Agenda • Compare 4 alternative timing mechanisms (long and short the S&P 500) – VectorVest confirmed ups and downs – EMA / RT combo – Timing Cube – Ride the Waves • Show the results of using the best timing method with a pair (long / short) of superior VectorVest searches with performance improving stops – Explore some appropriate search options • Small to medium portfolios • Large portfolios 1
Timing Comparison Methodology • Compared 4 different timing methods • Ran test from 6/15/01 (the date of the first Timing Cube live call) to 12/9/04 (~ 3 ½ years that included several up and down markets) • Isolated effect of timing only – For all methods, bought SPY (surrogate for S&P 500) on buy calls and shorted SPY on sells – Used 50 day EMA and RT on SPY for EMA / RT timing 2
4 Timing Methods Compared 6/15/01 to 12/9/04 1) VectorVest confirmed ups and downs as shown on the MTI graph 2) EMA / RT combo • Method shown by Ralph at November meeting • Buy when: - Price is above the 50 day EMA and RT > 1 • Sell (or go to cash) when - Price is below the 50 day EMA and RT < 1 • It requires both occurrences to change the signal 3) Timing Cube – a timing company 4) Ride the Waves • Uses the buy and sell signals in the VectorVest Views 3
Timing Cube • Sole purpose of the company is to time the market – Issues buys and sells based purely on price / volume technical analysis (trend following system) • About 3 to 4 direction changes a year • First live call was on June 15, 2001 – Has backtested data much further back • I started tracking their calls in early 2002 – Began using their calls for trades in early 2003 – Only a customer – no financial interest in company • For the comparison test, I used only real time, verifiable calls that were issued before the trades – no backtested data used • Timing Cube usually trades the QQQQ ETF (Nasdaq 100) but claims their calls are also effective for SPY (S&P 500) and IWM (Russell 2000) ETF’s 4
5 Visual History of VectorVest, EMA / RT, and Timing Cube Timing Calls Short Long
* Occasionally, RtW traded QQQQ’s and IWM’s * 6
Numbers of Direction Changes 6/15/01 to 12/9/04 57 60 50 40 25 30 17 20 12 10 0 Timing Cube VV confirmed EMA RT Ride Waves Does not include cash signals for Ride Waves - only buys and sells 7
% Compounded Returns from 6/17/01 to 12/9/04 120 105 100 80 67 60 40 14 20 0 -2 -10 -20 Ride Buy & VV EMA RT Timing Waves Hold confirmed Cube Results are from buying or shorting SPY as S&P 500 surrogate 8
Max % Drawdowns from 6/17/01 to 12/9/04 0 -5 -10 -11 -12 -15 -20 -20 -25 -30 -31 -35 -37 -40 Buy & Ride VV Timing EMA RT Hold Waves confirmed Cube Results are from buying or shorting SPY as S&P 500 surrogate 9
-10% -2% Graphic Depiction of Timing Methods’ Results (S&P 500) Ride the Buy and Waves Hold 10
11 +14% -2% Graphic Depiction of Timing Methods’ Results (S&P 500) confirmed Buy and VV Hold
+67% -2% Graphic Depiction of Timing Methods’ Results (S&P 500) EMA / RT Buy and Hold 12
13 +105% -2% Graphic Depiction of Timing Methods’ Results (S&P 500) Buy and Timing Cube Hold
Conclusions • Both Timing Cube and EMA / RT were highly effective during the test period • While the clear winner, Timing Cube costs ~ $400 per year while EMA / RT is free to existing VectorVest users. Decision depends on portfolio size although breakeven can come with even a very small portfolio • VV confirmed was marginally effective but was clearly outperformed by the two methods above • Although Riding the Waves’ timing did reasonably well in 2004, over the entire test period it was actually counterproductive. Any actual positive performance (if any) is due solely to the effectiveness of buying and shorting VectorVest searches vs. SPY – Many VV searches tend to have a higher positive beta than negative • This can offset some of the pure timing deficiency of Ride the Waves 14
Test of Best Timer (Timing Cube) coupled with VectorVest Searches Instead of SPY • In the final test, I did not use any of the “canned” VectorVest searches in Unisearch – Almost none of them are tradable in their current form (they find stocks with small average daily $ volume traded) – None of them in their current form are appropriate “Ride the Waves” choices • Not nearly enough $ volume to allow “piling on.” – The tradable versions of the canned searches (i.e., with added $ volume criteria) did not perform nearly as well as some of my tradable searches 15
