Equity % for Value, Growth, Large, MidCap and SmallCap Investments
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This is a risk adjusted commitment guide that includes the investment environment from the model. This approach allows us to buy in positive as well as negative environments. The percentages that are committed are dictated on the amount of risk and volatility that markets have exhibited in the past. This model was inspired by Don Beasley and his work with the McCellan Oscillator as well as the understanding of the Dominant Market Theory. Our belief is that you can measure risk and can extract money from the markets in any environment if you know the direction of the market, its internal strength and breadth, as well as understanding overbought and oversold indicators.
Why do you have different cycle timing charts for U.S. stock funds, and how does that work?
We use multiple cycle chart models for timing U.S. equity funds because we don't believe it's prudent to rely on only one system to govern an entire portfolio. Each of our cycle timing charts governs a specific percent of equity category investments. They include Mid Cap, Small Cap and Large Caps. This means that at any given time we may have 0% to 100+% invested in U.S. equity funds. Whatever is not in equity funds will be in money-market funds.
We simplfied the process. Here's how to start. Each arrow in the ACM model represents 5.00% Equity position. View each Category and see which Category is strongest and dedicate your new money in that group. Buy the best funds in that category. You can find the best funds in the Members Edition.
Here's an example. 1 arrow is green : Invest
25%
When two arrows are green: Invest
50% .
If three arrows turn green, invest up to 75% in the best Categories. You continue this process until all arrows are green. That would give you 100% exposure to the Market.
DOMINANT MARKET INDEX
This compares the OTC vs the NYSE. You can make alot more money when the small stocks (OTC) is the Dominant Market. Dick Fabian learned this back in the 70's when he developed his famous "Fabian Spurt" signal. If you take the period from 1961 to 1983 you see that the small stocks clearly outperform the larger stocks. From 1984 to 1990 the opposite occurred and large cap stocks outperformed small. Therefore, knowing which one is dominant is very helpful. In 1991 small stocks were up 57% compared to large stocks 29%. The Health funds were up 90% percent that year and technology was up about 75%. The gain over the six year period was 250% in the OTC vs 112% for the NYSE. So knowing when they are in the uptrend is important. From 1975 to 1979 in about a five year period the DOW gained 31.5% and the OTC gained 147.5%. So, the first step is to check out the environment for making money. When the OTC is dominant, the environment is excellent for making lots of money. When the OTC is dominant, it doesn't mean that the NYSE or S&P isn't making money. It is just that there is a BETTER place to put your money. History also shows that there is much more volatility in the market when the NYSE is dominant. It has been said that all major corrections have taken place when the NYSE is dominant. Our potential is only a 50-50 chance of making money.. HITECH TREND
Technology usually leads the Market up as well as down. Since there are so many small companies in the technology field and it comprises such a large portion of the market, it is imperative that we know the direction of the technology group. A 50 day moving average is used to monitor its trend. If the fund average falls below its 50 day moving average it would raise a flag. A reading above the 19 day would be bullish for the sector.
ADVANCE/DECLINE LINE Once you determine which market is dominant, you will need to monitor the Advance/Decline Summation of that market. This is the measure of MARKET BREADTH. Breadth measures the buying and selling interest in the stock market. Breadth tells us the underlying strength of the market. The tool to use to measure breadth is the McCellan Summation Index of the Dominant Market. This is based upon running a cumulative total of advances and declines of the NYSE or the OTC markets using the differences between 5% and 10% trend. In addition, the slope of the Summation Index is IMPORTANT. If it is UP, it is positive and if it slopes DOWN it is bearish. Numbers of over 1000 is considered bullish. Many use 1500 as a benchmark. When the Summation level climbs above 1000, especially when it reaches above 2000, the NYSE will generally not correct more than 2%. When the Summation Index drops below 1,000 risks jumps substantially.
INTEREST RATE DIRECTION
This is important, and it is not difficult to understand. History has proven that a rise in interest rates does effect the Stock Market. Using relative strength comparison we monitor and compare STBI vs US30- and determine which one is stronger.
DOMINANT MARKET RELATIVE STRENGTH
It is imperative, that once we establish which market is dominant, that we monitor it to determine if its staying strong. This oscillator is like stochastics in that it oscillates between zero and 100%. When the RSI is above the mid-point or 50% the relative strength will produce a positive . When the RSI drops below 50% the relative strength is subpar and a correction will likely develop. This is an exceptional timing tool that has long been recommended for mutual funds.
DOW JONES AVERAGES
The direction of the DOW---so goes the market. We look for the market to maintain some strength. Maintaining above its 50 day average is very positive.
OTC/NYSE NEW LOWS
Are the OTC new lows below 50? Is the NYSE new lows below 30? Studies indicate that when the OTC new low falls to below 50 stocks, we are in a positive trend. In a strong uptrend, new lows will stay below 50 levels for months at a time. Above a reading of 50, the OTC uptrend is threatened or weak. Likewise, the NYSE new lowsat below 30 is very positve.
BEAR MARKET FUNDS STRATEGY
This is a relative strength comparison of the Rydex or Prudent Bear fund with an aggressive Market index. If the Ryurx or Bearx is superior, there is weakness in the market. Buy the fund crossing above their 13 and 26 week moving average. Sell them when they drop below.
ON BALANCE VOLUME
This is another indicator to give us a clear early warning signal of a market turn. By using moving averages one can determine the Volume strength in the market. Volume is the leading indicator of price movement. This is a useful tool when it diverges from the current trend of the market. MC CELLAN OSCILLATOR
According to Sherm McCellan, when you go to a plus 120 level there is extreme liquidity in the markets. This is rather more sophisticated measure of internal strength. Altho not a true oscillator because you can go over 100 it usually takes appearance of a oscillator. You want to remain above 50 to maintain a positive market.
MISCELLANEOUS INDICATORS
Even tho we label this as miscellaneous indicators, the remainder are significant in determining market direction. In my opinion, the VIX is the single most powerful market timing indicator available to traders. When correctly applied, it has no equal.
What is the VIX? The VIX is the Chicago Board Options Exchange OEX volatility index. It reflects the market consensus estimate of future volatility, based on the at-the-money quotes of OEX options. Sharp market declines (which are usually quite volatile) are accompanied by high VIX readings and continuous rising markets (which are more orderly) are accompanied by low VIX readings.
High VIX readings alone do not and will not predict that markets are oversold and will likely reverse. Most recently, a columnist for Barron’s pointed out that when the VIX gets above 30 the market usually rallies. Yes, today it usually does rally, but there is absolutely no evidence that it will in the future. The VIX is constantly adjusting itself to current market conditions. Back in 1994-1995, it was trading in the 10 to 15 range. In October 1987, when the market crashed, it was, on average, trading in the 50s. By blindly buying the market when a VIX reading of 30 occurs is, at best, naïve and may eventually get you killed (more on this later). The same is true for low readings; there is no edge in simply selling the market when it reaches some hypothetical low level.
The VIX has two inherent characteristics which we can use to our advantage. The first is that all volatility is mean reverting. That means that periods of high volatility will eventually lead to periods of low volatility and vice-versa. By using a short-term moving average (i.e., 10 days) you can visually identify if the VIX is well above or well below its mean. If it is, it triggers an alert that a reversal may be near.
The second inherent characteristic of the VIX is that its prices are auto-correlated. This means if the VIX drops today, its probability of dropping tomorrow is higher than average.
The next step is to find out how we can use this information about volatility and the VIX. Relative Strength Index (RSI) as another way to identify when the VIX reaches an extreme and will likely reverse.
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