3. Bond Portfolio YTD 2011
>$20k Drawdowns January 1 – July 7
Symbol Calendar Period Position Value chg. (%) Position Value chg. ($)
JNK May 31 - June 16 -5.13% -$86,250
VWEHX May 16 - June 21 -2.21% -$53,877
TPINX March 9 - 17 -2.34% -$41,761
JNK March 8 - 16 -2.44% -$37,875
TPINX May 2 - 5 -1.284% -$22,779
PTTDX January 27 – February 10 -1.1% -$20,876
3
4. Bond Portfolio Hedging Candidates
>$20k Drawdowns January 1 – July 7
CBOE Mini-
Position Value chg. Position Value chg. U.S. Treasury
Symbol Calendar Period Volatility Index
(%) ($) Bond Futures
Futures
JNK May 31 - June 16 -5.13% -$86,250 0.826% 47.120%
VWEHX May 16 - June 21 -2.21% -$53,877 1.364% 3.399%
TPINX March 9 - 17 -2.34% -$41,761 2.038% 33.047%
JNK March 8 - 16 -2.44% -$37,875 2.933% 42.304%
TPINX May 2 - 5 -1.284% -$22,779 0.639% 8.982%
PTTDX January 27 – February 10 -1.1% -$20,876 -1.43% -3.305%
4
11. Bond Portfolio Direct Exposure to Financial Sector
Reported financial sector allocations in corporate bond holding prospectūs
Holding Exposure Weight within holding Weight within bond portfolio
PTTDX $459,272 24% 4.8%
HABDX $336,988 23% 3.52%
VWEHX $333,651 15% 3.49%
JNK $140,778 9.3% 1.47%
Total $1,270,690 n/a 13.29%
11
12. Financial Exposure Hedging Candidates
>$20k Drawdowns January 1 – July 7
Russell 2000 Index
Position Value chg. Position Value chg. Direxion Daily
Symbol Calendar Period Mini Futures
(%) ($) Financial Bear 3X
(short)
JNK May 31 - June 16 -5.13% -$86,250 6.648% 20.157%
VWEHX May 16 - June 21 -2.21% -$53,877 2.822% 9.577%
TPINX March 9 - 17 -2.34% -$41,761 2.85% 12.20%
JNK March 8 - 16 -2.44% -$37,875 -1.258% 12.220%
TPINX May 2 - 5 -1.284% -$22,779 .073% 5.725%
PTTDX January 27 – February 10 -1.1% -$20,876 -1.43% -3.305%
12
19. Sample Pattern Analysis Algorithm Technique
High Yield Bond ETFs vs. Oil
Condition: Federal Oil Reserve Sales
Date Barrels (millions) Catalyst
Nov. 18, 1985 1.1 Test sell
Sept. 27, 1990 5 Desert Storm test
Oct. 10, 1990 4 Desert Storm
Jan 16, 1991 17.3 Desert Storm
April 12, 1996 28 Deficit Reduction
Sept 2, 2005 11 Katrina/notice
June 23, 2011 30 Libya
19
20. Sample Pattern Analysis Algorithm Technique
High Yield Bond ETFs vs. Oil
Step 1: Determine Stochastic of the Asset
The Stochastic Fast indicator calculates the location of a current price in relation to its range over a period of bars. The default settings are to use the
most recent 14 bars (input StochLength), the high and low of that period to establish a range (input PriceH and PriceL) and the close as the current price
(input PriceC). This calculation is then indexed and plotted as FastK. A smoothed average of FastK, known as FastD, is also plotted. FastK and FastD plot as
oscillators with values from 0 to 100. The direction of the Stochastics should confirm price movement. For example, rising Stochastics confirm rising
prices.
Stochastics can also help identify turning points when there are non-confirmations or divergences. For example, a new high in price without a new high in
Stochastics may indicate a false breakout. Stochastics are also used to identify overbought and oversold conditions when the Stochastics reach extreme
highs or lows. Additionally, FastK crossing above the smoother FastD can be a buy signal and vice versa.
20
21. Sample Pattern Analysis Algorithm Technique
High Yield Bond ETFs vs. Oil
Step 2: Back test trend reversal incidence and severity by purchasing the
asset based on the Stochastic for each instance in history
21
22. Sample Pattern Analysis Algorithm Technique
High Yield Bond ETFs vs. Oil
Step 3: Determine the exact rate of change in volume in response to prior price reversals in the asset. Volume itself
is less important because changes in the capital markets result in varying volume levels during comparable events
over time. The degree to which volume elevates from a normalized level at the time of reversal (historically) is what
we are looking for here. And of course-- how does this rate of change compare to the market (beta)?
The Volume Rate of Change indicator compares the most current bar’s volume to the volume of a bar in the past (default is 14 bars ago). The difference is calculated as a
percentage and plotted as a histogram, and like an oscillator, fluctuates above and below a zero line. Volume can provide insight into the strength or weakness of a price trend.
This indicator plots positive values above the zero line, and negative below. A positive value suggests there is enough market support to continue to drive price activity in the
direction of the current trend. A negative value suggests there is a lack of support and prices may begin to become stagnant or reverse.
22
23. Sample Pattern Analysis Algorithm Technique
High Yield Bond ETFs vs. Oil
Step 3 (continued): import the
data from the volume rate of
change during the catalyst
23
24. Sample Pattern Analysis Algorithm Technique
High Yield Bond ETFs vs. Oil
Step 3 (continued): This is the short version of the volume This is the long version which contains all the variables
rate of change data. The number we are focused on is associated with our risk factor. These data provide the
highlighted in purple and the value is 83.33 in this example algo with all of the surrounding factors regarding the rate
of change –measuring exactly what transpired prior to the
reversal. If you right click the image below select “size
and position” then reset the image size to 100% you can
see that the rate of change went parabolic when the
announcement was made. This is set to a one minute
interval, however as you know we can look at the same
data on a per trade basis if we want/need to.
24
25. Sample Pattern Analysis Algorithm Technique
High Yield Bond ETFs vs. Oil
Step 4: Now we must begin to put the data in perspective. Here we interpolate the ETFs with the same
reversal data from the indices we will employ to trigger buy/sell instructions for the ETF. In this
scenario we would not use the S&P 500-- we would use the benchmarked Indices for each of the ETFs
themselves. Unfortunately there is not enough room on this screen to show the list of Indices.
