Power Dip Friday Edition: 9 Buy Signals

Finally, some weakness, and the system was barely invested going into it…That’s a good start.

Below are the 10 signals. They are ranked using a hybrid between an aggressive and conservative ranking. However, there was not a lot of difference in some of the metrics and so this iteration does not differ very greatly from the aggressive ranking. Thus, work from the middle or bottom if you would like to focus on more conservative movers.

There doesn’t appear to be much more edge gained by taking more than 5 entries in one day, so the system will be adding the top 5 positions. The system is already long VRTX and MA.

If you are even slightly curious about these setups, I encourage you to pull up six month chart for each of them. Note the pullbacks…

KKR Financial Holdings LLC [[KFN]]

MSCI Inc. [[MXB]]

Hanesbrands Inc. [[HBI]]

Lamar Advertising Company [[LAMR]]

OM Group, Inc. [[OMG]]

Aetna Inc. [[AET]]

McKesson Corporation [[MCK]]

Allergan, Inc. [[AGN]]

Norfolk Southern Corp. [[NSC]]

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On the open, Compellent Technologies, Inc. [[CML]] will be sold. Assuming it doesn’t have a large gap down, it should make a 10%+ gain.

We have another buy signal for the open, and that is Vertex Pharmaceuticals Incorporated [[VRTX]] .

The system will be long VRTX and MA.

Have a great day!

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Without further adieu, I will be presenting over the course of the next couple of weeks a year-by-year review of our Lost Decade: 2000-2009

Explore some  fun facts, figures, and charts, and watch as the most difficult investing environment in over 70 years unfolds in front of your eyes.

What Worked in 2000?

Surprisingly, one of the best strategies of 2000 was to buy the close and sell the next open. This strategy generated a return of 172.75% 42.09% on the QQQQ (not including commissions). The average trade was worth 0.45% 0.28% with the average winning trade generating profits of 2.81% 1.17% while the average loser lost -2.12% -0.77%. The strategy won 52.17% 53.79% of the time. (Sorry about the strikethroughs. I had a mistake in my code.)

This is significant and should serve as a reminder that during a volatile bear market, one is paid a handsome risk premium for holding overnight. In fact, the same strategy began working again as the market plunged in 2008.

What Didn’t Work in 2000?

Arguably, most everything. Some stand-out losers were E-Toys, Pets.com, and At Home Corporation.

The Theme of 2000…

Everything that goes up must come down. In other words, embrace mean reversion! Mean reversion begins to assert itself as the dominant regime. A simple RSI2 system with the rules below returned 56.86% with a 77% win rate.

• Buy=RSI2<10
• Sell=RSI2>80
• Short=RSI2>90
• Cover=RSI2<20

As we would expect, a similar system would have done very well in the volatile bear of 2008.

Thus begins the Lost Decade.

The year 2000 was the perfect harbinger of what was to come during the decade ahead, characterized by corruption, corporate and government malfeasance, bursting bubbles, volatility, and shattered paradigms.

Stay tuned for the year 2001, otherwise know as, “Tech’s a Wreck…Let’s Flip a House!”

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It has been a while since I posted this, mainly because there haven’t been many trades lately. The other reason is that I’m just tired of writing about it.

Jeremy is putting the finishing touches on his back-end infrastructure so that the Power Dip will run on auto-pilot, tracking the performance on all trades, and updating the subscriber every evening as to new trades and updating profit targets for existing trades.

Yes, the system is in a drawdown, and yes, it is a tad embarrassing to be launching a strategy that is under-performing. However, I believe the strategy is robust, and honestly, the best time to allocate capital, whether it is with a new fund, new manager, new strategy, etc., is during a period of under-performance. Study after study shows how investors typically chase performance, and bail on a manager, fund, or strategy at the exact wrong time. Similar to trading, many investors/traders have the tendency to buy high and sell low when allocating capital.

The system is long Compellent Technologies, Inc. [[CML]] and MasterCard Incorporated [[MA]] .

There are no new buys or sells for Wednesday.

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On the open, the system will buy MasterCard Incorporated [[MA]] .

It will be long two names, MA and Compellent Technologies, Inc. [[CML]] .

I will be posting the updated spreadsheet this evening. It is not pretty, but I still have no evidence that the drawdown is anything other than normal.

Also, be on the lookout for another project (The Slippage Project) which I think will be very beneficial for working-stiff traders like myself, who often have to trade the open, or the close, using market orders.

Have a great day!

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On the open, Compellent Technologies, Inc. [[CML]] will be purchased.

This will be the first purchase in some time for the system. While I would like for it to be getting more long exposure, there simply are not any oversold stocks that fit the criteria.

I am also tracking another dip-buying system that uses a different setup and criteria, and it had no signals for today.

I’m not sure what all this means in terms of the broader markets, except that they just keep going up and up, with the strongest of stocks having very few pullbacks.

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• Sellers are in control of the Russell 2K issues.
• RSI, OBV bearish divergences look to be playing out.
• [[IWM]] has exhibited a common bearish technical pattern which is to fall below the 50 day average (after a long run-up) and then test the moving average from below. I see this pattern as a sign that professional distribution is under way.
• Support is at 55.00, and a climb back above the 50 day average would be very bullish.

Where has this money gone?

The institutional support appears to have moved into large caps, as evidence by the action in [[DIA]] .

While [[DIA]] is exhibiting some bearish divergences, they are not nearly as significant as those that appeared recently in [[IWM]] .

I need to run some tests where we are long DIA when IWM is below the 50 day average and DIA is above it, but those tests will have to be run late this weekend or early next week as we are off to the mountains for a little mini-vacation.

Have a great weekend!

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