This is Turov on Timing for Thursday, August 10, 2006.
The SPX declined 5.53 points yesterday to close at 1265.95. TOT daily traders theoretically (more later, at the end of this message) had a 10 point profit on 4 units and then had a 5 point loss on 3 units. We are currently flat.
Since initiation of the Turov on Timing service on September 30, 1993, our daily trader recommendations have gained 8992.04 cumulative SPX points, compared to a gain of 807.02 points in the index itself over the same period. That’s a ratio of 11.14 to one.
The super long term perspective for the stock market remains bearish (as it has been since January 2000), and it’s unlikely anything will change that for several years.
Both the long and short term models remain neutral, although they are actually improving, despite the awful tape action.
The market action was bizarre yesterday, with the market opening far higher than was “reasonable” in response to the Cisco news, selling off modestly in a very reasonable manner to a level at which we went long, rallied reasonably giving rise to expectations of a big rally, and then it collapsed unreasonably like a lead weight. Bizarre, indeed.
The daily model is neutral today. I would be surprised to see a dull session, but which direction the expected volatile session will take is up for grabs. Neither bulls nor bears have the upper hand here. Stand aside. My best GUESS – and don’t take it for more than that – is that we’ll see some softness today and tomorrow, but that it will be followed by a strong week next week. I’d really love to see some heavy duty capitulation today and tomorrow without the market underpinnings weakening; if that happens, next week could even see a new attempt at SPX 1300. But that’s NOT based on any of my indicators, it’s just my “feel” for the market, and you should not invest even a penny on anyone’s “feel” – even mine.
Now for some commentary on yesterday’s first recommendation. I had said, “TOT daily traders are advised to go 400% long at the market. As always, we will use the price reported by www.bigcharts.com as our “official” price. Once you go long, liquidate the position either on a limit 10 points higher than your entry level or on a stop 10 points lower than your entry level….”
At the time I made the recommendation, the S&P futures were up about 1½ points. If I were still trading futures for clients, I would have gone long right then and there. However, TOT has always based its recommendations on daylight trading hours.
In the October 2000 monthly issue of Turov on Timing, I wrote, related to the issue of when there is a gap opening in futures but not in the cash index as reported by www.bigcharts.com, “…regarding the question of gap openings, this is also an issue I have addressed several times in past years and used to frequently point out discrepancies in both directions on the daily hotline. The problem cuts both ways: For simplicity, lets say the cash index (SPX) closed at 1500 the night prior to my hotline, and the futures (SPF) closed at 1510. We’ll assume that Fair Value at the time is 10 points and that the futures closed at fair value. Let’s say I issue a recommendation to go long at “SPX 1505 stop or 1495 limit, whichever comes first.” If SPF gap opens up 12 points at 1522 (equivalent to an SPX price of 1512, assuming the Fair Value spread is maintained) I will indeed book the recommendation as having been a purchase at SPX 1505 (assuming that www.bigcharts.com reports the opening at or below 1505). One could argue that this overstates the TOT track record performance by 7 points, and such an argument would be valid. On the other hand, if the SPF gap opened down 12 points to 1498 (equivalent to an SPX price of 1488, assuming the Fair Value spread is maintained) I will book the recommendation as having been a purchase at SPX 1495. One could argue that this understates the TOT track record performance by 7 points, and such an argument would be just as valid as the prior one. Yet wonder of wonders, I get emails when the first event occurs and not the second! Obviously, one reason for that is simply human nature. But perhaps another reason is that our recommendations are good, and if it is a “buy” recommendation, the odds of a higher gap opening are more likely than the odds of a lower gap opening! Also, by the nature of the oscillator versus momentum indicators that I use, there is a tendency for stops to be closer to the last price than limits are. In the long run, this ‘gap discrepancy’ will be somewhat balanced, but as I have acknowledged on numerous occasions, the structure of the recommendations does result in a small but unavoidable overstatement bias.”
In a related vein, in the April 4, 2005 monthly issue of TOT, I asked and answered this question:
“Q. When the SPX gaps up past the buy stop, do you set the 10 point stop relative to the original buy stop price or do you set it 10 points below the SPX opening price, which would be higher?
A. Everything is always based on the SPX, and the ‘official’ price for SPX is the price reported by www.bigcharts.com. So if their reported opening price is above my recommended buy stop, the protective sell stop would be 10 points below that reported price.”
So, as pertains to yesterday, www.bigcharts.com reported the opening price as 1271.13. At 9:35, Eastern time, the SPX traded at 1281.13. So, “officially”, we were in at 9:30 and out at 9:35. I realize this is absurd, but no less absurd than the case some time ago when I recommended going long at the market and the cash index opened unchanged from the day before while the futures gap opened 8 points lower and the cash index was down by 10 points in rather short order. Futures traders had almost a break-even, but I booked the trade as a 10 point loss (times the recommended percentage position; I don’t recall how many it was). In the short run, it made that an absurd loss to book, just as booking yesterday’s as a profit is. But in the long run, they almost even out, although, as I said in the closing statement of the above quote from October 2000, “ the structure of the recommendations does result in a small but unavoidable overstatement bias.”
The obvious question comes to mind, “So why don’t I simply use the futures prices instead of the cash index price?” Many reasons:
1. ALL my research has been done with the cash index, and continuity of research is very important.
2. The regulators are very strict about reporting performance. If I were to switch to reporting performance based on the futures, I would not be allowed to also report on the cash results. I’m not going to throw away 13+ years of performance records.
3. My service is priced very reasonably at $279 a year. One reason is that my regulatory compliance costs are low (about $10,000 a year in legal review fees). Were I to make recommendations based on futures, because I am a Registered Investment Adviser (unlike many newsletter writers who are not) my attorney feels I would have to do due diligence on each and every subscriber to make sure that futures recommendations were suitable for their investment needs. It would raise the cost to me astronomically, and most subscribers would not be willing to pay for it.
4. Judging from emails, I have more subscribers who use the recommendations to trade the Spyders and options than use them to trade futures. For them, switching to futures recommendations would actually make following recommendations more difficult.
5. There’s nothing to prevent readers (or their brokers) from acting on a recommendation as soon as they receive it, in the night session. Had someone traded yesterday’s recommendation in the night session, he indeed would have made the 10 points times 4 units (or at least 8½ points times 4 units). Of course, sleep might be impaired.
6. Many years ago, when this issue came up, I offered a supplemental service, offering to place a fax or phone call to subscribers as soon as I emailed a new TOT so that the phone call would wake them up and they would be able to act immediately. I said that to make it worthwhile, I’d have to charge $1,000 a year for the supplemental service, and I’d do it if 20 people signed up. I received three responses, and I therefore dropped the proposal. If you would be willing to pay $1,000 a year for such a service, send me an email, and if I get 20 people interested, I’ll offer it.
Thanks for the opportunity to be of service, and I’ll email you again in 24 hours – or sooner if circumstances warrant.
Turov on Timing is Copyright © 2006 by Turov Investment Group Inc. All rights reserved. Turov on Timing is for personal use only. All caveats and advisories that appear in the monthly Turov on Timing apply equally to this email. Re-publication and distribution is strictly prohibited. No part may be reproduced without the permission of the Turov Investment Group Inc.