25
26. Sample Pattern Analysis Algorithm Technique
High Yield Bond ETFs vs. Oil
Step 5: The key to a profitable strategy is consistent execution. The reality of index trend reversals is
that every professional trader in the world is looking to cash in on them. For this reason we have to be
prepared to get our orders filled amidst abnormal conditions. This part of the algorithm looks back at
the spreads of all the transactions for each asset during prior reversals. It also baselines the excess
spread and will send ‘feeler’ bids to sniff out other algos. In the end the algo will generate and test a
pre-determined price range for what we are willing to pay (when buying) or accept (when selling) that
is used both in executing our trade and in confirming trend reversal patterns when the reversal happen
now and in the future whether or not we trade them.
26
27. Sample Pattern Analysis Algorithm Technique
High Yield Bond ETFs vs. Oil
Step 6: Sorry I haven't explained floor trader pivots effectively. They are critical in the execution
process to alert us as to what exact price levels markets are likely to turn, therefore we ‘look back’ and
capture all pivots from prior reversals for all the securities we are analyzing. The algo will fire when we
have a 70% or better match. This is both when buying and selling. I have our defaults set up for 3
levels in both directions. I have only seen R4 and S4 one or two times in 16 years therefore we isolate
the largest probability distribution to maximize our system resources.
27
28. Sample Pattern Analysis Algorithm Technique
High Yield Bond ETFs vs. Oil
Step 7: Reversals happen when momentum stops -- then starts again in the opposite direction. We call
the actual reversal the “moment of truth” – somewhat as a pun, because all speculation ends at this
point. Institutions are known for creating the moment of truth- through their herding behavior of
buying and selling. This input for the algo captures institutional selling and buying and stores it in a
database. We then cross-reference these data when we are ready to compare prior reversals against
each other and also when we are ready to trade. These data are grouped with the deltas on the
options and the rate of change in volatility. This data set very effectively signals momentum.
Institution Accumulation and Distribution Counts trades over the number of shares specified by the Min. Shares input or number of trades in dollars specified
by the Min. Dollars input within a the last number of ticks specified by the TickLength input in an attempt to identify markets under institutional
accumulation/distribution. These markets may display a greater propensity for price movement as institutional buyers and sellers remain active.
28
29. Sample Pattern Analysis Algorithm Technique
High Yield Bond ETFs vs. Oil
Stochastics, Volume Rate of Change, Relative Strength to Index, Bid/Ask Volume ratio, Floor Trader
Pivots and Institutional buying/selling are 6 of our most useful indicators for running the ITRS
algorithms to identify risk and growth factors related to index trend reversals. We use a total of 33
indicators that each generate a critical factor. The table on the following page is a summary doc I used
a few years ago to explain to my trading team how we execute the NASDAQ 100 with our model trades
and the differences between them. It is the least technical document I have on ITRS. The point of the
document is that all trades are ‘rules based’ model trades-- both buys and sells.
29
30. ITRS Model Summaries
NASDAQ 100 Intraday Trend Reversal Trades
The Index Trend Reversal Strategy has back tested (1.1.07-1.01-08) rule sets for the following five intraday trades when used in conjunction with pivot points. Note
these trades were devised and back tested based on their high reliability of profitability; all work at least 7 out of 10 times.
STANDARD DEVIATION OF RELIABILITY RATE
TRADE TITLE COMMENTS AVG POINT MOVE SET-UP RECOGNITION RATE PIVOT (STOP LOSS
INCREMENT) OF PROFITABILITY
INTRADAY TRADES
When the market opens at R1, PP or S1
more than 90% of the time a 5-15pt 60% away from Pivot >70% away from pivot
AM REVERSAL 10 1.3
reversal occurs within the first 30min of the 80% at Pivot >90% at Pivot
trading session.
DAY TREND The most profitable intraday trade but the
most difficult to anticipate. The best
(This is technically a trend 37 20% n/a >70%
indicator for a day trend is a +/-90% or
follow through not a reversal) higher factor on the A/D issues
A very reliable reversal trade when the 1.1 @ R1/S1 >70% at R1/S1
SUPPORT/RESISTANCE 24 60%
market is within 4 pts of R2 or S2 3@R2/S/2 >90% within 4pts of R2/S2
DAILY RETRACEMENT An entry point or the logical stop limit exit
point on trades placed at daily support or 12 100% 1.3 >70%
resistance.
This trade works best if the bottom/top is
DOUBLE TOP/BOTTOM 8 50% .7 >70%
confirmed before placing the trade.
PM REVERSAL Occurs within 75 minutes of market close. 10 70% n/a >70%
WEEKLY S/R/R
The most profitable trade is also the most
WEEKLY
difficult to precisely time. The trade usually 40 70% n/a >70%
SUPPORT/RESISTANCE
needs to be scaled into.
An entry point or the logical stop limit exit
WEEKLY RETRACEMENT point on trades placed at weekly support or 20 100% 1.8 >70%
resistance.
30
32. Fear Day Supplemental Information 7.3.11
Q: Just to clarify your point about the trading data you have since 1972, is this for all markets: general session, futures, and options? And, do you have
intraday data, like every hour? (Or, is it possible to have a record of the actual tape, that is of every trade?)
A: We have all daily trading data for stocks and indices dating back to 1972 and for futures dating back to 1963. We have intraday data (including every
minute) dating back to 1993 for stocks and indices, and for futures dating back to 1984. We have 6 months of tick-by-tick (per trade) data.
Q: How did you determine that 3% is a good cutoff to define a "fear" day?
A: Mostly trial and error of data mining. We have model trades and algorithms for trend reversals of far less magnitude, however in general the bigger the
reversal, the easier it is to trade and the more worthwhile it is.
Q: Are there also “mild fear” days (like a 2% drop in the market?)
A: Absolutely, our first algo written and one of the most profitable was a -1% S&P 500 system.
Q: Is the Floor trader pivot point the opening price or the moment after the opening when the market ticks back up?
A: Neither. Floor trader pivots are pre-calculated support/resistance levels that do not change throughout the day. I have provided further explanation on
how these pivots relate to the AM reversal trade I referenced previously. We can use either the cash market prices of the Indices or the near contract
month futures price to calculate pivot points. I use both depending on which model trade I am executing.
Q: Have you observed other securities with this (what I consider) very high Fear Day correlation?
A: Absolutely, what we are calling “Fear days” are trend reversals. The foundation of our trading and investment philosophy is 100% focused on executing
profitable trades based on index trend reversals. It boils down to tax-treatment of gains, risk tolerance and complementing the balance of your portfolio
as to what securities from our existing pre-researched list of vehicles I would recommend. I listed a few in this supplement to give you an idea. It would
be very neat to seek and discover which indexes and sectors were most politically sensitive then load those securities and cross/compare our base algos
for the broader market. Based on my observations, and trading experiences, financials have been the most volatile and easiest to exploit for quite some
time now. When trading in anticipation of dislocation in the financial sector FAZ and TZA are the best ETFs and Russell Index options are the best
derivatives.
