I invest using a combination of basic investor analysis, and technical analysis. Though my technical analysis library is nothing like you have seen before (don’t ask I am not sharing). Though I thought since Steve was talking about buying or selling I would share with you what my system is telling me.
A word on my system. The system is based on the concept of timing a buy and a sell. So say I like to invest in company X I using my technical analysis application to tell me when. What I like about my technical analysis application is that it tells me the chances of being profitable in an investment using two measures Non-Excess Sharpe Ratio, and Trade Sharpe Ratio. I use the non excess Sharpe Ratio because using the excess return Sharpe Ratio on longer time frames lets me jiggle the numbers too. Thus by not including the return using passive investment I get a more accurate measure of a system that generates returns.
Back to the application. I use the application to track my investments, the S&P and other indices to see what the market could be doing. Regarding the S&P my system says don’t buy. Note, when my system says don’t buy it does not imply shorting.
Here are some recent trades my system would have indicated.
|Buying||11/02/2004 00:00||04/01/2005 00:00||1157.76||1188.05|
|Buying||14/02/2005 00:00||21/03/2006 00:00||1206.14||1297.23|
|Buying||22/03/2006 00:00||27/02/2007 00:00||1305.04||1399.04|
|Buying||13/04/2007 00:00||19/10/2007 00:00||1452.85||1500.63|
What you should see is that the system stopped buying October 19. How good is this trading system? Its non-excess Sharpe ratio is about 0.47, which is not that great. The Sharpe ratio is dragged down by the non trading time in my trading system. But where it counts is that its trade Sharpe Ratio is 5.13, which means when the trading systems starts and ends a trade its profitable (for a very large part of the time). There are many times when the system sits back and does nothing. Right now is that time.
Notice how the system rode out the dips of last year and this year. That should tell you that whatever you might have thought was a correction is not a correction, but a bump. The correction has still to come. So does that mean you should sell? No because this is not investment advice and you will have to make your own decisions. What my system is telling me is not to buy. It says sit on the sidelines.
But who knows maybe tomorrow will be a buying opportunity. Though I can’t know, but will tell you once my system says so.