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HOUSTON April, 2009

HOUSTON April, 2009. WALL STREET AND MY STREET. The following is just my perspective. I was a lookout at Pearl Harbor. May not be dependable. Am certainly not responsible ***Redneck disclaimer.

yoshio-castaneda
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HOUSTON April, 2009

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  1. HOUSTON April, 2009

  2. WALL STREET AND MY STREET

  3. The following is just my perspective. I was a lookout at Pearl Harbor. May not be dependable. Am certainly not responsible ***Redneck disclaimer

  4. This has myreality written all through the process. It is not necessarily “right” but appropriate for ME. …it fits my age (old), tolerances (not very) and blood pressure (very high)…

  5. … it does not matter how frequently something succeeds … …if failure is too costly to bear… Optimizing…..over confidence….believing Wall Street BERNIE MADOFF!!!

  6. …in the land of….. “TRILLION DOLLAR BAND AIDS” AND “SITUATIONAL ACCOUNTING RULES”

  7. PLANNING FOR (AND DEALING WITH) FAILURE*** ***FAILURE = BAD DECISION OR LOSING MONEY

  8. NO INDICATOR OR SYSTEM GIVES CONSTANT ADVICE

  9. "You can't simply plan to get a 10% return because that's the number you need"

  10. “I don’t care about the economy, I just need to make some money”

  11. Winning by NOT LOSING 20%, 20%, 20%, 5% beats 30%, 30%, 30%, -20%. 15%, 15%, 15%, 5% beats 25%, 25%, 25%, -20%. 20%, 10%, 5%, 5% beats 30%, 20%, 15%, -20%. 5%, 5%, 5%, 5% ties 15%, 15%, 15%, -20%. It doesn’t matter what year the -20% occurs in examples above

  12. WALL STREET • YOU MUST STAY FULLY INVESTED AT ALL TIMES • IF YOU MISS THE BEST 10 DAYS OVER THE PAST 5 YEARS YOUR RETURN IS _____ • MY STREET • IF YOU STAY FULLY INVESTED YOU PAY THE MANAGEMENT FEES REGARDLESS OF PERFORMANCE (FUNDS) • IN ANY TEST YOU RUN, IF YOU “MISS THE 10 WORST DAYS” IS ALWAYS SUPERIOR TO THE “MISS BEST 10 DAYS”

  13. WALL STREET • ASSET ALLOCATION REDUCES THE VOLATILITY OF YOU PORTFOLIO • YOU CAN’T TIME THE MARKET • MY STREET • ALLOCATION REDUCES RETURNS & MAY HELP VOLATILITY • HAD POSITIVE RETURNS IN 2000,2001 AND 2002 • ASSET CONCENTRATION (INCREASES RETURN AND VOLATILITY)

  14. WALL STREET • THE MARKETS ARE EFFICIENT • THE MARKETS ARE RATIONAL • MY STREET • WHO BEST TO EXPLOIT INEFFICENCIES THAN INDIVIDUALS • IF THE MARKETS ARE RATIONAL (THEN MAYBE WE INDIVIDUALS ARE NOT)

  15. Range Of Investor Emotions Optimism “Investing isn’t so difficult” Excitement “I’ll be able to retire early!” Thrill “I am a brilliant investor” (Maybe I should write a book) EuphoriaThe point of maximum risk Complacency “It’s just a normal correction, a great time to buy” Anxiety “If I double down it won’t take long to recover” Denial “Its only paper losses. I’m in it for the long-term”

  16. Range Of Investor Emotions Desperation “What’s going on? When will it stop going down?” Panic “I’ve lost most of my money. I may never be able to retire” Capitulation “I’m selling everything and I’ll never own stocks again” Depression “I wonder how cat food tastes?” Defiance “Stocks may be going up but I’m not taking the risk”

  17. HOW FREQUENTLY DO YOU TRADE? HOW MUCH MONEY DO YOU TRADE? WHAT ARE YOUR PERSONAL TOLERANCES? There are no RIGHT or WRONG answers….but we all must know our personal answer to the three questions above.

  18. Why we do what we do How we do what we do

  19. Do you have measures to determine if you have an investment “edge” ? Do you have a process to identify and purchase leading stocks/funds/ETFs/futures? Do you have a process to “trade up” positions you own? Do you have “disciplines” that preserve capital?

