Description of my methodology as outlined in the book, Before the Bear Strikes

1. Using Metrics to Determine Bear Markets
For MetaStock Webcast 5/15/2018
Presented by Bryan Johnson
Moon Run Report
bryan1522@verizon.net

2. Disclaimer
• This talk on portfolio management and
drawdown control is designed to educate
investors to identify clues to the market based
on stock market data. There is no guarantee
that any signal will be timely or accurate.
Investors should be aware that the analysis
here is designed to inform, not avoid all losses
that might be incurred.

3. World Cup Championship of Stock Trading®
• The World Cup Trading Championships have been
conducted since 1983. Competitors fund their own
accounts and attempt to post the highest possible net
return.
• Disclaimer: World Cup Championship of Stock Trading®
is a registered mark of Robbins Financial Group
Ltd. Robbins Financial Group Ltd. has no affiliation
with the products and services offered in this
presentation. Use of Robbins Financial Group Ltd.’s
mark is not a sponsorship or endorsement of the
products and services offered in this presentation.

4. World Cup Championship of Stock
Trading® Cont’d
• 2008 contest first place with a 48% net gain
• 2009 contest second place with a 95% net gain.
• Refer to:
www.worldcupadvisor.com/worldcupchampionships/
• My Tsunami Indicator sell signal was calculated in
September 2008 and all stocks were sold at that point.
I will define the signal later in this presentation.
• Trading stocks, futures, and forex involves significant
risk of loss and is not suitable for everyone. Past
performance is not necessarily indicative of future
results.

5. Intent of my research
•SELL before a bear market
•HEDGE before a shortable
correction
•HOLD through a minor
correction

6. Results of research
• MARKET TOP setups
• FOUR different setups for bear markets
• ONE setup for shortable corrections
• MARKET BOTTOM metrics
• THREE different tools for identifying when to
get back in

7. Moon Run Report
www.moonrunreport.com
$10 per month

8. Moon Run Report part 1
• This is a quantitative-only approach to market
timing and stock selection
• Timing concepts from this speech are applied
• Ten timers on Track Record page
• When a candidate sell signal is given, a
forecast is made for one of these three:
– Bear market
– Shortable correction
– Minor Correction

9. Moon Run Report part 2
• Portfolios offer a diversified approach to address
conservative to aggressive styles
• Portfolios developed with the average investor in mind
• Eight portfolios with 5 or 10 stocks in each
• Low cost of $10 per month
• Emails sent on a timely basis to change stock positions,
and a weekend update for status
• “Before the bear strikes” book available on Amazon
• URL is www.moonrunreport.com

11. Concepts and Definitions

12. Overall Concepts
1. The news will confuse
2. I use quantitative analysis for both market
timing and stock selection
3. IWM (small cap ETF) is used because it is more
sensitive to movements than large cap indexes
4. Market strength is measured to determine if
stocks should be sold
5. Metrics are used at the top of the market as well
as at the sell signal to determine actions taken

13. Today’s Presentation
• Portfolio 123 for picking stocks
• MetaStock for market timing
• Four ways to determine market tops:
– Tsunami Indicator sell everything signal
– Fifty New Lows Rule sell everything signal
– Accelerating New Lows sell everything signal
– Series of Tops sell everything signal
• Long Term S&P Bear Market Timer
• Shortable Corrections
• Three market bottom reentry signals:
– All Clear, Intermediate Buy signal, and Pep Indicator

14. Definitions
• Bear Market – a 20% decline in the S&P 500 from
the top to bottom
• Exponential moving average (ema)– average of
prices with more weight given to most recent
days
• Normalized New Lows (NNL)– (Nasdaq New
Lows) divided by (Nasdaq Advances, Declines and
Unchanged 260 day ema) times 3000.
• Normalized New Highs(NNH) – substitute Nasdaq
New Lows with Nasdaq New Highs to get
Normalized New Highs

15. New Lows Definition
• New Lows and New Highs is a measure of how
strong or weak the market is
• One 52 week New Low – stock falling below
previous year’s trading range
• One 52 week New High – stock rising above
previous year’s trading range
• Multiple 52 week New Lows- sum total of all new
lows in one day
• Multiple 52 week New Highs- sum total of all new
highs in one day

16. Additional Definitions
Candidate Sell Signal – a signal to sell stocks
Candidate Buy Signal – a signal to buy stocks
Short to Intermediate Market Timer (SIMT) is my invented
timer that determines candidate buy and sell signals.
Tsunami Indicator My tool to determine a bear market.
Market Strength Indicator (MSI) confirms the strength or
weakness of a sell signal. Above or below 3.80
Market Momentum Indicator (MMI) Formula for Pep Indicator
Pep Indicator Determines strength of buy signal >3.8%
confirms strength
Long Term Market Strength indicator (LTMSI) determines
whether it is a “Safe” or “Volatile” market. Above or below 4.2