Q: It seems that for JNK and TLT, the trade one does on "fear" day is over by the end of day 3. How would you suggest one best execute to take advantage of
these trades?
A: It depends on a few important factors regarding your situation that I am unaware of. Are you wanting a hedged position? How do these proposed
symbols compliment your other holdings on fear days? Secondarily, we should take a closer look at how consistent JNK, and TLT trade in all market cycles,
not just fear days. We have several algos we can plug the signals /symbols into and stress test them against various scenarios. These 15 examples were
algo outputs not inputs. To test these symbols we’d load hundreds of market scenarios then see what the outputs told us. We also would look at days
the market rises significantly which is central to understand in your risk management plan. It wont be complicated or overly time consuming to do so, but
we must look at the whole picture to ensure the vehicles will do what we expect them to do when the markets align with our theses.
Q: Wouldn't the column totals (of the 15 “fear” incidents) allow us to judge which symbol was the better one to utilize?
A: I wasn’t 100% clear on this but I gave it a shot. Hopefully it is what you were expecting. If not I’ll be happy to get it right on second attempt.
32
33. Supplement Contents:
3 Historical market data
11 Rationale for 3% cutoff on Index trend reversals:
16 Pivot points
19 AM reversal
23 Securities with high market correlation
24 Symbol performance comparison on algorithm sell dates
33
34. Historical Market Data Availability
Futures Data
• 6 months of tick-by-tick data
• 27 years of intraday (one minute and above) data
• 48 Years of daily (Open, High, Low, Close, Volume) data
Equities Data
• 6 months of tick-by-tick data
• 18 years of domestic intraday (one minute and above) data
• 39 years of daily (Open, High, Low, Close, Volume) data
• 87 years of daily (Open, High, Low, Close, Volume) data of the Dow Jones Industrial Average
Options Data
• 6 months of tick-by-tick data
• All intraday (one minute and above) data since each currently traded option contract's inception
• 39 years of daily (Open, High, Low, Close, Volume) data
Forex Data
• 6 years of intraday (one minute and above) data
• 38 Years of daily data
International Data
• 6 months of tick-by-tick data
• 27 years of intraday (one minute and above) data on most major exchanges
34
35. Historical Minute Bar Database
U.S. Stock Database Meat One Chicago Single Stock Futures
Description Start Date Symbol Description Start Date Symbol Description Start Date
NYSE Stocks 01/01/1991 FC.P Feeder Cattle 01/01/1980 Single Stock Futures/
Over 500 Symbols 02/12/2003
NASDAQ Stocks 01/01/1991 LH.P Lean Hogs 04/01/1981 Index Symbols
AMEX Stocks 07/01/1998 LC.P Live Cattle 01/01/1980
INDEX Data PB.P Pork Bellies 01/01/1980 New York Mercantile Exchange Energy (NYMEX)
Symbol Description Start Date Symbol Description Start Date
Interest Rate CL.P Crude Oil 01/02/1987
Dow Jones Symbol Description Start Date
$INDU, $DJI 01/02/1985 HO.P Heating Oil 01/03/1984
Industrial(1) ED.P Eurodollar 12/09/1981
$NDX.X Nasdaq 100 Index(1) 01/02/1985 NG.P Natural Gas 01/04/1993
EM.P Libor 09/25/1990 HU.P Unleaded Gasoline 09/01/1987
$YXY0 NYSE Index 01/02/1987 TB.P T-Bills 01/04/1982
$RUT.X; $IUX Russell 2000 Index(1) 01/02/1985
Metals (COMEX)
$OEX; $OEX.X S&P 100 Index 01/02/1987 Fiber Symbol Description Start Date
S&P 400 MidCap Symbol Description Start Date
$MID.X 01/02/1998 HG.P Copper 12/01/1989
Index LB.P Lumber 01/01/1980 GC.P Gold 01/03/1984
$SPX.X, $INX S&P 500 Index(1) 02/01/1983
Chicago Board of Trade Equities PA.P Palladium 01/02/1987
Symbol Description Start Date SI.P Silver 12/01/1983
Symbol Description Start Date
AD.P Australian Dollar 01/13/1987 DJ.P Dow Jones Industrial 10/06/1997 New York Board of Trade Food/Fiber
BP.P British Pound 01/01/1980 Symbol Description Start Date
CD.P Canadian Dollar 01/01/1980 Grains
Symbol Description Start Date CC.P Cocoa 07/01/1986
DM Deutsche Mark 01/01/1980 KC.P Coffee 01/05/1987
EC.P Euro FX 01/04/1999 C.P Corn 04/02/1982
O.P Oats 04/02/1982 CT.P Cotton 01/05/1987
JY.P Japanese Yen 01/01/1980 OJ.P Orange Juice 07/06/1987
MP1.P Mexican Peso 01/02/1996 SM.P Soybean Meal 04/02/1982
BO.P Soybean Oil 04/02/1982 SB.P Sugar 07/01/1986
SF.P Swiss Franc 01/01/1980
S.P Soybeans 04/02/1982 Index
Equities W.P Wheat 04/02/1982 Symbol Description Start Date
Symbol Description Start Date YX.P NYSE Index 11/01/1983
NQ E-mini Nasdaq 100 07/01/1999 Interest Rate
Symbol Description Start Date DX.P U.S. Dollar Index 07/01/1989
ES E-mini S&P 500 09/11/1997
ER2 E-mini Russell 2000 10/25/2001 10 Year Municipal
MB.P 06/11/1985
ND.P Nasdaq 100 04/10/1996 Bond/Note
NK.P Nikkei 225 09/25/1990 TY.P 10 Year U.S. Treasury Note 01/03/1983
RL.P Russell 2000 02/04/1993 TU.P 2 Year U.S. Treasury Note 01/02/1991
MD.P S&P 400 MidCap 01/04/1993 US.P 30 Year U.S. Treasury Bond 04/02/1982
SP.P S&P 500 Index 04/21/1982 FV.P 5 Year U.S. Treasury Note 07/01/1988
(1) The ITRS research methodology employed by Index Strategy Advisors, has been collecting real-time market data for 37 technical studies performed against 35
the DOW, the S&P 500, and the Russell 2000 since June 2002.
