1,254
1,124
1989
12.4
27.3
(27.6)
1,410
1,430
1990
12.2
(6.6)
28.7
1,582
1,336
1991
36.6
26.3
(9.4)
2,161
1,688
1992
27.7
4.5
16.6
2,760
1,763
1993
10.5
7.1
(0.1)
3,050
1,888
1994
10.5
(1.5)
0.7
3,369
1,859
1995
8.1
34.1
(31.1)
3,642
2,493
1996
19.5
20.3
(2.1)
4,353
2,998
1997
14.2
31.0
(18.4)
4,970
3,927
1998
50.5
26.7
14.3
7,479
4,975
1999
42.4
19.5
(7.9)
10,652
5,946
2000
(2.4)
(10.1)
19.4
10,400
5,343
2001
15.6
(13.0)
16.8
12,027
4,646
2002
3.5
(23.4)
36.9
12,450
3,561
2003
10.5
26.4
(16.6)
13,755
4,500
2004
18.9
9.0
4.6
16,354
4,905
2005
(1.1)
3.0
6.2
16,182
5,052
2006
14.8
13.6
(3.7)
18,574
5,740
2007
2.4
3.5
(5.3)
19,027
5,943
2008
(30.4)
(38.5)
7.0
13,237
3,656
2009
33.2
23.5
1.0
17,635
4,513
2010
32.5
12.8
14.0
23,366
5,090
2011
17.2
(0.0)
14.0
27,381
5,090
2012
21.3
13.4
4.7
33,204
5,772
2013
16.7
29.6
(18.2)
38,752
7,481
 
Average
16.3
9.6
1.3
StdDev
16.1
17.9
Ave/SD
1.011
0.540
 
Figure 2 – Year-by-Year Results

For the record:

-The JEMS System sported an average annual gain of +16.3%
-Buy/Hold sported an average annual gain of +9.6%
-$1,000 invested using the system grew to $38,752
-$1,000 invested using Buy/Hold grew to $7,481
-The JEMS system showed a gain in 23 of 26 calendar years (88.5%)
-The JEMS system showed a loss in 3 of 26 calendar years (12.5%)
-Buy/Hold showed a gain in 19 of 26 calendar years (73.1%)
-Buy/Hold showed a loss in 7 of 26 calendar years (26.9%)
-JEMS outperformed Buy/Hold in 15 of 26 calendar years (57.7%)
-Buy/Hold outperformed JEMS in 11 of 26 calendar years (42.3%)

Summary

So is the JEMS System the “world beater” system that everyone should be using?  Well, on the plus side the long-term results are impressive relative to buy and hold.  On the downside, there is still the sharp drawdown of 2008 that one would have had to continue to trade through.  Also, the reality is that for most investors, a system like this involves more of a “leap of faith” than they are comfortable with.

Of course, as a proud graduate of “The School of Whatever Works” and as a founding member (OK, so far the only member) of “Seasonalaholics Unanimous!”……
………that’s just the way I like it.

Jay Kaeppel 

Chief Market Analyst at JayOnTheMarkets.com and AIQ TradingExpert Pro (http://www.aiq.com) client
 
Jay has published four books on futures, option and stock trading. He was Head Trader for a CTA from 1995 through 2003. As a computer programmer, he co-developed trading software that was voted “Best Option Trading System” six consecutive years by readers of Technical Analysis of Stocks and Commodities magazine. A featured speaker and instructor at live and on-line trading seminars, he has authored over 30 articles in Technical Analysis of Stocks and Commodities magazine, Active Trader magazine, Futures & Options magazine and on-line at www.Investopedia.com.

Attention Shoppers! Part I

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Hi, my name is Jay and I am a Seasonalaholic. 

Now typically when someone confesses to being an “aholic” of some sort or another it because they recognize they have a problem and wish to correct it.  That’s not the case here.  In fact the “support” group that I belong to is not “Seasonalaholics Anonymous” but rather “Seasonalaholics Unanimous!” (OK, in the interest of full disclosure, so far I am the only member and yes, the monthly meetings aren’t terribly lively, but I digress).

