S&P 500 Sentiment Negative

Based on the chart below, at this time it appears that the S&P 500 may get a short term market bounce (although not clearly indicated yet).  The long term sentiment still appears to be highly bearish.  Expect the next buy peirod to be triggered towards the end of third quarter 2011 or beginning of the 4th quarter.

This chart displays a measure of market sentiment (as measured by the S&P 500) on both an intermediate and long term basis. I have highlighted where historical buy, hold, and sell zones were indicated by the signal lines. One can use the bottoms of the intermediate signal line (blue) as indication for ideal periods of cash infusion in a held position.  That being said, the peaks of the blue line can also indicate ideal periods for transfers out of a position.

Some R&D Progress Made

Below is a chart depicting some of the head way I have made over the last couple of months. The yellow line indicates application of the oracole formula (for now) vs. a buy and hold strategy.  This chart depicts the investment of $250 bi-monthly for 21 years in FCNTX.   Something that could maybe improve the result swould be to invest in the bond market (or other non equity position) during periods that one pulled out of equities.  This analysis assumed that there was a zero yield in the money market account.  Another important note is that this chart was only generated using strictly technical data analysis of the stock price.  There is no fundamental data analysis or external information used to generate the information in this chart.  Also there were no round trip trades employed to generate these results (see the last post).  The Oracole Strategy shown below (yellow line) did not out perform a tradition hold strategy (pink line) for most of the investment period.  This chart would also look very different if one simply looked at the growth of 10,000 over the same period (oracole would out perform after the first market drop).  My next goal is to employ some other technical measures (information external to the fund or equity) to try and improve performance further.

Total Cash Investment: $110,750

Hold Strategy Value: $337,848.13

Oracole Strategy: 383,036.02

Click on chart to expand.


One thing that I have learned during this process is that it is actually surprisingly difficult to beat a buy and hold strategy without employing some other asset class such as bonds, commodities, etc. I have determined some very interesting things in this process. My next step is to employ some additional analysis from external sources to the fund close price, but this is extremely time consuming.

Warning - Round Trip!

The other day I recieved a warning from Fidelity warning me about a round trip exchange.  A round trip is defined as an exchange in and out of a fund within 30 days.  This can result in suspension of exchanging priveledges if done excessively.  Therefore, I am adding additional analysis that attempts to filter for volatility.  The signal recieved on 6/14/2010 and then the signal to sell on 6/30/2010 resulted in a loss, and then the market corrected significantly.  However year-to-date oracole has still outperformed the fund. I am currently sitting on the sidelines until I can improve the oracole strategy.  Below is an image of a draft of the tech tool I am creating (green dots represent buy and red dots represent sell signals):

I feel that I am very close to having a fantastic signal generating tool.

Performance Track

I have started tracking the performance of two mutual funds and one stock that I own based on applying the oracole formula.  The table below compares results of fund or stock performance vs. portfolio performance if the oracole formula is applied.

Currently all of the funds are in a hold pattern (waiting for a buy signal).  As stated in my introduction there is no gaurantee that a loss will not occur. Therefore, it is good that this post shows the previous transaction generated a loss.  The approach to this strategy is that you preserve the wealth you have when the market signals a potential trend downward.  However, I believe that over a long period of time the oracole formula will generate returns that out perform fund or stock performance.

One important point to be made is that the %Gain or %Loss (% G/L) for the Oracole YTD Return are realized gains or losses.