36. 5-minute Data Example (E-mini Crude)
IEA Oil Release 6.23.11
Announcement
“Full day window ”
36
37. 1-minute Data Example (E-mini Crude)
IEA Oil Release 6.23.11
Announcement
“3 hour window”
37
38. 1-minute Data Example (E-mini Crude)
IEA Oil Release 6.23.11
Announcement
“30 minute window“
38
39. Tick Data Example (E-mini Crude)
IEA Oil Release 6.23.11
Announcement
“1 minute window“
39
40. Multi Asset Example (E-mini Crude vs. JNK, GLD, TLT)
IEA Oil Release 6.23.11
Announcement
“Full day window ”
40
41. Tick Data Summary (%) Example (E-mini Crude @8:14 A.M EST)
IEA Oil Release 6.23.11
Date Time Open High Low Close
6/23/2011 8:14 -1.59 -1.59 -1.59 -1.59
6/23/2011 8:14 -1.59 -1.59 -1.59 -1.59
6/23/2011 8:14 -1.59 -1.59 -1.59 -1.59
6/23/2011 8:14 -1.617 -1.617 -1.617 -1.617
6/23/2011 8:14 -1.617 -1.617 -1.617 -1.617
6/23/2011 8:14 -1.617 -1.617 -1.617 -1.617
6/23/2011 8:14 -1.59 -1.59 -1.59 -1.59
41
42. Rationale for 3% cutoff on Index Trend Reversals:
Bigger Moves are Less Frequent…
S&P 500 Index Daily Price Fluctuations
(1948-2009)
60% Days of 1% Moves or More
Days of 2% Moves 53%
51%
50% Days of 3% Moves
40%
29%
30% 27%
19%
20% 17%
12%
10%
2% 1%
0%
Historical Average* 2008 2009
Daily price movements measured using closing prices. * Historical average between 1948-2009 42
43. Rationale for 3% cutoff on Index Trend Reversals:
…so when they do occur volatility is maximized making monetization is easier.
Avg. Delta Gain within 2 std dev. from Reversal Pivot
(1985-2009)
Days of 1% Moves or More Days of 2% Moves Days of 3% Moves
100%
90%
80%
70% 79%
40%
60%
50%
40%
30%
11% 53%
20%
10%
9%
0% 4%
Support Resistance
Increase in delta when compared to pre-reversal ratio. * Historical average between 1948-2009 43
44. Rationale for 3% cutoff on Index Trend Reversals:
A two decade pattern of low volatility has been broken…
Global Equities Realized Volatility
1965-2010
60%
40%
20%
0%
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Through December 31, 2010 MSCI World returns are hedged into US dollars; trailing tree-month data. Source: MSCI 44
45. Rationale for 3% cutoff on Index Trend Reversals:
… combined with the growth of ETFs this should exacerbate correlation making most
equities “De facto indexes”
Percentage of S&P 500 Stocks Moving in Same Direction
90%
80%
70%
60%
50%
1971 1975 1980 1985 1990 1995 2000 2005 2010
Source: MSCI 45
46. Rationale for 3% cutoff on Index Trend Reversals:
… more reasons
• We target larger reversals for both rallies and corrections. In both cases the reversal tends to lead an extended trend
making the trade safer and more profitable.
• Trade winning percentage (real and simulated) is in the very upper 90% range on 3% days. It drops to 70% for reversals
of lesser magnitude.
• The Larger trading range makes execution easier.
• Algorithmic probability distributions for outcomes have narrower medians: It is easier to statistically predict how a
majority of market participants will respond because markets (and technical indicators) are highly correlated on these
days.
• While 3% days are optimal, we target reversals based on a rolling 7-10 day trend reversal strategy. The stronger the
trend (in either direction) the stronger the reversal. 1% reversals are tradable but they monetize to a far lesser extent
and involve greater risk.
• Anomaly paradox: People behave more consistently under greater duress whether it be fear or greed based.
o e.g. when there is no smoke and a fire alarm some will head for the exit some wont, but if there is smoke with the
fire alarm most will head for the exit; if there is fire, nearly all will head for the exit.
o The same holds true with opportunity. The stronger the opportunity the less unwilling people are to ignore it. And
the more popular the opportunity the more people will follow it.
o These anecdotal examples describe the behavior of investors at moments of support and resistance on major
indices. Particularly on major reversals.
46
47. Pivot Points
• Pivot points are precise daily support or resistance levels that unlike many popular technical indicators (such as moving averages) can be
used in very short term scenarios to determine whether a market is overbought or oversold.
• Pivot points are calculated based on the prior trading range of the vehicle.
• For the S&P 500, Russell 2000, and NASDAQ 100 the pivot point ranges when combined with Fibonacci retracement levels are extremely
accurate in predicting when a market will reverse course and to what level it will retrace.
• We use pivot points to calculate the price to buy or sell a vehicle based on our profit expectation and maximum acceptable loss.
• We utilize pivot points to execute our trades but not to plan them. We do not place a trade without knowing exactly where the market is
in relation to a pivot level. The typical trade is placed based on an alert fired from the pivot macro within the algorithm.
• Pivot points are not perfect. We must use algorithms to calculate the std. deviation of variance in fib levels related to pivot points and
several other technical indicators such as stochastic momentum, bid/ask ratio, advance/decline ratio, institutional accumulation /
decumulation etc.
• There are several pivot point calculators (Classic, Woodie, Camarilla, Demark) for our system, Classic formulae work the best and are
embedded in all of our algorithms.
• The classic formula is:
R4 = R3 + RANGE (same as: PP + RANGE * 3)
R3 = R2 + RANGE (same as: PP + RANGE * 2)
R2 = PP + RANGE
R1 = (2 * PP) - LOW
PP = (HIGH + LOW + CLOSE) / 3
S1 = (2 * PP) - HIGH
S2 = PP - RANGE
S3 = S2 - RANGE (same as: PP - RANGE * 2)
S4 = S3 - RANGE (same as: PP - RANGE * 3)
47
48. Pivot Points (cont.)
• There are 9 Pivot Point levels calculated each trading day: R 1 through R4, the Pivot point, and S1 through S4.
• R = Resistance or the upper range of a trend. 4 is the max upper range, 1 is the min lower range. R levels establish when a
market will stop going up and reverse course (or go sideways).
• S = Support or the lower range of a trend. 1 is the max upper range, 4 is the min lower range. S levels establish when a market
will stop going down and reverse course (or go sideways).
