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Hal’S “Thoughts” As Of May 20, 2012

Before I get into what he "thinks" today, let's first take a look at a bit of recent history:

I posted a stocktalk regarding Hal's "thoughts" about a probable S&P 500 downside target and bottom formation on May 15. Hal's high probability targets are extremely reliable, and serve to keep me positioned properly in a trend until a reversal signal is in place. When the target is hit, Hal's algos compute another target, or, if a probable reversal signal is deemed imminent, signals this probability and offers "advice" as to appropriate actions. On May 17 the market hit the target, and I posted another stocktalk. Here are links to the posts:

The market hit Hal's minimum target (7.5% off the high) on 5/17/12. As the precondition had not yet triggered, and because of other indications as well, I reported in a stocktalk that day that Hal was expecting more downside. The new target was the lower end of the anticipated target range, which was about 1% lower. The market hit the that target (about 8.5% off the high) Friday afternoon, closing a bit below. The precondition signal also triggered at that time.

So what are Hal's "thoughts" now?

He 'says' that the bottom, if it occurs near these levels, will very likely be "complex" (like a double bottom, etc.). He advised against closing any hedging positions at this time beyond selectively closing the put side of option collars on some individual stocks (done on Friday). Most of the time, a small percentage of the short hedge, like 10% to 20%, is closed on precondition day. This happened the last time the precondition triggered (reported that day, 8/8/11, on stocktalks), but this time Hal is content to just lower stops on short hedges to the equivalent of 1324 on the S&P index.

Since Hal uses a trend following type of algorithm to get in most of the short hedges (short es-mini futures and broad market etf's), they are most often initiated a bit late if looked at from a get-in-optimally, countertrend point of view (the kind of entry that I think SA readers like to see). Though not what I would call tight, the 1324 stop level, if hit, will still lock in profit. Short hedges can always be put back on if necessary. Hal likes risk control on the risk control. The options hedges on individual stocks are initiated using a countertrend algo, and are selectively done, usually at different times, and not on every stock.

Back on 8/8/11, Hal was considerably more bullish on precondition day, though he did say the bottom would likely be complex. I posted specific examples in stocktalks of historical bottoms that resembled what he was anticipating. The buy signal triggered the next day, and he advocated closing more shorts and adding some longs (also detailed in stocktalks on that day). This time around, he's 'seeing' more risk.

So, going into the week just a little less hedged, I'm waiting for a potential buy signal and Hal's next pronouncement.

Note: My posts are not intended to provide specific investment advice. How one invests is very much dependent on individual needs, risk tolerance, and other factors. These posts are merely snapshots of the methods that I use, and hopefully, may provide some food for thought regarding systematic, quantitative strategies.

A bit more about Hal: He become personified in 1988, when he started to "talk", originally in a different application, using a Texas Instruments text to speech board that sounded like Stephen Hawking. Back then, he was known as "Sven" because he had a very slight Swedish accent. I turned his voice off years ago. At times it was rather comical and entertaining, but it ultimately became annoying.