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Apr 17, 2014 - Short-Term Timer Moves Long ...

... but my intermediate- and long-term timers are still in cash.

Momentum timers are a curious lot -- they always lag the turn, by definition. When timers of various durations are employed, they all will lag the peak or bottom in proportion to their length.

This is where I find myself today. The chart below shows where entering on a short-term signal can be good or bad, depending upon how the markets play out. Here's a track record of the past 2.5 months:

Timer table

Here's what you're looking at in the above table:

Back on Feb 10, 2014, the short-term timer fired first and a few days later the remaining intermediate and long-term timers also moved long. Positions entered on the 10th "worked" out, with a proxy IWM (Russell 2000) investment working well until the short-term timer moved back to cash with the close of March 7th. Since this signal comes after hours, closing the next day (March 10th) would have yielded about 5.65% gain in this simple ETF.

The same philosophy doesn't always work though. Another short term signal came on March 21st but promptly failed, and again on March 31st, failing four days later on April 4th. In both these cases my longer-termed timer will still "long", indicating that we were in a uptrend. While the long-term performance of these individual timers is good in terms of expectation, neither can protected us from whipsaws.

As I review the markets this Easter Sunday I am faced with a decision. If Monday is an up day for the broader market, the short-term timer will almost guarantee a buy entry at the close on Monday. If it is down, then my timer system will most likely indicate a whipsaw and the sidelines will be my haven.

I am seeing a generalized thawing of the present cycle, using my long-cash ratio (LCR) methods, so with the slopes of the slopes (acceleration) of various moving averages now starting to turn positive for consecutive days on all measured time frames we do have a reason to pay attention. LCR Table

Here's what you're looking at:

On the left the LCR is indicating 0.560. Out of nearly 3,000 stocks that I track, 560/1000 are in some form of long status, e.g. they are above their historical, optimized moving averages (price and volume). Parity exists at 1.00, and markets taking off are well above 1.0. You can see we just hit a low of 0.475 on 4/14 so this may be the local low for this cycle.

Next from the left are simple characterizations of the strength of the LCR move. This has not been a strong set of movements, with 4/15 at only 2% change, 4/16 at 6%, and f/17 at 10%. Strengthening is good, but these are relatively weak movements. This indicates to me that not many folks are jumping on board the broad market, and are being very selective. Nevertheless, this has been enough to change the overall direction of the markets, and this is indicated in the area labled "Slopes of LCR EMAs". Here, the shortest EMAs of the LCR (2d and 3d) have moved positive, which I take as a necessary condition to move long in any position. The fact that the 5d is 0.00 but RED indicates it is almost ready to move long -- any upward movement in the broad markets on Monday will most likely trigger this to the long side. This will flag a "enter market" signal for me, and the easiest way to do this is with IWM, QQQ, VXF, or SPY.

Over on the right are the slopes of the slopes. You can see that these have been green for the past 3 or 4 days, indicating that they have already turned and are moving higher. The right side will ALWAYS lead the slope table in turning direction -- and hence, is a good indicator of when to get defensive and when to get your shopping lists ready.

With the intermediate and long-term timers still in CASH, but the short-term timer getting ready to move LONG, the shopping list is relatively short -- I'm looking at a simple position in IWM, QQQ, VXF, or SPY and will be done with it.

In terms of money management, no more than 25% of my capital will get put into the market with this initial signal. The long-term uptrend signal was broken a few days ago (4/11), and I need it to recover before my rules will let me get back into the market with both feet.

For the curious, this short-term signal (entering when the 5d LCR slope turns positive) has a so-so track record:

Although the number of winning trades is less than the number of losing trades, the timer system gets you into a trade quickly, and more importantly, out of the trade just as quickly. Hence, the SQN, ME, and PRR values are all respectable.

As a comparison, my combo timer, which requires that the intermediate and long-term signals be intact, is much more stable:

In both cases the numbers are generated using an internal index that I call "GGT", and the best proxy is the ETF IWM, with a R2 value of 0.99 over the past 100d.

If markets are up on Monday I'll most likely purchase IWM, not to exceed 25% of my available tradeable portfolio, and let the chips fall where they may. My crystal ball is as good as yours, so stay tuned.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in IWM over the next 72 hours.