17. Pep Indicator
Market Momentum indicator
Long Term Market Strength Indicator
Market Strength Indicator
Chart by Metastock
IWM

18. The Aim of Investing

19. Objectives of Investing
• Buy quality and wait
• Weed the garden
• Defense wins championships
• Coordinate market timing with stock selection
• Combining both
– Market timing with Metastock
– Stock selection ideas with Portfolio 123
Needs to be consistent through the years by
backtesting

20. Problems of investing
• Ruin
• Shrinking alpha (outperformance of index)
• Developing research not available to general
public
• Brokerage industry rewarded by sales
• Buying stock is like buying a car without
brakes
• Gut feel is not a good way to buy stocks

21. Solution to Investing
• Determine when a bear market or shortable
correction is taking place
• Raise cash, go short, or hedge when the
market is deemed dangerous
• Invest in smaller number of stocks in a
backtested portfolio rather than megabucks
mutual funds when market deemed investable

22. Examples of what I use

23. MetaStock for market timing
• MetaStock has a full functionality for developing timers
such as the Short to Intermediate Market Timer
• Indicators like
1. Market Strength Indicator
2. Long Term Market Strength Indicator
3. Market Momentum Indicator
4. Pep Indicator
can appear in a chart to improve visibility
• Expert System automates buy and sell signals for
visibility
• Charts in this presentation are by MetaStock

24. Portfolio 123 to pick stocks
• Portfolio 123 has a complete package of useful
simulation development and portfolio tracking
• Ranking system sorts list of stocks by functions
used to determine stocks most suitable to least
suitable
• Buy rules determine which stocks to buy
• Sell rules determine times to sell stocks, need to
include thresholds and sunset rules
• Exposure list defines which periods to exclude
investing, i.e., raise cash

25. Sample Buy Rules Mega Caps
• Average Volume > 1,000,000 AND
• Market Cap > 10,000M AND
• Return on Equity for the Quarter > 5% AND
• Operating Margin for the Quarter > 0 AND
• Price > ema(40) AND Price > ema(80) AND Price >
ema(120) AND
• Three year compounded Sales Growth % > 0 AND
• Dividend Yield > 0 AND
• Three year compounded Earnings Growth % > 0

26. Sample Sell Rules Mega Caps
• Computed Rank < 35 OR
• Price drops more than 20% from buy price OR
• Price drops more than 35% from peak

27. Ranking System for Mega Caps
• Ranking System is Momentum Value (P123)
which uses price movement comparisons as
well as value stock fundamentals
• Ranking system determines most suitable to
least suitable for selection from top to bottom
• Ranking systems are targeted for different
styles of stock selection

28. Timing Metrics

29. Normalized New Lows
• Normalized New Lows are:
• Present value of Nasdaq New Lows divided by
– (Nasdaq advancing issues +
– Nasdaq declining issues +
– Nasdaq unchanged issues
– exponentially averaged by 260 days)
– Multiplied by 3000

30. Rate of Decline Example
• A = number of days from top to sell signal
• B = (Top value – Sell value)÷Top value
• C = A÷B
• For example, in September 2008
– Top value on 8/14/2008 = 75.30
– Sell value on 9/5/2008 = 71.64
– (75.30-71.64)÷75.30 = 3.66÷75.30 = 0.0486
– Days from top to sell signal = 15
– Rate of Decline = 15÷0.0486 = 308.61 which is > 190
• Rate of Decline > 190 for Tsunami Indicator
• Rate of Decline < 190 for Shortable Corrections

31. Market Strength Indicator
Market Strength Indicator is the sum of four metrics using
a 21 day smoothing:
• Nasdaq Advance/decline
• Nasdaq Up/down volume
• Nasdaq New High New Lows
• IWM Price
AND
• 25 divided by VIX (halfway between 10 and 40)
• MSI > 4.50 at market tops means a strong market
• MSI > 3.80 at sell signal means a strong market

32. Long Term Market Strength Indicator
Long Term Market Strength Indicator is the sum of five
metrics using a 260 day smoothing:
• Nasdaq Advance/Decline
• Nasdaq Up/down volume
• Nasdaq New High/New Lows
• IWM Price
• 25/VIX
LTMSI > 4.20 means a “safe” investing environment
LTMSI < 4.20 means a “volatile” investing environment

33. Bull Market top formations

34. Characteristics of Bull Market Tops
Tops are identified by four different methods:
1. Tsunami Indicator shows a top or
2. Fifty New Lows Rule shows a top or
3. Normalized New Lows increase dramatically from top
of market to sell signal, i.e., Accelerating New Lows
or
4. Series of Tops has NNL > 50 followed by sell signal
• Items 1, 2 and 4 are filtered by the Market Strength
Indicator and the VIX
• Bear markets stall out then go down. Corrections fall
immediately.

