Dayvejohnson on the Markets

No Sells. Adding PNRA. Overbought based on T2108?

I will be adding PNRA to the swing portfolio on Tuesday. No sells for the moment. Both of the present holdings (LVLT, KOSP) had good days and another would probably get us an exit.

Is saw a post over at the Kirk Report that noted our overbought condition based on the T2108 indicator - which plots the percentage of stocks that are above their 40 day Moving Average. This tool is available in the Worden Telecharts package and is used by many to note oversold/overbought conditions.

This made me a bit curious because I saw the indicator was falling below the 80 level and I wanted to backtest what this has predicted in the past. Basically I setup a test where a few conditions exist and ran it on 20 years of data going back to October 1986.

1. I will be buying at the market the day after the indicator crossed below the 80 reading.
2. I would sell at a 1% profit target or
3. Hold for 28 days if the profit target was not met

The results were actually quite interesting.

38 trades triggered
32 hit the 1% profit target
6 held for the 28 day duration with an average loss of 1.43%

With an average profit per trade of 0.65% per trade.

If you look at the Spreadsheet of trades (with Google Docs. very cool) you can see that 1997 presented a challenging trade with a 12% pullback in the Max Adverse Excursion column. Yuck

Now I am not saying that the market is a strong buy - what I am saying is that if you decide to short or go cash here be prepared to see the indexes challenge you with a push up of at least 1% 85% of the time within the following month or so. At this time 1% is only about 13 SP points but something to keep in mind if your are considering shorting here. I suppose I should test what a 1% profit target on the short side would show. I will see if I can follow up on that tomorrow.

Now I will add some disclaimers to this test - that this is a small sample size that was conducted during a very strong period for stocks overall. But I thought you may find the results interesting regardless.

Have a Great Night!

http://dayvejohnson.blogspot.com

dayvejohnson@gmail.com

posted by Dave Johnson @ 10:33 PM