High Tight Flags for Thursday

Have a great day!

Not much time this morning to get into the specifics of these indicators. If you want to read more about them, their thresholds, how they are constructed, etc., then explore previous posts here.

I have circled the latest readings to make things easier.

A brief synopsis of what I expect over the next few days: We bounce soon (starting today, likely) and it lasts for a few day to a week.

Hit me up with any questions in the comments.

The market is in a neutral area right now. I am expecting more of a pullback, but quick glances through some breadth scans don’t provide any firm evidence as to which direction the market may take over the next few days. Until we have more evidence, I don’t see any reason not to keep watching these high tight flags.

$IMH has been a huge winner for the high tight flag traders.

My charting software gives a different chart for $USLV, but I’ve posted it anyway because it still looks good.

Have a great trading week!

Beyond the fact that I trade these, I find that monitoring the top-ranked funds can be helpful in determining whether the market is defensive or risk-on. Note the shift to gold and the shift away from utilities and consumer staples…

Top Five Funds on September 19, 2012

1. FSTCX (Telecommunications)

2. FSAGX (Gold)

3. FBMPX (Multimedia)

4. FBIOX (Biotechnology)

5. FWRLX (Wireless)

Top Five Funds Exactly One Month Ago

1. FIUIX (Telecom and Utilities)

2. FSUTX (Utilities)

3. FSTCX (Telecommunications)

4. FBMPX (Multimedia)

5. FDFAX (Consumer Staples)

I’ve been trading this system (Version 1) live in a Fidelity 401K account. It is definitely the easiest system I’ve ever traded. It should be though as it is designed to be a long-term system for a retirement account or for someone that wants moderate out-performance with a reduction in the potential for a huge drawdown. There are never issues with fills and because money can be rolled from one fund into another, there are no issues with settlement.

I’m also still tracking Version 2, which is still having problems. It is a good example of why after backtesting one should track a system in real-time before committing real money to it.

Read more about Version 1 and its development here.

Read more about Version 2 and its development here.

Version 1 YTD

• Net Profit 9.03% (12.95% annualized)
• Exposure 83.97%
• Net Risk Adjusted Return 10.75%
• Trades 15
• Winning Trades 53.33%
• Average Profit Per Trade 1.85%
• Max System % Drawdown -9.96%
• Profit Factor 2.35
• Sharpe Ratio 0.85

Version 2 YTD

• Net Profit -1.68%

I don’t see any need to record the rest of the metrics for Version 2.

$SPY YTD

• Net Profit  14.91% (Annualized 21.64%)
• Max % Drawdown -9.64%

Some new ones have made the screen… I especially like ZLC, although it has seen some selling pressure every time it tries to go higher.