• Here is an example of how we use Pivot points based on last Friday’s Russell 2000 Mini futures September 20011 Contract
close: Let’s say we are expecting a market pullback sometime this week based on the fact that the market rallied 7.5% in only
six sessions, and in six consecutive sessions, is very close to its previous resistance of 850, and that 67% of ISM led rallies retrace
within two sessions -- and there are several big employment reports. So we think the market could go higher-- maybe a day or
two more, but we are looking for a 50% retracement to occur over two sessions and this 90pt range from the current trend
could serve us an immensely lucrative 45pt move to the downside. So we’d first start with “R” because we expect the market
to pullback. We’d set alerts at R1 of 842.8 plus the std. deviation the algo says is right for this scenario. That’s it. The algo
would also give us a stop level. Say at 843.6-- In this way we would know our max downside was 1pt and our upside was 45pts.
Once you program the algos to give you the historical references it is just that simple. We aren't predicting a fear day, but a
normal pullback from an overbought market that would be larger than usual.
30-Jun- 01-Jul- Change Previous
Daily Pivots for day
TFU1 Change following 01-Jul-2011
2011 2011 % Week
R4 881.4
Open 819.0 824.5 5.5 0.7% 791.6
R3 865.2
High 827.1 839.0 11.9 1.4% 839.0 R2 849.0
Low 817.8 822.8 5.0 0.6% 789.2
R1 842.8
PP 832.8
Close 825.4 836.6 11.2 1.4% 836.6
S1 826.6
Range 9.3 16.2 6.9 74.2% 49.8 S2 816.6
S3 800.4
Volume 126,249 131,863 5,614 4.4% 703,302
S4 784.2
Source: http://www.mypivots.com/dailynotes/symbol/448/-1/ice-russell-2000-mini-september-2011 48
49. Pivot Points (cont.)
• The key to making Pivot points work in trading is knowing what levels are likely to be taken out and knowing what the std.
deviations are. There are thousands of institutional algos currently that push the market to these pivot levels pull their orders
to suggest a reversal and then massively reverse the reverse orders. We call these situations a breach of pivot. We have a
library of breaches the system cross-checks so that we can anticipate whether or not a given market scenario is prone to one.
• I have not tested the efficacy of Pivot points for stocks or other vehicles because nearly everything worth trading is correlated
to one of the three indices we are extremely numerate with. For example, if I want to trade the financial sector I use the
Russell 2000 mini futures pivots. If I want to trade tech I use the NASDAQ 100 cash index pivots, If I want to trade the materials
sector I use the S&P 500 cash index pivots.
• We use the pre-market session range for the mini futures contracts of the Indices we have talked about to calculate pivot points
when trading early intraday models, extended models generally use the cash index prices
• After stop limit orders, pivot points are the best risk management tool in executing trades, because knowing when and at what
price the market is likely to turn is the foundation for knowing when to exit a position.
49
50. AM Reversal
• The AM reversal is a S&P 500 “Model Trade”, meaning we’ve rigorously tested its efficacy and have exhaustively reviewed
thousands of possible ‘rule-exceptions’. All model trades have a 1% stop loss. All model trades have a 70% or better win trade
on the simulator. All model trades have a rule set that fires an algo when to execute the trade and at what price (buying and/or
selling). Here are some high-level summary points of how the AM Reversal works:
• The trade happens by 10AM EST it is signaled and executed in the first half hour or not at all.
• There are two trades opportunities within the model: 1-the reversal bet (e.g. if the market opens lower you go long at the
opening pivot, and vice versa); 2) The counter-reversal bet (if you want to bet with the prevailing trend as well you enter your
trend following bet at the 10AM retracement)
• If the market opens at R1 or S1 then >70% of the time a 50% retracement will occur (e.g. if the pre-market high was 10 and S1
is 1 then the market will climb back to 5 before 10AM more than 70% of the time; the opposite is true on rallies).
• The retracement is always priced to the immediate previous trend (including its former self)
• If the reversal retracement is greater than 50% wait until the previous high/low has been hit to enter position.
• If the market opens beyond R1 or S1, the next resistance/support level is R3 or S3 or the 50% fib split of R2/R3, S2/S3. No trade
should be placed away from these levels.
• The AM reversal is more accurate with catalysts in the market (good or bad).
Examples using Lehman day:
50
52. AM Reversal: “Lehman Day” 9.15.08
Here is an example of an AM Reversal. Note the best long trade is at the capitulation from
the open and note the 10AM short entry point is roughly the tradable high for the day. Had
we entered at the open our stop los would have liquidated the position as the market gained
1.6% against any ‘opening shorts’ within the first half hour. With the link below you can see
that the projected Pivot point of S2/S3 with a 50% fib was 1213.65 within 1.4 of the actual
opening sell-off. So the trade would have been to go long at the Pivot/Fib and then go short
at the 50% level which would have been 1232.5 right at 10AM.
Note the actual 50% level was exceeded. By about 4 pts, but well with the std dev.
http://www.mypivots.com/dailynotes/archive/123/20080912/e-mini-sp500-december-2008
52
53. AM Reversal: “Day after Lehman Day” 9.16.08
Here is another example
Note the 10AM entry poi
tradable high for the day
trading day). Also note th
retracement was crossed
amount and a short at an
10AM and b) the previou
resulted in a loss. Note th
pivot violently pushing th
at 10AM. Several big ban
programs that try to coun
that many traders exploit
disciplined traders would
against their position. 10
average daily range for th
the dark pool assault at 1
what it usually does at th
algos calculate the differe
fib/pivot combo and the a
historically. There will alw
with capital to push beyo
projected levels so this ca
It is also different for diffe
and our best indicator of
hindsight) is the advance/
breadth is decidedly nega
the trend reversal we kno
competing algos and can
time frame. You can prob
call the late afternoon mo
see a similar (double 50%
retracement/reversal) mo
http://www.mypivots.com
/123/20080915/e-mini-sp
53
54. Securities with high market correlation
• Based on my research and experience, the most consistently profitable way to trade any market, is with directly correlated securities that are index
linked.
• Stocks move faster and farther than indices but they lack a pre-known consensus in their pricing behavior, thus they are largely unpredictable. When
the S&P 500 is rising or falling and pauses, we can look at the advancers/decliners within it and surmise based on historical data of the underlying forces
(e.g. sectors and stocks) and patterns how long and how far that trend may continue. If the a/d line is split 50/50 we can simply not trade it. We can
wait until there is conviction on either side. There are many other technical indicators we can use to see leading indicators regarding an index price
momentum. Whereas when stocks pause there is no way to know why or what’s next-- there is only one indicator and it is lagging: price. We have to
get in and hope for the best or sit out and possibly miss out. Stocks definitely follow patterns and devoted followers can learn them. But these patterns
inevitably change with the companies fortunes, life-cycle, industry trends, institutional participation and many other factors that are highly labile. There
is a constancy of reshuffling impactful factors and no one yet has figured out how to corral these factors. Ironically this may change as correlation and
volatility continue to rise, but that is another discussion.
