Short Term Trading System Still Not Bullish

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December 29, 2008

We’ve always used a short-term trading system to time our long-term (bullish) positions. After all, there’s no reason to get into a long-term trade at a short-term high, and no reason to make an exit at a short-term low. However, with a new data source we’ve updated the systems’ parameters to include more historical data. This should mean better signals all around… maybe.

More important and relevant right now, however, is that we don’t yet have a buy signal. The December-to-date strength has been fairly respectable, but the undertow is still shaky. Too many people may be getting a little too optimistic too soon.

Here’s the latest chart for this particular bullish timing system. The fact that the last several ‘buy’ signals have been unproductive hasn’t gone unnoticed.

And just so you know, here are the latest system back-test results. This long-only method still beats buy and hold, before and after we made the recent adjustments.

By the way, of you’re a newcomer to the site/newsletter, the idea here is simple…. we use breadth and depth shifts to spot impending changes in the overall market’s direction. This is only a short-term trading technique, but one that still has major implications for our longer-term investments.

Though we can’t share the specifics on our system and its parameters, we can tell you we look for comparative changes in bullish and bearish breadth and depth for major stock exchanges. The challenge is finding a way to turn that erratic data into a ‘trend finding’ system, though a few years of searching have provided us with a fruitful strategy.

That said, remember, this tool is just that - a tool… one of many we use. It’s not something anyone should put blind faith in.

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