Best Performing Views “Canned” Long Searches Timing Cube Long Periods (No stops) If a search can’t beat the Rydex Must trade in the 2x fund, why bother? morning to get this I tested all the long and short searches mentioned in the Views in 2004. However, only Rob’s Raiders was evenly remotely tradable and then only in a port of less than ~ $250k 16 Note: The Rydex 2x fund’s actual average performance is about 1.72x
None of the Best VV Performers are Tradable in Large Portfolios For even a modest portfolio (~$250k), they require the purchase of too large a percentage (> 2.5%) of the average daily $ amount of stock traded for the smallest stock. They are only tradable in tiny portfolios (< $100k) Only Rob’s Raiders would be tradable in a small portfolio (< $250k). None are appropriate for “Ride the Waves” which would involve several VV users buying/selling at once. 17
What Can Happen When Ride the Waves “Piles On” Note the vast underperformance of Show Me the Money in the 10/27/04 to 12/9/04 period. It was the Ride the Waves choice during this entire period. Also note how much better it did in earlier periods when there was no piling on. 18
* * Still only in small portfolio. Added criterion: AvgVol * Actual Price > $1mil 19
% Returns of Searches Tend to Go Down as the Required Minimum $ Volume of Shares Traded Daily Increase “Ride the Waves” picks the highest return searches seemingly without % regard to tradability R e t u r n Minimum Dollar Value of Shares Traded Daily 20
Other Views “Canned” Long Searches No stops Although some outperformed RYVYX, they are not tradable 21 and much better tradable searches are available
Some Tradable Small Port Long Strategies Timing Cube Long Periods (No stops) 22
23 Best Performing Tradable Long Searches –Small Portfolios 2820% 1000% 1715%
Best Small Port Long Strategy Best Improvements with Stops * * Sell any stock that gains 200%. A surprisingly large number of stocks actually hit the 200% gain threshold. All of the stops I tested that used losses (such as a 10% trailing stop loss) reduced returns and increased average and maximum drawdowns. 24
Some Tradable Large Port Long Strategies Timing Cube Long Periods These searches restrict choices to S&P 500 stocks 25
Best Performing Long Searches – Large Portfolios 752% 515% 594% 26
Best Large Port Long Strategy Best Improvements with Stops * * Sell any stock that gains 40%. These larger stocks are not as volatile as the small portfolio stocks. All of the stops I tested that used losses (such as a 10% trailing stop loss) reduced returns and increased average and maximum drawdowns. 27
Some Tradable Small Port Short Strategies Timing Cube Short Periods Because the VV canned short searches typically include a minimum stock price along with a # shares volume requirement, they tend to be tradable in small portfolios (but not in large ones and, unmodified, they are not appropriate as Ride the Waves searches) 28
29 Best Performing Short Searches – Small Portfolios 339% 327%
Tradable Large Port Short Strategies Some 30
31 Best Performing Short Searches – Large Portfolios 187% 169%
Best Large Port Short Strategy Best Improvements with Stops 32
Comparison of SP 500, Rydex Dynamic Funds, and VV Long/Short Search Pair Compound Results 6/15/01 to 12/9/04 • Started with $100,000 • Used Timing Cube long and short periods • Used SPY as proxy for SP 500 • Used QQQQ with 172% margin as proxy for Rydex Funds • For VectorVest Searches: – Long: RV / RT / ActPrice limited to the S&P 500 (to maintain similar liquidity) for the long search – Short: VST*RT*RV*CI Asc with a minimum $ traded of $16 million for the short search 33
Stops • Individual stock stops – Long • Sell any stock that closes with a 40% gain – Short • Cover any stock that closes with a 40% loss (40% short gain) • Overall portfolio stop – Use Timing Cubes total portfolio stop • 9% loss on QQQQ from portfolio start or • 15% trailing stop on QQQQ, whichever comes first – This will likely result in larger losses for the VectorVest searches vs. QQQQ, however so far Timing Cube has never had a stop triggered. 34
35 105%
Assumes trades placed at morning session – if placed in evening, compounded return is slightly less than 400% 510% 36
37 4,412%
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