• I have listed several ETF securities that have outstanding (e.g. consistent) behaviors in relation to broad market pullbacks and rallies. With nearly a
thousand ETFs created since we built these algos there are no doubt many others too; I am falling in love with EDC as a international market vehicle but
it is too early to endorse yet, however the algos we are testing it with are showing unmatched reliability, profitability, and accuracy. For right now, and
the up until the election, the ETFs listed below will get the job done: adequate liquidity, minimal spread, consistent correlation ratios, and very
predictable price behaviors in relation to market movements. Most importantly the only variable you need to care about when in the position is the
price of the index behind it. For the options market the Index options are fantastic. I have trained around 30 professional traders based on the index
options and we have 11 models for the NASDAQ 100, Russell 2000, and S&P 500. If you want to trade options you will experience greater liquidity and
save anywhere from 200-400% on the cost of the spread by trading index options vs. options on any ETF. For your political theses, I would strongly
recommend we discuss the Russell 2000 Index options for you. Both as a vehicle to exploit your market expectations surrounding political events as
well as a vehicle to exploit our existing trend reversal expertise. On the following page I have a concern about the inconsistency of JNK as it correlates
to the S&P 500. We can discuss during our call.
Thesis ETF Vehicle Option Vehicle
Market rout led by financials FAZ, TZA Russell 2000 Index Options
Market rally led by financials FAS, TNA Russell 2000 Index Options
S&P rally UPRO S&P 500 Index Options
S&P rout SPXU S&P 500 Index Options
Tech rally TYH NASDAQ 100 Index Options
Tech rout TYP NASDAQ 100 Index Options
54
57. Symbol performance Comparison on Algorithm sell dates
JNK GLD TLT JNK GLD TLT JNK GLD TLT JNK GLD TLT
Date Chg 1-Day Chg 3-Day Chg 5-Day Chg
11/5/2010 -0.32% 0.26% -1.72% -0.51% 1.03% 0.45% -1.29% 0.63% -1.63% -1.99% -1.97% -2.21%
8/11/2010 -0.97% -0.33% 1.34% -0.59% 1.22% -0.25% 0.23% 2.04% 3.52% 0.41% 2.45% 3.21%
6/22/2010 -0.57% 0.88% 1.19% -0.55% -0.41% 0.68% -0.21% 1.08% 0.49% -1.22% -0.15% 2.54%
5/4/2010 -1.43% -0.74% 1.80% -1.50% 0.19% 0.59% -3.38% 2.96% 2.40% -2.08% 5.04% 0.02%
1/21/2010 -1.61% -1.44% 0.46% -0.95% -0.19% -0.17% -0.23% 0.18% -0.60% -0.05% -0.78% -0.71%
10/27/2009 -0.44% -0.01% 1.37% -1.36% -1.10% 0.47% -0.99% 0.67% 0.82% -1.51% 4.53% -0.95%
10/1/2009 -3.22% -0.97% 1.05% 0.11% 0.49% -0.69% 1.42% 4.48% -1.66% 1.74% 5.87% -1.55%
9/1/2009 -1.53% 0.54% -0.56% -1.66% 2.44% 1.46% -0.17% 3.87% -0.88% 0.42% 3.39% -1.70%
8/17/2009 -2.60% -1.49% 1.48% 1.38% 0.49% -0.58% 1.99% 0.72% 1.07% 1.97% 0.80% 0.78%
6/22/2009 -1.28% -1.48% 0.97% -0.35% 0.42% 1.18% 0.12% 1.95% 2.00% 1.56% 1.66% 2.32%
5/13/2009 -2.05% 0.43% 1.09% 0.57% -0.07% 0.39% 0.39% -0.80% -1.20% 2.90% 1.27% -0.69%
1/14/2009 -4.81% -1.35% 1.65% -2.24% 0.75% 0.16% -0.96% 5.93% -1.40% 1.66% 6.00% -6.35%
11/6/2008 0.53% -0.80% 0.46% -0.31% 0.39% -0.65% -2.13% -0.24% 0.13% -3.60% -0.10% -1.64%
9/15/2008 -2.84% 2.66% 3.24% -3.34% -0.99% -0.02% -2.48% 6.76% -0.99% 0.93% 14.98% -4.14%
9/4/2008 -0.16% -0.63% 0.80% -1.04% 0.75% -0.05% 0.12% -2.42% 1.36% -1.18% -6.77% 0.68%
5/23/2008 -1.29% 0.27% 0.44% 0.00% -2.05% -0.68% 0.53% -5.17% -2.27% 0.33% -3.58% -1.60%
Symbol Fear Day Day 1 Day three Day five
DOWN DOWN DOWN DOWN
JNK 14 OF 15 11 0F 15 8 OF 15 7 OF 15
UP UP UP UP
GLD 6 OF 15 10 of 15 11 OF 15 9 OF 15
UP UP UP UP
TLT 13 OF 15 8 OF 15 8 OF 15 6 OF 15
57
58. Summary
Methodology:
• Back test simulated trades in 1 anomalous scenario (Lehman bankruptcy).
• Back test simulated trades in 15 algorithmically detected market sell scenarios 2008-2010.
Observations:
• JNK falls precipitously on days of extreme fear (e.g. high volatility combined with a significant market pullback).
• JNK typically recovers within two days of the initial market shock and price decline.
• GLD rises about half the time on days of extreme fear, but will rise about 2/3 of the time within a few days of the initial shock.
• TLT gains on days of extreme fear more than 85% of the time, but only remains positive after a few days half of the time.
Conclusions:
• A short bet against JNK in the immediate day or two following a major market pullback represents the strongest risk/reward
opportunity within this group of symbols.
