Tuesday 7 May 2013

The Holy Grail


I am not a happy bunny. I had written more than half this post online in Blogger and then without warning it vanished. I detest going over old ground. I hope that my bad mood does not intrude on my rewriting.

How do you predict changes in market direction?


I am deeply disappointed. You know that I am a big fan of Vector Vest. Their tools for stock picking are second to none. They are too good and they hide the weaknesses that I have found in their timing systems. If you buy the right shares and your timing is right you can make shedloads of money and can afford to get your timing wrong some of the time.

Almost as soon as I bought the Vector Vest  system I tested the “confirmed up and confirmed down” signals and found that if I had used them to time my entry and exit from the market I would have lost money. I have now tested their latest timing systems and found they too are wanting.

The unisearch tools and the backtesting facilities offered by the program more than make up for the timing failings and I am sure that, as in the past, I will go on making lots of money using those wonderful tools. But market timing is also important. And I will have to look elsewhere to find how best to pick my moments for piling in and pulling out of the market.

At present there are two road that I plan to follow in my quest for the holy grail: a system that will guide me to choosing the best times to buy and sell:
  • ·         volume spikes
  • ·         support and resistance lines

Both look promising except that I am at a loss about how to develop a method to backtesting their performance and to be sure that they are the goods.

Volume spikes


In the case of volume spikes I can show that they indicate a change of direction more often than not. But I cannot show whether that will be a pause on a reversal of direction and I cannot say how big the move they predict will be. Nor I cannot show how quickly it will happen.

To demonstrate I use and old chart from January last year which shows a series of volume spikes each of which signaled a change in direction. It ended with a spike which had just occurred. What happened next was that the rising market flattened for a number of days, then resumed its upward course. It paused again, then there was another larger volume spike and then finally the market fell. Tricky to know exactly how to play the signal.


Support and resistance


With support and resistance I can show you today’s gold chart which provides a beautiful example of how well support and resistance lines work. If we sold out at the end of the day on the 12th April when the market broke support we would have saved ourselves the 7% fall that occurred the next day. If we had gone back into the market to make money from the recovery selling on the 26th April we could have made a nice little 8% in 8 days. It would have avoided the downturn which was accurately predicted when the market hit the old support line which had  become a resistance line.



The problem Is the subjectivity in drawing these lines. Again I don’t see clearly how I could backtest the system. But I feel convinced that the holy grail lies nearby. I shall continue my search.

The market today


As for the market today, it continues its upward climb having broken through short term resistance. Every day sees a new all-time high in the US market. 


Chicken Montalbano (A kind of Sicilian sweet and sour chicken)


This is another recipe I picked up from a Montalbano book. I did a fair bit of adaptation because the original calls for rabbit and my wife is not keen. Also rabbit is not that easy to come by round here unless you go out and shoot it yourself. I’ve never in my life handled a gun so that’s not going to happen. What I did instead was substituted chicken breast. I picked out what looked best from a number of recipes I found trawling the internet, both in English and Italian. (it’s amazing how good those internet translating machines are these days).

I took two plump chicken breasts sliced them lengthwise and marinaded them in 125 ml red wine vinegar for 4 hours along with 2 bay leaves

I then prepared the rest of the ingredients. One sliced onion, three chopped sticks of celery, two chopped carrots, 35 gms of capers, 35 gms of sultanas, 35 gms of pine nuts, 150 gms of green pitted olives, and 2 tbs of honey.

I heated the oven to 180 degrees.

I drained the vinegar from the chicken into a jug and kept it with its bay leaves.

I coated the chicken slices liberally in flour and fried them gently in olive oil for some ten minutes. I put them in an ovenproof dish. I added more oil and fried the onion, celery and carrots gently for ten minutes adding a bit more flour towards the end. In the mean time I dissolved the honey in the vinegar marinade. I tipped the onion mix over the chicken and poured over the vinegar and honey and added 750 ml of chicken stock. I stirred in the sultanas and pine nuts.

The whole lot went into the oven for just over one hour. About ten minutes before the end of cooking I stirred in the olives and capers.

I served the casserole with new potatoes and beans.

Judging by her enthusiasm my wife gave it 5 stars.


1 comment:

Ian Taylor said...

I can understand the difficulty that timing the market presents. VectorVest's confirmed calls are for conservative, prudent investors and you seem to be a more aggressive investor. I would have thought that following their primary wave signals would have been suitable (i.e. following the primary trend of the market, determined by the week-to-week direction of the Price of the VVComposite). The signal is shown in the first part of their Trend column of the Colour Guard - up since 22 April for the U.S. and 23 April for the U.K. Good luck with the Support and Resistance, anyway.