Power Dip Closes 26 Winning Trades

I’m not much of a braggart, but from time to time I think it is appropriate to highlight PDS 2.0, especially when it is performing exceptionally well. Also, a commenter was wondering how the positions fared that were scheduled yesterday to be closed today. They all closed in the green.

Below is the text of the email that subscribers received tonight. I removed the new buy for tomorrow.

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Here’s a quick summary of today’s action:
The following positions were sold today at the closing bell:
Sold HS for a 12.50% gain.
Sold HS for a 11.85% gain.
Sold SKH for a 5.28% gain.
Sold AIXG for a 4.97% gain.
Sold ULTA for a 4.78% gain.
Sold ONNN for a 4.70% gain.
Sold KEM for a 4.61% gain.
Sold F for a 4.45% gain.
Sold UNT for a 4.07% gain.
Sold FSS for a 3.66% gain.
Sold VRNT for a 3.63% gain.
Sold WYNN for a 3.60% gain.
Sold VRNT for a 2.81% gain.
Sold RBN for a 2.80% gain.
Sold WYNN for a 2.74% gain.
Sold CALD for a 2.68% gain.
Sold OSK for a 2.52% gain.
Sold UNT for a 2.25% gain.
Sold RBN for a 1.47% gain.
Sold CIE for a 1.23% gain.
Sold NE for a 1.19% gain.
Sold GTE for a 1.09% gain.
Sold CYBX for a 0.80% gain.
Sold PL for a 0.78% gain.
Sold CYBX for a 0.65% gain.
Sold BRNC for a 0.58% gain.

The following positions closed above their exit thresholds today, and are scheduled to be sold at the next closing bell:
MGA
MGA
NUAN
HYC
HYC
MRVL
MRVL
UNP
PAY
SNCR
BCSI

The following stocks were identified tonight as new buys, to be bought at tomorrow’s open:
XXXX

-The Power Dip Team

Comments »

The 2% Risk, 3 ATR Model¹ is up 6.36% YTD, including commissions of .01/share.

20% Equity per trade model is up 5.12% YTD, including commissions of .01/share.

Despite continued calls from the financial nose machine to short this market, PDS 2.0 has stayed long. Here are some trades that were closed today.

Even Le Fly got long OPEN on the day PDS 2.0 selected it for buying…

Subscribers received the email below this evening. Note all the trades to be closed tomorrow. Most will be closed profitably. The new delayed exit makes the system easily traded by folks who work and can only place orders after the market has closed or before it has opened.

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Here’s a quick summary of today’s action:
The following positions were sold today at the closing bell:
Sold NAV for a 7.91% gain.
Sold AUDC for a 6.32% gain.
Sold CSX for a 4.98% gain.
Sold ACE for a 1.50% gain.
Sold OPEN for a 1.14% gain.
Sold ACE for a 0.95% gain.
Sold HCP for a 0.61% gain.
Sold ATHR for a 0.11% gain.
Sold ATHR for a 0.04% gain.

The following positions closed above their exit thresholds today, and are scheduled to be sold at the next closing bell:
HS
HS
AIXG
FSS
SKH
ONNN
UNT
VRNT
ULTA
WYNN
RBN
CALD
KEM
VRNT
OSK
GTE
NE
WYNN
UNT
F
RBN
BRNC
CYBX
PL
CYBX
CIE

No new picks were generated tonight.

-The Power Dip Team

¹Since stops are not used, risk is more than 2%. 2% is used for position-sizing purposes.

Comments »

After my last study, I almost opened a small short position on the Nasdaq. I didn’t, ultimately because unprecedented times call for unprecedented thinking. One shouldn’t approach an unprecedented market environment with typical thinking and expect to prevail.

In fact, sometimes we have to turn typical thinking about the markets on its head. And when we do, we realize that keeping things simple is in fact an unprecedented approach. Is this making any sense?

To clarify, my point is that the complicated approach to this market is to try and time the turn. We all know that markets will pullback, and we know that this market has had a huge run. Therefore, we attempt to catch the exact turn. To the day. This is typical thinking, but our current market is a-typical. When we turn that thinking on its head we realize that we should be taking a very simple approach.

There. That reads better.

Let me give you an example.

Take a look at the 20 day moving average of SPY, the exchange traded fund that tracks the S&P 500. Most of the time we would not even think about hedging or building a significant short position when the index is trading above this average. Lately though there’s been a preponderance of traders who want to get short and get hedged, trying to catch the turn. (My evidence for these traders is anecdotal with the data being gathered from tweets, comments, blog posts, etc. Admittedly this is in no way scientific). All the while, SPY has been trading above the 20 day moving average.

So lets see what has happened, over the last year, if we would have just kept things simple, and stayed long when SPY was above the 20 day moving average and went to cash when it was below the average.

Click on the chart to enlarge. The green up arrows show the buys and the red down arrows show the sells.

The Rules:

Buy the close when SPY closes above the 20 day simple moving average.

Sell at the close when SPY closes beneath the 20 day simple moving average.

