The Market's traffic-lights

Wouldn't it be great if there was a simple Market direction/trend indicator to tell you Green-Go, Red-Stop?  In fact, depending on the type or style of your investment, there are many.  Over the last 1+ year, we have consistently followed and zeroed in on the one that has been working very reliably for our style of investing (we are only practicing to have the descipline to always listen to it!).  One can comeup with their own simple indicator using any well known market index like S&P 500 and/or NASDAQ-composite too.  Our style of investing calls for being nimble and paying attention to where the big money (institutional investments) are headed.  This calls for both price and volume movements or momentums rather.  Just watching an index fund's (price) trajectory won't always tell what is happening beneath the surface.  One good indicator best suited for us is what is called the Bullish Percent Index (BPI).  In short it indicates the overall bullishness or bearishness in the market; it is also called depth (corrected on Jan-2) the market-breadth indicator.

Here is a link for more information about the BPI and BPNYA (BPI for NYSE) and the chart (with literally Red and Green signals!) here.

As with any daily-chart views, it gets too noisy and too micro-view to make anything out of it.  We played with a couple of smoothing techniques on the BPNYA daily-chart which we now call the Poor man's Market Traffic Light!  One is a fast-indicator (for the active and agressive investor) and another is a slow-indicator (for the slow and study).
To plot the fast-indicator on a BPI chart, say for BPNYA, you apply what is called "Renko charting".
To plot the slow-indicator, you apply what is called "Three line break chart", and Voilà, you have your simple and reliable poorman's market direction/trend indicator.  Green-Go, Red-Stop.  Of course you don't want to immediately get out, you watch how your portfolio holdings are holding-up and then manage your risk accordingly!  Sometimes the indicator shows smaller/quicker turn-arounds which you want to wait and watch.

Here is the Renko-chart on BPNYA for the last 1-year (2012).  Notice that the horizontal time-axis is not linear (since it doesn't update where there is no price movement, ie, when going sideways!).


BPNYA (BPI for NYSE) for 1-year (2012). Green-Go, Red-Stop!
[Click on the image to enlarge]

Here is the slower-indicator on BPNYA for the last 14 months (since Nov-2011), just to show the begin of the new market-uptrend that started in 2011-December.

BPNYA (BPI for NYSE) for 14-months since Nov-2011. Green-Go, Red-Stop!
[Click on the image to enlarge]

Good enough for us to Keep it Simple and Stress-free.

A new (re-)start for the new year

After nearly 2 years of refinement, experimenting (and meditation!), we are back on our blog with regular posts on Market direction, trends, techniques, lessons learnt, and last but not the least, risk-management. In addition to our regular features, we are also looking to create a couple of model funds and (figure out a way to) track the fund's investments and performance through-out the year. These model funds will, for the most part, have the same or similar investments that we would have within our own personal portfolios. We are considering two types of funds. One an aggressive and risk-tolerant fund. Another a moderately-aggressive and low-risk fund. Shouldn't there be a non-agressive or a conservative version you ask? If you know our philosophy of wealth-management from our early posts you should know that the portion (pie) out of your entire net-worth that you are using for investing in stocks is already the one that is meant for actively-managed investing in stocks (with our primary emphasis on risk-management and wealth-preservation). That means it is understood that you have the other portions of your wealth well covered for an overall balanced and diversified wealth-management scheme (like owning a home/property, having a good life-insurance, having put in place a living-will/trust, having an emergency fund, investing in learning/schooling/new-skills to make a living, staying healthy, etc). While we plan to cover a 360-degree persoal finances and wealth-management aspects in the future, at this stage, our blog's focus will be limited to managing your investable funds in the stock-market, be it your IRA/401K or your personal/individual invement account.
 

About the Model Funds:

    We hope to setup and start this feature right on-time for the new-year! We are still figuring out the best way to post/publish/track the fund online. We may create and manage this either on some online stock-portfolio simulator/tracker (like investopedia.com) or with simple charts on our own blog under "Investracker" tab. (We wish we could keep our subscription to the covestor.com site, but they have discontinued their 'performance-tracker' service for members who are not advisors/model-managers. We hope to be a registered advisor or model-manager sometime in the future either on covestor.com or on our own). Here are some aspects of the two funds we are considering.

1. The Fast-and-Furious Fund:

Don't let the name decieve you though! Keep in mind it is all about risk-managment and capital-preservation. This is the aggressive, risk-tolarent fund with active and short-term trades with stocks held anywhere between 2+ weeks to 2+ months typically. In most cases will avoid holding a stock around the quarterly earnings release of the concerned company. Stocks selected for this fund will be mainly based on technicals than fundamentals. Stocks will mostly be a blend of micro-cap, small-cap, mid-cap and occasionally a large-cap stock.  No short-selling or no options-trading.

2. The Slow-and-Study Fund:

This is the moderately-aggressive and low-risk fund. This will consist of stocks with good technicals and also decent fundamentals. Although, buying and selling timing will still be based on technicals. This fund mostly will constitue mid-cap and large-cap stocks, may occasionally have international stocks and ETFs and may switch to bonds or cash at times of market corrections/down-trends.  No options-trading or short-selling but may invest in ETFs that short stocks. Will not invest in any kind of leveraged ETFs.


Stay tuned for more details soon.  Very soon!