This is a special weekend version of Turov on Timing for Sunday, December 13, 2015
In the 22+ years that I have been writing Turov on Timing, I have been asked (essentially) the same question many times. The “New Readers Report” that is emailed to every new subscriber contains most of the answer to these questions. In what follows, I will attempt to answer all of the issues so that all subscribers, both present and future, will have a complete answer.
The question I received Friday (December 11, 2015) was the following: “As you know, it is impossible to enter a sell on a stop order if the market is trading below the stop price at the time of entry. SPX opened gap down, telegraphed to us all well in advance of stock market open via futures market. Why no advisory email amending your instructions to all us subscribers? – The market will open way below your stop price, so are you saying go short on open or what?”
My answers (plural):
1. From the “New Readers Report”: 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, “…The problem cuts both ways: For simplicity, let’s 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.”
2. From the “New Readers Report”, in response to the question. “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?” I wrote, “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.”
3. From the “New Readers Report”, in response to the question. “So why don’t I simply use the futures prices instead of the cash index price?” I wrote, There are “many reasons: (a) ALL my research has been done with the cash index, and continuity of research is very important. (b) 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 [now 22+] of performance records. (c) My service is priced very reasonably at [a current $397] 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. (d) Judging from emails, I have more subscribers who use the recommendations to trade the Spiders and options than use them to trade futures. For them, switching to futures recommendations would actually make following recommendations more difficult. (e) 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.
4. In response to the question. “Is there some way, I can profit from potential overnight gaps, in the January 1, 2015 issue of Turov on Timing, I wrote, “a little over a year ago, with 12 subscribers interested [currently 22 subscribers], I began Turov on Overnight Possibilities which offered a 3:45 – 3:50 p.m. special email with an overnight look at the market. For example, if it were pretty certain that I would be recommending a position the following day basis the SPX, I might recommend that Turov on Overnight Possibilities buy (or sell short) the SPX ETF fund, the SPY (Spiders). Or, while TOT is strictly an SPX based service, TOP is not, and I might recommend a long or short position in one of the other index ETF’s (DIA is the symbol for the ETF for the Dow Jones Industrial Index [DJII], SPY is the ETF for the Standard & Poor’s 500 Index [SPX], QQQ is the ETF for the NASDAQ 100 Index [NDX], and IWM is the ETF for the Russell 2000 Index [RUT]). For Turov on Overnight Possibilities, this virtually eliminates the Turov on Timing gap issue previously described.”
5. Following up on the previous paragraph, as an example, on Thursday afternoon, December 10, 2015, at 3:49 p.m., Eastern time, I sent the following to all Turov on Overnight Possibilities subscribers: “For extremely sophisticated professional investors, my recommendation for an overnight trade (today’s close through the next trading day’s opening) is: Sell short SPY.” That recommendation was part of a much longer and detailed email which also included the advisory, “For extremely sophisticated professional investors, my recommendation for an overnight trade (today’s close through the next trading day’s opening) is: Sell short SPY.”
6. Following up on the previous paragraph, SPY closed on Thursday, December 10, 2015 at 205.87. It opened on Friday, December 11, 2015, at 203.35, and closed on Friday, December 11, 2015, at 201.88. Turov on Overnight Possibilities subscribers who sold short 1000 shares on Thursday’s close at 205.87 (margin requirement $100,940) had a one-day profit by Friday’s close of $3,990. Turov on Timing subscribers who sold short 1000 shares on Friday’s opening at 203.35 had a one-day profit by Friday’s close of $1,470. And while it is true that every day does not compare this way, and past results do not guarantee future results, The $397 per annum Turov on Timing subscriber had a one day profit of $1,470, and the $997 + $397 [total $1394] per annum Turov on Overnight Possibilities subscriber had a one day profit of $3,990. Is Turov on Overnight Possibilities worth the extra $997 for a full year’s subscription? I think so – but it’s your decision. To subscribe to Turov on Overnight Possibilities through the end of 2016, please send $997 to InvestmentAdvice@aol.com through www.paypal.com or send a check for the same amount to Turov Investment Group Inc.; PO Box 1250; La Jolla, CA 92038-1250. If you are reading this after January 15, 2016, please pro-rate your payment for the balance of 2016, as all subscriptions run through December 31, 2016.