No commissions or slippage were included. No interest was added for cash. Test period is 1.1.2010 to 1.25.2011.

Results:

Net Profit: 16.71%

Max Drawdown: -8.30%

SPY Buy and Hold Over the Same Period:

Net Profit: 13.94%

Max Drawdown: -16.06%

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One of the hardest parts of trading is sticking with the trend. Traders who have been able to ride significant trends have become part of trader lore, primarily because they got rich doing so. The concept is extremely simple, but in practice it can be an extraordinarily difficult thing to do. Hence, the profits that resulted. If making money in the market was easy…

If you are approaching this market with complicated thinking, you should ask yourself why you are having trouble staying long in a very very strong uptrend. A strong trend is a simple thing and applications for trading it should also be simple.

Comments »

These trades were closed today at the close. PDS subscribers were alerted yesterday evening to close them.

The blue up arrow shows the buy on the open. The other blue horizontal arrow shows where the trade was closed.

The system alerted subscribers this evening to 13 other positions that will need to be closed tomorrow at the close. Not all of the 13 trades will be winners. Below are a few that are still open but will likely be closed tomorrow for profits.

As always, PDS trial is free.

Comments »

Over the last week we’ve witnessed the Nasdaq fall and the Dow make gains. This is a serious divergence and signals a significant threat to the tech rally.

Since July 1st, 2010, the $NDX (Nasdaq 100) has gained more than +30%. During this rally, the steepest pullback was in August/September where the index shed just over -7.5% before resuming the rally. The index also pulled back -4.4% in November, 2010.

The $NDX fell 3 out of 4 trading days last week (the MLK holiday week), dropping -2.4%, while the $DJI gained over +0.5%.

Does this divergence suggest a change in the market environment, and if so, how much deeper can we expect this pullback to go?

The Rules:

• When the $NDX 5 day Rate-of-Change < -1.5% AND the $DJI 5 day Rate-of-Change > +0.5%, Buy QQQQ at the Close.
• Sell X days later.
• From 1.1.2001 to 1.21.2011
• No commissions or slippage included.

• 43 occurrences of this setup, with 17 trades if held the full 50 days.
• Right axis shows the % of Winners.
• The average trade only goes into the positive on Day 1, and then never returns.
• The % of Winners stays beneath 50% most of the time and goes as low as 33%.

There appears to be a significant downside edge here…

To reduce skepticism that these results are random, let’s remove the Dow Jones element. After all, the divergence between the Nasdaq and Dow is what the setup is based on. All the rest of the rules remain the same.

The Rules:

• When the $NDX 5 day Rate-of-Change < -1.5%, Buy QQQQ at the Close.
• Sell X days later.
• From 1.1.2001 to 1.21.2011
• No commissions or slippage included.

• 440 occurrences of this setup, with 45 trades if held the full 50 days.
• Right axis shows the % of Winners.
• The average trade stays positive over most of the 50 days.

Removing the divergence with the Dow Jones and keeping the negative 5 day ROC requirement to trigger a buy on the QQQQ generates a positive edge. Thus, we can conclude that the current divergence is suggesting a change in the market environment.

If we use these tests to answer the original question of “How much deeper can we expect this pullback to go?”, we could see a pullback as deep as another -15% from Friday’s close. Barring a deep correction, I am looking for another -3.5% to -5% from Friday’s close.

***Update***

I changed the buy rules to allow an $NDX 5 day ROC < -1.0%. This change increased the number of occurrences to 61 and the number of trades held the full 50 days to 27.

Most importantly, not requiring the $NDX to have fallen more than -1.5% improves performance.

With the $NDX 5 day ROC at -1.61%, we should be cautious here. It appears the current environment may favor a steep pullback.

Comments »

Shocker. The market is not cliff-diving.

May I suggest some dips to buy? Keep in mind, the following setups have a proven edge…The only problem is that you will not be privy to the exit signal, unless of course you choose to subscribe to PDS 2.0.

Here are the top ten Power Dips as published to subscribers Thursday evening.

1. QXM

2. LXRX

3. AIXG

4. CALD

5. INAP

6. MAKO

7. VRNT

8. HOLI

9. OPEN

10. NAV

Comments »

Still looking for signs of a market crack-up. Breadth is always a good place to start.

The lower pane shows a simple 52 week New Highs and New Lows indicator. It includes de-listed stock data and uses all major exchange listed stocks and excludes OTCBB stocks.

The bearish divergence is not extreme, but it is noticeable.

First, during March and April of 2010, there were many spikes above the yellow horizontal line. Currently, we’ve have only one spike above the line, and that was in November. Also note that the 9 day moving average of New Highs has yet to reach the levels seen during 2010.

If we observe the New Lows, we see that they have been increasing, since December, 2010. We expect them to increase during times of weakness, but not when the market has been going up at a 45 degree angle.  From July 2009 to May 2010, the New Lows never increased while the market was trending up.

At this point, I still believe that a slight pullback is much more likely than a significant correction, but it looks as if there is increasing evidence that a more serious correction may be developing.

Comments »