  20. DECISION MODELS Market Risk Model Asset Commitment Model Fund Selection & Management Model ..And how they are linkedto each other..

  21. SOME EXAMPLES OF AND “EDGE” ***DEFINITION OF “EDGE” A positive expectancy for a profitable outcome

  22. To trade profitable in the long run, you must know your edge…. If you have no edge, you should not trade for profit… Establishing and recognizing your edge is a prerequisite to predicting whether trading will be profitable.

  23. DETERMINING THE MARKET ENVIRONMENT LONG TERM: Relative Strength Price New Highs / New Lows Advancing / Declining

  24. IMPORTANCE OF LEVEL AND DIRECTION FOR PRICE OSCILLATOR

  25. USE WEEKLY DATA ASSUMES PERFECT TRADES BIG PICTURE MARKET FORCES MOST PRODUCTIVE: LONG OR SHORT WHERE WE ARE TODAY

  26. WEEKLY PRICE OSCILLATOR LEVEL AND DIRECTION IMPORTANT 12/26 MACD • Mid point level 67% of time • Data since 1930

  27. BIG PICTURE …. LEVEL AND DIRECTION

  28. WHICH AREA IS MOST PRODUCTIVE FOR LONGS AND SHORTS?

  29. 12 / 26 MACD ((Mov(C,12,E)-Mov(C,26,E))/Mov(C,26,E))*100 From 1930 to Current Above 0 levelBelow 0 level Going UP 8.40% -0.90% Going DOWN 1.70% -7.70%

  30. 12 / 26 MACD ((Mov(C,12,E)-Mov(C,26,E))/Mov(C,26,E))*100 From 1990 to Current Above 0 levelBelow 0 level Going UP 7.16% -0.08% Going DOWN 0.40% -6.81%

  31. 12 / 26 MACD ((Mov(C,12,E)-Mov(C,26,E))/Mov(C,26,E))*100 From 2000 to Current Above 0 levelBelow 0 level Going UP +6.3% +3.0% Going DOWN -1.1% -9.7%

  32. PRICE OSCILLATOR DATA POINTS (level only) S&P 500 Data: (1930) 62% time >0 level >0 Level WeeklyMonthly Yearly +0.21% +0.86% +10.32% <0 Level +0.05% +0.23% +2.76% OTC Data: (1980) 62% time >0 level WeeklyMonthly Yearly >0 Level +0.50% +2.11% +25.36% <0 Level -0.11% -0.48% -5.74% Any conclusions???

  33. Level and direction 3-4 up/down moves per year >0 Level, down direction = correction <0 Level, down direction = “cat food”

  34. COMPARING “THEN” AND “NOW”

  35. OTC WEEKLY PRICE OSCILLATOR (19 / 39 MACD)

  36. OTC data (Bear Market 2000, 2001, 2002) 5000 to 1300

  37. LEVEL AND DIRECTION USING DAILY DATA

  38. Price oscillator using daily data

  39. DOMINANT MARKET THEORY An edge Relative measure Jim Stack OTC / NYSE NDX / SPY Russell growth / Russell value Smoothing……macd & stochastic rsi

  40. OTC / NYSE RELATIVE STRENGTH 11/2007

  41. BEAR MARKET RELATIVE STRENGTH 5000 TO 1300

  42. “THEN AND NOW”

  43. RETURNS FOR DOMINANT MARKET Daily 1990 SPX & Nasdaq Relative         Ave. Ret        Ave. Ret Strength        Nasdaq          SPX        SmlCap        3.44%            1.83% LrgCap        -0.36%           0.15% % SmlCap Dominant    57.1% % LrgCap Dominant     42.9% For period of dominance Data points from 1980

  44. YEARLY NEW HIGHS & NEW LOWS (smoothed)

  45. COMPARING “THEN” AND “NOW”

  46. DETERMINING THE MARKET ENVIRONMENT SHORT TERM: Price Highs / Lows Advancing / Declining

  47. ALL BUY SIGNALS ARE NOT CREATED EQUAL VARIED EXPOSURE TO THE MARKETS IS APPROPRIATE WHEN CONSIDERING THE MARKET ENVIRONMENT

  48. ASSET COMMITMENT PROCESS

  49. SELECTION PROCESS

  50. UNDERSTANDING “UP FROM DOWN”

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