58
59. Symbol performance Comparison on Algorithm sell dates
Symbol Fear Day Day 1 Day three Day five
DOWN DOWN DOWN DOWN
JNK 14 OF 15 11 0F 15 8 OF 15 7 OF 15
UP UP UP UP
GLD 6 OF 15 10 of 15 11 OF 15 9 OF 15
UP UP UP UP
TLT 13 OF 15 8 OF 15 8 OF 15 6 OF 15
Symbol Chg 1-day Chg 3-Day Chg 5-Day Chg
JNK -1.54% -0.77% -0.44% 0.02%
GLD -0.26% 0.21% 1.41% 2.04%
TLT 0.94% 0.14% 0.07% -0.75%
59
60. Contents:
1 Immediate trading days following the Lehman bankruptcy
2 Algorithmically signaled market sell signals
3 Recap of sell signals
60
63. Contents:
1 Immediate trading days following the Lehman bankruptcy
2 Algorithmically signaled market sell signals
3 Recap of sell signals
63
64. Algorithm sell dates based on historical risk criteria
Date Description
11/5/2010 Federal Reserve $600B Treasury bond purchase
8/11/2010 Federal Reserve announces plan to buy govt. debt
6/22/2010 Fibonacci Retracement Failure; 200 day MA Breach
5/4/2010 Floor Trader 2nd Support Level Broken
1/21/2010 White house proposes Volcker Rule
10/27/2009 Low Consumer Confidence Reading
10/1/2009 ISM Contraction
9/1/2009 ISM/Housing Expansion
8/17/2009 Floor Trader 2nd Support Level Broken
6/22/2009 VIX Extreme Gap-up
5/13/2009 Retail Sales Lagging
1/14/2009 Retail Sales Lagging
11/6/2008 Retail Sales Lagging, ISM Underperformance
9/15/2008 (1) Lehman Bankruptcy Announcement
9/4/2008 Jobless Claims Surprise
5/23/2008 Existing Home Sales Lagging, Oil $135 Resistance Broken
(1) Our allocation was 100% cash on 9.15.2008. This event is included for reference only. 64
65. Symbol performance on Algorithm sell dates
Symbol Fear Day Day 1 Day three Day five
DOWN DOWN DOWN DOWN
JNK 14 OF 15 11 0F 15 8 OF 15 7 OF 15
UP UP UP UP
GLD 6 OF 15 10 of 15 11 OF 15 9 OF 15
UP UP UP UP
TLT 13 OF 15 8 OF 15 8 OF 15 6 OF 15
(1) Our allocation was 100% cash on 9.15.2008. This event is included for reference only. 65
66. Algorithm sell dates based on historical risk criteria
Simulated Trade Summaries(1)
1-day ($ 1-day (% 3-day ($ 3-day (% 5-day ($ 5-day (%
Date Trade Description Net cost
return) return) return) return) return) return)
11/5/2010 Sell to open (-100) TLT NOV 2010 100 Call @.43 $4,300 $0 0.00% ($300) -6.98% $2,900 67.4%
8/11/2010 Sell to open (-100) TLT AUG 2010 98 Call @1.69 $16,900 $2,250 13.31% ($7,350) -43.49% ($31,850) -188.5%
6/22/2010 Sell to open (-100) TLT JUL 2010 98 Call @1.60 $16,000 ($4,050) -25.31% ($1,350) -8.44% ($1,350) -8.4%
5/4/2010 Sell to open (-100) TLT MAY 2010 92 Call @1.885 $18,850 ($4,150) -22.02% ($21,150) -112.20% ($21,150) -112.2%
1/21/2010 Sell to open (-100) TLT FEB 2010 92 Call @1.025 $10,250 $500 4.88% $500 4.88% $3,250 31.7%
10/27/2009 Sell to open (-100) TLT NOV 2009 94 Call @1.875 $18,750 ($2,250) -12.00% ($4,250) -22.67% ($4,250) -22.7%
10/1/2009 Sell to open (-100) TLT OCT 2010 99 Call @2.60 $26,000 $4,500 17.31% $4,500 17.31% $9,750 37.5%
9/1/2009 Sell to open (-100) TLT SEP 2009 97 Call @.95 $9,500 ($6,000) -63.16% $5,250 55.26% $5,250 55.3%
8/17/2009 Sell to open (-100) TLT SEP 2009 95 Call @1.825 $18,250 $3,500 19.18% ($2,250) -12.33% $7,250 39.7%
6/22/2009 Sell to open (-100) TLT JUL 2009 92 Call @2.275 $22,750 ($500) -2.20% ($675) -2.97% ($800) -3.5%
5/13/2009 Sell to open (-100) TLT MAY 2009 97 Call @1.05 $10,500 ($1,250) -11.90% $100 0.95% $100 1.0%
1/14/2009 Sell to open (-100) TLT FEB 2009 116 Call @2.875 $28,750 ($1,500) -5.22% $8,000 27.83% $8,000 27.8%
11/6/2008 Sell to open (-100) TLT NOV 2008 95 Call @1.20 $12,000 $2,750 22.92% $2,750 22.92% $2,750 22.9%
9/15/2008 Sell to open (-100) TLT SEP 2008 98 Call @1.125 $11,250 $1,500 13.33% $8,750 77.78% $11,250 100.0%
9/4/2008 Sell to open (-100) TLT SEP 2008 95 Call @1.15 $11,500 $500 4.35% $500 4.35% ($9,750) -84.8%
5/23/2008 Sell to open (-100) TLT JUNE 2008 92 Call @2.175 $21,750 $0 0.00% $0 0.00% $6,500 29.9%
All Trades $257,300 ($4,200) -1.63% ($6,975) -2.71% ($12,150) -4.7%
(1) Simulated trades reflect end of day closing prices for current month near in-the-money contracts . 66
70. Contents:
1 Immediate trading days following the Lehman bankruptcy
2 Algorithmically signaled market sell signals
3 Recap of sell signals
70
71. 11/5/2010
Federal Reserve $600B Treasury bond purchase.
Situation Trend Algorithm S&P 500
Date Summary
Description Dates Alert Type Performance
11/5/2010 Federal Reserve $600B 11/5/10- Catalyst Sell; -4.7% The Federal Reserve announcement of its plans to buy $600 billion
Treasury bond purchase 11/30/10 Technical Sell in Treasury bonds triggers several sell indicators; including a 3.6%
3 session rally - exceeding our over bought indicator at 1220 , a 9
month low on the dollar, and a record high for gold prices.
Symbol Prev. close Close Chg 1-day Chg 3-day Chg 5-day Chg
JNK 41.25 41.12 -0.32% 40.91 -0.51% 40.59 -1.29% 40.3 -1.99%
GLD 136.03 136.38 0.26% 137.78 1.03% 137.24 0.63% 133.69 -1.97%
TLT 99.69 97.98 -1.72% 98.42 0.45% 96.38 -1.63% 95.81 -2.21%
71
72. 11/5/2010
Federal Reserve $600B Treasury bond purchase.
