Late Night SHOMP

One of the edicts set forth by the powers that be at iBankCoin, during the exquisite development of the second iteration of The PPT (BEHOLD the excellency of my prose!) was to establish an evolved version of the Overall Hybrid Score, aka the mean reversion element of the algorithm that flags general market overbought and oversold conditions. Throughout the years, you’ve witnessed these signals with perfect clarity time the market with sublime mathematical precision. Upon the launch of part two of my grande experiment in mathematical precision, three new sets of general algorithms will be added, all to conform to time.

Understand something, price is not enough. In order to properly gauge the market, with all of its eccentricities, one must account for time–because things change, correlations dislocate and reattach, scattered over an undetermined period of time. So, we’ve created 3 month, 6 month and 12 month algorithms to go along with the current 36 month (anything longer than 36 months is mostly irrelevant).

During this period of unprecedented appreciation, The PPT has done well. As a matter of fact, our good friend Ragin’ Cajun published a study towards the end of 2011 highlighting the astounding advantages of trading in and out of leveraged ETF’s– using the overbought/oversold signals. The most difficult part of using mean reversion, in an irrational market, is there are few opportunities to profit from the downside. Moreover, over the past three months, there have been an unprecedented amount of overbought signals registered in The PPT, which only further demanded malleability in the way the algorithm was calculated. It is clear to me, a score of 3.10 no longer represents grave danger, as it once did, just 6 months ago. Nevertheless, over the last 36 months, had you adhered to the glory that is The PPT, you did exceptionally well.

HYBRID SCORE CORRELATING WITH THE S&P 500

Using the OS signals made you money 82% of the time, over 33 separate instances. The OB signals, prior to this recent bout of foam mouthed bullishness, presented a much greater level of accuracy. Nonetheless, at 64% accuracy, within 7 days of a signal, in such a trending market as this one, up over 100% in 3 years, I declare it is more than an edge, but an advantage.

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