35. Tsunami Indicator Description
• At the time the SIMT gives a candidate sell signal, the
Tsunami Indicator is activated when:
• Rate of Decline Indicator > 190
– Market stalling out, not a sharp decline
• Normalized New Lows > 40 at the sell signal
– Market getting weaker
• Market Strength Indicator:
– < 4.50 at top
– < 3.80 at sell signal
– Market is weak
• VIX between 19 and 25, the sweet spot

36. Tsunami Indicator Example
Tsunami Indicator Rate of decline calculation needs
to be > 190 and Normalized New Lows needs to be
> 40. This example is for the following slide
• Rate of Decline = 308.61 which is > 190
• Normalized New Lows = 150.98 > 40
• MSI at top = 3.719 < 4.50
• MSI at sell signal = 3.253 < 3.80
• VIX = 23.06 > 19 < 25

37. Crash in October 2008, showing top and sell signal
↓
Top Rate of Decline = 308.61 > 190
NNL at sell signal = 150.98 > 40
MSI at top = 3.719,< 4.50
MSI at sell signal = 3.253 < 3.80
VIX = 23.06 > 19 < 25

38. Fifty New Lows Rule
• The Fifty New Lows Rule shows that the
market is splitting apart and unsustainable
• Normalized New Lows > 50 at the top
• Rate of Decline is not used
• Like Tsunami indicator:
– Market Strength Indicator < 4.50 at top
– Market Strength Indicator < 3.80 at sell signal
• VIX > 19 AND < 25 at sell signal, the sweet
spot

39. Top is 3/9/2000
NNL Top is 73.69 > 50
Sell signal is 3/20/2000
MSI Sell is 3.627 < 3.80
VIX Sell is 22.96 > 19 < 25

40. Accelerating New Lows
Accelerating New Lows determines when the market is
falling at precipitous speed
Calculation:
NNL at sell signal minus NNL at top
divided by
NNL at sell signal plus NNL at top
• If calculation is 80% or more then this market is
plummeting too fast to be invested
Re-enter market when Pep Indicator > 3.8% at buy signal

41. Pep 6.19% < 3.8%
5/6/2010
7/23/2010

42. Series of Tops
• This is a chart formation that develops over a
period of time.
• Years 2007 and 2011 have this feature
• The New Lows at the tops > 50 but the MSI or
VIX may not confirm a sell signal
• The sell signal to follow confirmed when:
– MSI < 4.50 at top
– MSI < 3.80 at the sell signal
– VIX > 19 and < 23 at the sell signal

43. NNL at top = 73.69 > 50
MSI at top = 4.019 < 4.50
MSI at sell signal = 3.627 < 3.80
VIX at sell signal = 22.96 > 19 < 25
March 9, 2000
Pep Indicator = 12.13% > 3.8%
Intermediate Buy = 16.290 > 8
All Clear = 0.493 < 2
June 5, 2000
2000
Chart by Metstock
Series of Tops
NNL Top is 58.61
MSI Sell is 4.375
NNL top is 32.18
MSI Sell is 4.054
NNL Top is 60.68
MSI Sell is 4.049
MSI is 3.54
VIX is 22.96

44. Shortable Correction Timer
The Shortable Correction Timer determines larger
corrections with the potential to hedge when SIMT
gives a sell signal
1. Normalized New Lows at the top > 30
2. Normalized New Lows at sell signal > 60
3. Rate of Decline < 190 (Correction)
4. VIX < 20
• Use put options (5%-10%)or inverse index funds
(50%-100%) to hedge

45. June 29, 2015
August 24, 2015

46. Bear Market Bottom Signals

47. Characteristic of bear market bottoms
• All Clear signal is given when investors have
given up on the market
• Intermediate Buy Signal is given during a bear
market when the number of Normalized New
Lows decreases significantly from bottom to
the buy signal
• Pep indicator needs to be above 3.8% alone
or with All Clear or Intermediate Buy Signal

48. All Clear
All Clear signal determines long term bottom has
been reached on a buy signal
Calculation:
Normalized New Lows at buy signal
divided by
Normalized New Highs at buy signal
• If ratio is 2 or more, then an All Clear signal is
determined

