Monday, January 01, 2007

Seldon Ratio UPDATE

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Hi Hari...

Given the recent developments in your BPNYA:CPCE system, I thought it was a good time for an update to my previous post.

As you know, the BPNYA:CPCE Ratio closed at 64 on Thursday. As I understand your method, this brings the system near a Buy signal. Below is a 6-month chart.

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Meanwhile, the "MA crossover" version I described in the earlier post triggered a Sell on Friday, July 20. Since you use the BPNYA, I use the SPX as a reference. This trade opened April 11 at 1448 and closed at 1534 for a gain of 5.9%. Using this system, last Friday completed the sixth trade since the inception of the CPCE, and all have been positive with no drawdown.

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The total gain from the six trades is 30.9%, as listed below. The 3-year chart plots these six trades. You can't get detail, but it gives you an overview of the MA system.

Oct 04 - Jan 05 -- 6.8%
Feb 05 - Mar 05 -- 2.5%
Jun 05 - Aug 05 -- 2.7%
Nov 05 - Jan 06 -- 2.9%
Sep 06 - Jan 07 -- 10.1%
Apr 07 - Jul 07 -- 5.9%

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I recently wrote a post on Timing Indicators, and included a brief mention of your system, though I discussed BPNDX:COMPQ for a more NASDAQ-specific ratio.

This post mentioned that in backtesting timing systems, it becomes clear that even the best ones almost never outperform the control trade of a simple Buy and Hold. While a 30.9% return with no drawdown is excellent, had an investor simply bought SPY and held it from Oct 2004 until Jul 2007, the return was 39.5% -- a gain 27% larger than the MA system.

This is why most market timers now use the 2X ETF's, in this case SSO.

Anyway, I'm looking forward to following your approach to BPNYA:CPCE, as I think dividing the Bullish Percentage breadth indicator by equity put/call is a very clever idea.

Hope you're well.



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