Power Dip Closes All Open Positions

On the open, the Power Dip system will close Savient Pharmaceuticals, Inc. [[SVNT]] , Waters Corporation [[WAT]] , and DENTSPLY International Inc. [[XRAY]] .

The system was able to quickly recover from its largest drawdown since I’ve been tracking it here. This recovery was due in large part to Noven Pharmaceuticals, Inc. [[NOVN]] being bought out, which netted a greater than 20% gain.

I am still concerned about the lower than historically normal average trade, and commissions continue to eat away at the returns. I suspect that as the small caps begin to stabilize that the system will be taking fewer of these trades, which might mean that commissions will start to come in a tad lower (fewer shares purchased means lower commissions).

The system will now go dormant until the markets soften and we get some pullbacks to buy.

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Last week I wrote about the edge that develops when the market makes consecutively lower closes. Excessive bearishness was the soup du jour, and yet the study showed a bullish edge.

Today (Wednesday) marks three consecutive higher closes, and the soup du jour is clover (bulls love clover), so I want to take a look for any edge that might exist.

The Method

This study will short the [[SPY]] at the close if the following two conditions are met:

1. The ETF will make three consecutive higher closes, AND

2. The three day rate-of-change will be greater than 5%.

The exit is a simple time-based exit.

100K per trade was used, with no compounding of gains. No commissions or slippage was added.

There were 22 trades generated from all of the available SPY data.

The Results:

The numbers running across the bottom of the graphs are the day on which the trade was exited.

Net Profit ramps up for the first three days and then begins to fade away.

The win/loss ratio is very volatile. This may be a consequence of the small data set.

Summary:

While the results do suggest that there is an edge, there were too few trades to convince me that it is robust.

I want to highlight the spikes in the graphs. Ideally these graphs would show a smooth fall-off starting from day three on. The volatility in the graphs point to the possibility that the best day to exit may change quickly and often. Again, if there were more samples, these graphs may be smoother, and I’d be more likely to trust the results.

Something that is odd is that this study also shows a spike around the 12 to 13th day, similarly to the 3 consecutive lower closes study. Maybe it is just a coincidence.

Disclosure: Short the SPY as of Wednesday’s open.

Danny also mentions the 3 consecutive up closes. His custom buy/sell strength indicators are one of the few indicators that I check nightly.

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On the open, the Power Dip system will sell [[LIFE]] and [[BIOS]] .

Barring a large gap up, LIFE will be sold for a small loss.

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On the afternoon of Tuesday, July 7th, the SPY had shaved two points from its value, and the SPX was going to close beneath the 200 day simple moving average. The bears were out in droves, marauding and eating pic-a-nic baskets stolen from frightened bulls.

In the comments section of Fly’s blog I remarked that it was time to go long, and that I would do so, on the next open, at 25% of account value. Some traders agreed with my assessment; others asked if I was serious. Unfortunately, there was a select group who felt the need to berate my call.

No big deal, really, to be challenged on a market call. It happens a good bit around here. Often, I welcome a good challenge, as having to stand for my convictions makes me a better trader and system developer. So, In order to respond to the negativity and excessive bearishness in an appropriate manner, I did some testing and wrote this post: No Wonder 95% of All Traders Blow Up.

The post was meant to be provocative, and it certainly achieved my objective. However, what good is an unpopular entry, if I do not get to follow the trade through to the profitable exit?

Of course I did not know for sure whether this trade would be a winner or not, but I knew the odds were on my side. To be honest, there were several times when I was fairly certain the trade would be closed for a loss. But that is the thing about trading with the odds. If nothing else, trading with the odds gives me the conviction and staying power to see the trade through to the planned exit.

My SPY position will be sold this morning.

Should the SPY close higher today (Tuesday), it may be worthwhile to review Rob Hanna’s system for shorting when the index has closed up 2 days in choppy conditions. That’s right, I’m insinuating that it is getting to be the time to build short positions, just when many are getting excited about getting long.

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The Power Dip portfolio was unable to harness all the strength of the broader markets today. While the holdings closed up, the portfolio underperformed.

ARMH was sold on the open.

Two more positions will be sold on tomorrow’s open. Check back tomorrow morning for the details. This will leave the portfolio holding four stocks. There are no buy signals for the open.

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In case you missed Dennis Kneale’s tirade against iBC, here is the link: Dennis Kneale vs. iBankCoin.

Kneale, at the opening of his piece says, “I tried to reach out to the bitterest realm on Earth last night, the blogosphere, and all I got was a new load of vitriol and grief.”

The reason that Mr. Kneale is getting eviscerated in the blogosphere is because he refuses to respond to thoughtful inquiry, put forth by the bloggers. Instead, Mr. Kneale would rather focus on blogger anonymity, or on a few comments that were left, such as “Dennis Kneale fondles cats.”