49. Intermediate Buy Signal
While a bear market is in progress, an intermediate
buy signal may appear after key market bottoms,
otherwise known as a bear market rally
Calculation:
Normalized New Lows at bottom
divided by
Normalized New Lows at buy signal
• If the ratio is 8 or more, then an intermediate buy
signal is determined

50. Pep Indicator
Market Momentum Indicator (MMI) is the basis for the
Pep Indicator
MMI is the sum of two metrics using a 21 day smoothing:
• IWM Price
• NASDAQ Up/Down volume
Pep Indicator is the MMI minus the 8 day ema of the MMI
• At buy signal, Pep Indicator needs to be > 3.8% to
confirm All Clear, Intermediate Buy Signal, or alone

51. November 2008 to March 2009
December 12, 2008
Intermediate Buy = 11.448 > 8
All Clear = 110.63 > 2
Pep Indicator = 3.09% < 3.8%
March 18, 2009
Intermediate Buy = 14.415 > 8
All Clear = 2.621 > 2
Pep Indicator = 13.17% > 3.8%
Accelerating New Lows

52. Long Term S&P Timer
The Long Term S&P Timer is used by the
Conservative and Mega Cap portfolios. Weekly
chart is used
1. S&P Price > S&P Price 3 weeks ago AND
2. S&P Price > S&P Price 21 weeks ago AND
3. S&P Price > 12 week ema AND
4. 12 week CCI > 19 week CCI AND
5. 12 week ema > 19 week ema
This is for the buy signal. Reverse all the signs for
the sell signal

53. December 18, 2015 May 27, 2016
Chart by Metastock Long Term S&P Timer

54. Summary
• Bear Markets have four different setups
according to present analysis
• Shortable Correction signal identifies large
corrections to be hedged
• The “All Clear” signal confirmed by Pep Indicator
shows when to get back in after a bear market
• The market is analyzed every day and
determination of the current status is assessed
• MSI > 4.50 at market peaks and LTMSI > 4.20 give
confidence that the market is in good shape

55. Bear Markets Examples

56. Major Bear Markets investigated
• 1987
• 1990
• 1998
• 2000
• 2007
• 2011 (correction)
• 2015-2016

57. 1987
• Tsunami Indicator flashes on sell signal on
9/8/1987
• Rate of Decline is 408.84 > 190
• Normalized New Lows is 96.91 > 40
• VIX is not available
• Data for MSI is not available
• The “All Clear” buy signal was on 12/17/1987
– NNL/NNH = 5.582 > 2
– Pep Indicator = 7.24% > 3.8%

58. 1987
Pep = 2.598% < 3.8%
Pep = 7.24% > 4%
AC = 5.582 > 2
Chart by Metastock

59. 1990
• Tsunami Indicator flashed on 7/23/1990
• Rate of Decline is 554.04 > 190
• Normalized New Lows is 111.10 > 40
• VIX is 23.68 > 19 AND < 25
• MSI at top = 4.303< 4.50
• MSI at sell signal = 3.498 <3.80
• The “All Clear” buy signal was on 11/12/1990
– NNL/NNH = 4.19 > 2
– Pep Indicator = 6.15% > 3.8%

60. 1Top MSI = 4.303 < 4.5
Sell MSI = 3.498 < 3.8
Sell NNL = 111.10 > 40
Sell VIX = 23.68 > 19 < 25
Pep = 6.15% > 3.8%
AC = 4.19 > 2
1990
Chart by Metastock

61. 1998
• Top of market date is 7/17/1998
• NNL at top of market = 65.19 > 50
• The SIMT gave a sell signal on 7/23/1998
• MSI at the top = 4.005 < 4.50
• MSI at the sell signal = 3.455 < 3.80
• VIX = 23.01, > 19 AND < 25
• The “All Clear” buy date was on 10/23/1998
– NNL/NNH = 3.00 > 2
– Pep Indicator = 6.01% > 3.8%

62. 1998
Top NNL = 65.19 > 50
Top MSI = 4.005 < 4.50
Sell MSI = 3.455 < 3.80
VIX = 23.01 > 19 < 25 Pep = 6.01% > 3.8%
AC = 3.00 > 2
Chart by Metastock

63. 2000
• Top of market date is 3/9/2000
• NNL at the top of market =73.69 > 50
• MSI on 3/9/2000 is 4.019 < 4.50
• MSI on 3/20/2000 is 3.627 < 3.8
• VIX on 3/20/2000 is 22.96 > 19 AND < 25
• The “All Clear” buy signal was on 10/25/2002
– NNL/NNH = 2.24 > 2
– Pep Indicator = 5.41% > 3.8%

