New short selection

[Timothy Clontz]

Sector selection:

The model is primarily geared for a long only investor. A hedged investor will underperform a long only investor but SIGNIFICANTLY eliminate volatility. Most people on this board will be interested in the Robot timing option (number 3).

Personally, I will keep a portion of my portfolio reserved for option 1, but have another portion of my portfolio devoted to Robot timing.

1) Always long: XLU
2) Always hedged: long XLU, short XLP
3) Robot timing: short XLF at 16.09, with stop at 16.46

Notes on business cycle:

Elder Force -- the Elder Force model is stopped out but has not yet reversed into a long position. Current settings are...

1340.68 current S&P

Short term:
1351.56 high
1337.70 pivot (restart short)
1319.77 low

Long term:
1342.31 (reverse to long)
1256.79 (previous target)
1171.28

We continue to be in a whipsaw formation as some sectors shift up and some shift down. Typical investors in this type of pattern end up losing money on both long and short trades as each get stopped out and reversed.

Yield Ratio -- the yield ratio model is giving a rather wicked bearish signal. I have no idea if this is a side effect of QE2 or something real. We are WAY outside of the parameters this model was designed for, but the signal is giving me a great deal of caution. The model's reward to risk ratio is 0/20 (no reward compared to risk).

Sector formation -- per John Murphy and stockcharts.com, the following sector ETFs outperform at different stages of the market cycle:

8 XLY Bottom
5 XLK Bull 1
9 XLI Bull 2
4 XLB Bull 3
2 XLE Top
1 XLP Bear 1
3 XLV Bear 2
6 XLU Bear 3
7 XLF Bear 4

I prefaced these with the rank of probability my model gives for our placement in the business cycle. Although sometimes indicative of minor tops (like a correction), the current formation shows the most likely position to be the beginning of a bear, and the second most likely to be a top.

Again, this could merely show some weakness and fear among investors. Nothing is a crystal ball.

And NO ONE can predict what rabbit Bernanke might try to pull out next. If anyone says they know exactly, run.

Tim

[Timothy Clontz]

For 5/20/2011:

If the Robot is long, XLU.
If the Robot is short, XLF.

Also, after reviewing the Robot and my own sector history in more detail, it would be a mistake attempting to set the same price targets. I would recommend either placing a limit order at yesterday's closing price on a selected sector, or trying to enter the trade when IWM goes into position (some kind of conditional order).

But the volume disparities seem to constrain the sectors from making the leap into the sweet spot that the Robot is targeting for IWM.

I was making it more complicated than necessary. The sectors are ALREADY primed to spring when the Robot generates a signal.

Tim