So where are we now?

I'm not the only one to struggle in calling the market's next move. All the commentaries I have seen have little to say. Few say, as I do, I don't know. 

I have been persuaded to put a trend line on the graph, with 2 standard deviation confidence lines. I'm not sure they are particularly helpful so I have made them rather faint. What they show on the FTSE chart is that the last high of 5 days ago touched the higher confidence line and this was followed by a pull back to the trend line. There the market sits. It could go as low as 6500 without breaking the up trend. If you were to look at the DOW or the S&P you get very much the same picture.

The Nikkei has already penetrated the bottom of its channel and is looking rather sickly to my mind.

A few days ago I drew attention to the rise in the interest rate on 10 year US Treasury bonds. That rise continues. It is now touching the top of its trend channel. 

You will recall that low interest rates have been one of the drivers of the stock market’s relentless rise. But the chart shows that they have risen by 32% in the past three and a half weeks. Before the rise, the yield on the DJI shares was 1.7 times that on those 10 year bonds but it has now fallen to 1.3 times. The chart reminds us that bonds have yielded far more the past. The low interest rate motor for higher stock prices could be running out of steam. On the other hand since the interest rate is reaching the top of its trend channel , at least in the short term, there may be some respite.

What I am doing

I’m still holding the better performing shares from the portfolio I built up earlier this month. For those who are interested they are LGF, KR, SMI, PPC, BONT, NRG, CIG, AOL, NVTL, SIRI, FHCO, all on the American market. (Details available on Yahoo Finance )They represent about 30% of my portfolio with the rest being in cash and GVC, my stalwart UK share which is not doing much at present. A couple of these shares are probably for the chop later today.

Backtesting.

You will recall that I have been backtesting market timing methods and that I created a Support and Resistance system for timing entry to and exit from the market. One of the reasons that I am holding on to my remaining shares at this inscrutable time is that the system's sell trigger has not been activated.

The system's backtest yielded great results but suffered an unacceptable maximum pullback in when the market whipped back and forth in 2011. I have been trying to refine the system to reduce the amount of profit the system sucked back as it generated too many signals.

So far I have failed to find a method to reduce the pullback significantly. But the stop losses that I added to the system have increased the annual return from 36 to 45%.

The chart shows the pattern of returns generated by the modified system over the period November 2008 and May 2013.