64. 2000 to 2002
• The intermediate buy signal is generated four
times and validated by the pep indicator
during the decline from March 2000 to
October 2002.
• 6/2/2000, IB is 16.289, Pep is 12.125% > 3.8%
• 1/10/2001, IB is 15.152, Pep is 4.465% > 3.8%
• 4/18/2001, IB is 9.219, Pep is 7.954% > 3.8%
• 10/11/2001, IB is 13.858, Pep is 10.040% >
3.8%

65. Sell date 3/20/2000
MSI 3.627 < 3.80
VIX = 22.96 > 19 < 25
Buy 6/2/2000
Buy 1/10/2001
Buy 4/18/2001 Buy 10/11/2001
Buy 10/25/2002
AC = 2.24 > 2
Pep = 5.41% > 3.8%

66. 2007
• Tsunami flashes on three sell signal dates:
• 5/15/2007 NNL is 114.47. MSI is 4.374, VIX is 14.01
• 6/25/2007 NNL is 84.30, MSI is 4.054, VIX is 16.65
• 7/23/2007 NNL is 127.10, MSI IS 4.049, VIX is 16.81
• All MSI’s > 3.80, All VIX’s < 19
• So Tsunami denied by both MSI and VIX
• 10/19/2007 is next sell signal
• NNL is 176.84 > 40, MSI is 3.574 < 3.80, VIX is 22.96, > 19 < 25
• Bottom date is 12/12/2008
• “All Clear” NNL/NNH = 111.63 > 2
• Pep Indicator = 3.09% < 3.8%
• All Clear overridden by Pep Indicator < 3.8% so it denies entry

67. 2007 to 2009
• The intermediate buy signal is generated twice between October
2007 to December 2008
• 4/18/2008 IB is 8.212 >8, Pep is 4.640% > 3.8%
• 7/23/2008 IB is 9.184 > 8, Pep is 6.269% > 3.8%
• Buy signal on 12/12/2008
• All Clear = 110.306 > 2
• Pep Indicator = 3.094% < 3.8% denies entry
• An Accelerating New Lows calculation determined on the sell signal
1/14/2009 was 85.53% > 80%,
• The next buy signal was on 3/18/2009
– All Clear is 2.621 > 2
– Pep Indicator = 13.17% > 3.8%

68. Intermediate Buy Signals
Tsunami
All Clear
Buy date 4/18/2008
IB = 8.212 > 8
Pep = 4.64% > 3.80%
Buy date 7/23/2008
IB = 9.184 > 8
Pep = 6.269% > 3.80%
Buy date 12/12/2008
All Clear = 110.3>2
Pep = 3.09% < 3.80%

69. 2010
• Accelerating New Lows is on 5/6/2010
• Flash crash Acceleration of New Lows
calculated to be 93.18% > 80%
• Next buy signal on 7/23/2010 with Pep
Indicator = 6.19% > 3.8%

70. Acc NL 5/6/2010
7/23/2010
Pep 6.19 > 3.80

71. 2011
• Market top is 7/7/2011
• Tsunami Indicator and Series of Tops flashed on
7/27/2011. Series of Tops data on chart
• MSI at top = 4.390 < 4.50
• MSI at sell signal = 3.549 < 3.80
• NNL at sell signal = 96.88 > 40
• VIX at sell signal is 22.98 > 19 AND < 25
• Buy signal on 10/18/2011
– “All Clear” with NNL/NNH = 2.05 > 2
– Pep Indicator = 4.04% > 3.8%

72. 2011
Top date 5/12/11
NNL Top 59.02 > 50
MSI Sell 3.948 > 3.80
VIX Sell 18.24 < 19 Top date 5/31/2011
NNL Top 49.20 < 50
MSI Sell 3.824 > 3.80
VIX Sell 17.95 < 19
Sell date 7/27/2011
MSI Sell 3.549 < 3.80
VIX Sell 22.98 > 19 < 25
Buy signal 10/18/2011
All Clear = 2.05 > 2
Pep Indicator = 4.04% > 3.8%

73. 2015-2016
• This period of time contained two shortable
corrections and a Fifty New Lows Rule event
• June 29, 2015 started the first shortable
correction
• November 13, 2015 started the first Fifty New
Lows Rule event
• December 9, 2015 started the second
shortable correction and second Fifty New
Lows Rule event

74. June 29, 2015
Shortable Correction
August 21, 2015
MSI Target Achieved
November 13, 2015
Fifty New Lows Rule
December 9, 2015
Fifty New Lows Rule AND
Shortable Correction
January 7, 2016
MSI Target Achieved
March 1, 2016
Pep > 3.8%