Kneale’s disgust with the blogosphere is ridiculously misplaced. His disgust should be with CNBC, his producers, or with himself. It is easy to highlight ridiculous comments, not written by the bloggers themselves, rather than respond to facts and data, put forth by the bloggers. As I’ve written before, Kneale’s approach should not really be a surprise, as CNBC is not about reality, but celebrity.

Case in point: While Karl Denninger can be annoyingly smug, he has responded to Mr. Kneale with facts and data. For this thoughtful response by Denninger, Kneale grants him about one minute of air-time, and immediately throws him a red herring, in the form of a question about blogger anonymity. As Denninger finally was getting to the meat of the issue, his time was cut short by a breaking news story.

Rather than offering Mr. Denninger another opportunity on the following night, Kneale uses his two minutes to highlight some of the comments left about him on our own iBankCoin. Obviously, should Dennis really have wanted to address the data put forth by Denninger, he would have invited him back on the show.

CNBC and Kneale have attempted to play a similar game with Tyler Durden of Zero Hedge. Kneale has an open invitation to debate on the Zero Hedge blog, as well as time for an extended phone call. I am doubtful that Zero Hedge has heard any response from Kneale’s producers.

What is Kneale’s Purpose in Taking on the Financial Blogsphere?

This is all a game. Anyone who thinks Kneale truly wants a well-reasoned, insightful conversation about anything is the true idiot. Kneale’s purpose is to create drama. That is all. He is no better than a reality-show host, except his network refuses to present the reality.

Marion Maneker sums it up best:

“It turns out Kneale is haughty but wrong. The constant carping, acting out, and cartoonish behavior has been anything but bad for CNBC’s brand. In fact, it is part of a conscious strategy to take what was once a staid place where the markets themselves starred and turn it into a free-for-all with heroes and villains and a running back story sort of like professional wrestling.”

As iBankCoin received no bump in traffic from Kneale’s mention, it appears that CNBC’s strategy is working. The bloggers are the villains, out to manipulate markets, attacking the host with ad hominems, all the while hiding behind their anonymity. Kneale stirs up his viewers; the bloggers get punished in an asymmetrical debate forum that benefits no one except for Kneale, and the bloggers receive very little in the way of increased exposure.

You’re A Fad, Kneale, But We Can Work With That

The sad thing about this entire situation is that CNBC viewers may have money at risk in the markets. When one watches a home improvement show, he does not typically stand to lose thousands of dollars by taking some poor advice. Yet CNBC consistently offers awful advice, manipulates the markets by promoting rumors, watches while their viewers have lost millions, if not billions of dollars, and still does not realize that this is not a game.

I have my suspicions about Kneale, though. He may have, at his core, a moral compass.

A say this because of his recent piece about how he grew up, in Florida. I got the sense that he remembers well his humble beginnings, and part of me thinks that there may still be a part of Kneale that is disgusted by what he has become, which is a showman, a huckster. Real journalists would not set foot in the doors of CNBC. Dennis, how does it feel to sell out and become CNBC’s clown, complete with a big red nose and goofy shoes?

While Kneale is a fad, I have no problem with that except that he continually avoids very important issues, issues that may eventually cost viewers large sums of money, all the while cheerleading the market. Fads typically do not result in the destruction of capital.

Despite Kneale’s on-air persona, I wonder, is there not a small part of Kneale that would like to compete again for the Pulitzer?

Dennis, you know the blogs out there (with anonymous bloggers) that are getting much more attention for their in-depth coverage than you are getting from being a CNBC clown. I can only imagine you are a tad envious, considering your background in investigative journalism. I urge you to bring real journalism back to the main stream media.

Heroes and villains belong in cartoons, not in the financial media.

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It was a very difficult week for this system, with four positions getting stopped out. For the week, the system lost approximately 3K, or 3%.

On Thursday, VVTV and VIT both stopped out. This made room for two more positions. On Friday’s open, these openings were filled with [[BIOS]] and Noven Pharmaceuticals, Inc. [[NOVN]] .

On Friday, ARUN stopped out. As there are no Power Dip setups for Monday, this will remain unfilled until a later date.

On Monday’s open, the system will sell ARMH.

I apologize for not posting the setups for Friday. I had semi-emergency to attend to very late Thursday night / Friday morning, and when I got home I fell into a deep sleep, sleeping right through the market open.

System Summary:

It was difficult this week to take these positions. I felt in my gut it would not be a good time for long positions. Still, the system must be followed rigidly. If not, the risk is that a large winner, or several small winners, will be missed. In fact, both ARMH and BIOS are doing fairly well, and these positions were entered late in the week, after it became obvious that the markets were having trouble bouncing. These two positions alone have added 1K back to the total equity. Had those signals not been acted on, the system would be worse off.

Even though the system is in a drawdown, it is very minor at this point. Should there be a bounce, the existing longs may very well pull the system back into the green.

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