Still I can’t help but think there are others out there who might join someday – especially after they consider things like the seasonal tendencies for retailing stocks.  To whit: what would have happened had an investor invested in Fidelity Select Sector Retailing fund (ticker FSRPX):

-During the months of February, March, October and November
-And then earned 1% of annualized interest while out of the market the other 8 months.
The answer is contained in Figure 1 which displays the growth of $1,000 invested as described above.

jotm20140127-01Figure 1 – Growth of $1,000 invested in FSRPX during February, March, October, November (blue line) versus buying and holding the S&P 500 red line) since January 1988.

Now it is pretty impossible to not notice the, ahem, “slight drawdown” experienced during the October, November 2008 period.  Still, despite the fact that I have tried very hard scrub that particular time period from my memory bank, I still have some vague recollection that virtually no sector of the stock market was left unscathed during that period.  And the rebound has been pretty nice.

So is this really a viable strategy?  Well, under the category of “Everything is Relative”, Figure 2 displays the year-by-year performance of this “system” versus buying and holding the SP 500.

     System    SP 500               System        SP 500
   Annual %    Annual %              Difference
$1,000
$1,000
1988
18.6
12.4
6.2
1,186
1,124
1989
(1.0)
27.3
(28.2)
1,174
1,430
1990
21.3
(6.6)
27.8
1,424
1,336
1991
16.2
26.3
(10.1)
1,654
1,688
1992
20.4
4.5
15.9
1,992
1,763
1993
6.2
7.1
(0.9)
2,115
1,888
1994
(1.5)
(1.5)
0.0
2,083
1,859
1995
2.3
34.1
(31.8)
2,131
2,493
1996
17.4
20.3
(2.9)
2,500
2,998
1997
11.9
31.0
(19.1)
2,798
3,927
1998
40.1
26.7
13.4
3,919
4,975
1999
10.8
19.5
(8.7)
4,344
5,946
2000
8.5
(10.1)
18.7
4,714
5,343
2001
3.1
(13.0)
16.1
4,859
4,646
2002
12.8
(23.4)
36.2
5,480
3,561
2003
9.1
26.4
(17.3)
5,977
4,500
2004
12.8
9.0
3.8
6,744
4,905
2005
8.5
3.0
5.5
7,316
5,052
2006
9.2
13.6
(4.4)
7,991
5,740
2007
(2.4)
3.5
(6.0)
7,797
5,943
2008
(32.0)
(38.5)
6.5
5,303
3,656
2009
23.7
23.5
0.2
6,559
4,513
2010
26.0
12.8
13.2
8,263
5,090
2011
13.2
(0.0)
13.2
9,355
5,090
2012
17.3
13.4
3.9
10,976
5,772
2013
10.7
29.6
(18.9)
12,155
7,481
 
Average
10.9
9.6
1.3
        +1,115%          648%
StdDev
12.8
17.9
Ave/SD
0.849
0.540

Figure 2 – “System” versus S&P 500 Buy and Hold

Summary

The difference in the average annual return is not large (+10.9% for the system versus +9.6% for the S&P 500).  But this difference adds up over time.  Since January 1988 the system has gained +1,115% versus + 648% for the S&P 500 (while only being in the market 33% of the time. The true “numbers geeks” will notice that the standard deviation of annual returns for the system is only 2/3rds as large as that for the S&P 500 – i.e., much less volatility).

So I ask again, is this really a viable strategy?  Perhaps.  But the truth is that it can get a whole lot better – as I will detail the next time I write.

Jay Kaeppel 

Chief Market Analyst at JayOnTheMarkets.com and AIQ TradingExpert Pro (http://www.aiq.com) client
 
Jay has published four books on futures, option and stock trading. He was Head Trader for a CTA from 1995 through 2003. As a computer programmer, he co-developed trading software that was voted “Best Option Trading System” six consecutive years by readers of Technical Analysis of Stocks and Commodities magazine. A featured speaker and instructor at live and on-line trading seminars, he has authored over 30 articles in Technical Analysis of Stocks and Commodities magazine, Active Trader magazine, Futures & Options magazine and on-line at www.Investopedia.com.