1-day 1-day 3-day 3-day 5-day 5-day
Trade Summary Net cost
($ return) (% return) ($ return) (% return) ($ return) (% return)
Sell to open (-100) TLT NOV 2010 100 Call @.43 $4,300 $0 0.00% ($300) -6.98% $2,900 67.4%
Buy to open 105 JNK @41.12 $4,318 $0 0.00% ($22) -0.51% ($56) -1.3%
72
73. 8/11/2010
Federal Reserve announces plan to buy govt. debt
Situation Trend Algorithm S&P 500
Date Summary
Description Dates Alert Type Performance
8/11/2010 Federal Reserve 8/11/10- Catalyst Sell; -7.3% The Fed's concern about growth triggers massive selling and
announces plan to 9/1/10 Technical Sell purchasing of put options across all equity sectors --pushing the
buy govt. debt dollar to a 15 year low against the yen. Consolidation and failure to
achieve and cross the 1130 resistance level on the S&P 500
promotes the first aggressive selling in August a month notorious
for institutional program selling.
Symbol Prev. close Close Chg 1-day Chg 3-day Chg 5-day Chg
JNK 39.28 38.9 -0.97% 38.67 -0.59% 38.99 0.23% 39.06 0.41%
GLD 117.73 117.34 -0.33% 118.77 1.22% 119.73 2.04% 120.22 2.45%
TLT 99.94 101.28 1.34% 101.03 -0.25% 104.85 3.52% 104.53 3.21%
73
74. 8/11/2010
Federal Reserve announces plan to buy govt. debt
1-day 1-day 3-day 3-day 5-day 5-day
Trade Summary Net cost
($ return) (% return) ($ return) (% return) ($ return) (% return)
Sell to open (-100) TLT AUG 2010 98 Call @1.69 $16,900 $2,250 13.31% ($7,350) -43.49% ($31,850) -188.5%
Buy to open 434 JNK @38.9 $16,883 ($91) -0.54% ($35) -0.21% ($35) -0.2%
74
75. 6/22/10
Fibonacci Retracement Failure; 200 day MA Breach
Situation Trend Algorithm S&P 500
Date Summary
Description Dates Alert Type Performance
6/22/10 Fibonacci 6/21/10- Technical Sell -11.9% The new 52 week high set on 4/26/10 and the subsequent (twice
Retracement Failure; 7/1/10 set) 2010 low at 1040 created an extremely important Fib 50%
200 day MA Breach retracement level at 1130.58. On 6/21/10 extremely frenetic
trading (likely HFT algorithms) pushed the index to one standard
deviation beyond the key level (1131.23); and violent selling
ensued after the trade crossed. The 6/22/10 session marked both
a key cross below the 200day Moving Average as well as a second
consecutive close below the critical Fib level.
Symbol Prev. close Close Chg 1-day Chg 3-day Chg 5-day Chg
JNK 38.71 38.49 -0.57% 38.28 -0.55% 38.41 -0.21% 38.02 -1.22%
GLD 120.39 121.45 0.88% 120.95 -0.41% 122.76 1.08% 121.27 -0.15%
TLT 97.41 98.57 1.19% 99.24 0.68% 99.05 0.49% 101.07 2.54%
75
76. 6/22/10
Fibonacci Retracement Failure; 200 day MA Breach
1-day 1-day 3-day 3-day 5-day 5-day
Trade Summary Net cost
($ return) (% return) ($ return) (% return) ($ return) (% return)
Sell to open (-100) TLT MAY 2010 92 Call @1.885 $18,850 ($4,150) -22.02% ($21,150) -112.20% ($21,150) -112.2%
Buy to open 478 JNK @39.38 $18,824 ($296) -1.57% ($650) -3.45% ($650) -3.5%
76
77. 5/4/10
Floor Trader 2nd Support Level Broken
Situation Trend Algorithm S&P 500
Date
Description Dates Alert Type Performance
5/4/2010 Floor Trader
4/26/10-6/8/10 Technical Sell -17%
2nd Support Level Broken
Summary
Two major support levels were broken on the major indices (prior to the 5/6/10 flash crash). The first, a major technical support level of 1181 on the S&P 500 was
tested following the 4/27/10 sell off in response to the downgrade of Greek debt to junk status. While significant that event did not push the index below the 52
week high set on 4/1/10 of 1178.10. On 5/4/10 this level was violently crossed in the first hour of trading after breaking through the second major support level --
the floor trader secondary support level of 1176.5, an extreme level that became a resistance point for the rest of the session (with three subsequent failed attempts
to cross prior to the close). While the selling on this day automatically triggered a sell in response to the short term view, there was also a long term trend line
factored into this sell decision: 1181 was a pivotal support level during a critical phase of the financial crisis -- on 9/29/08 institutions largely turned off buying
orders and markets plunged in response to the congressional rejection of the initially proposed wall street rescue package. This key level broken then resulted in the
largest two day decline in 20 years -- what many believe was the 'shock and awe' factor leading to the eventual bailouts. 1181 was also the key support level broken
leading up to the dot.com crash and pre 9/11 market correction. Failure to close above this level triggered institutional selling leading to a 25% market correction
between 8/27/01-9/21/01, and a 48% correction between 3/19/02-10/10/02. 1181 was not reached and held again until 10/28/05. With only two more events at
this key level with the aforementioned 9/29/08 event and the cross on this day 5/4/10.
Symbol Prev. close Close Chg 1-day Chg 3-day Chg 5-day Chg
JNK 39.92 39.35 -1.43% 38.76 -1.50% 38.02 -3.38% 38.53 -2.08%
GLD 115.73 114.87 -0.74% 115.09 0.19% 118.27 2.96% 120.66 5.04%
TLT 91.69 93.34 1.80% 93.89 0.59% 95.58 2.40% 93.36 0.02%
77
79. 1/21/10
White house proposes Volcker Rule
Situation Trend Algorithm S&P 500
Date Summary
Description Dates Alert Type Performance
1/21/10 White house proposes 1/21/10- Catalyst Sell, -10% The "Volcker Rule“, a proposed plan to curb proprietary trading
Volcker Rule 2/5/10 Technical Sell within banks provokes violent selling in the largest financial
institutions leading to a break of support at key 1131.85 level.
S&P drops 2.46% following the announcement; the Dow 2.3%
Symbol Prev. close Close Chg 1-day Chg 3-day Chg 5-day Chg
JNK 39.63 38.99 -1.61% 38.62 -0.95% 38.9 -0.23% 38.97 -0.05%
GLD 108.94 107.37 -1.44% 107.17 -0.19% 107.56 0.18% 106.53 -0.78%
TLT 91.74 92.16 0.46% 92 -0.17% 91.61 -0.60% 91.51 -0.71%
79
80. 1/21/10
White house proposes Volcker Rule
1-day 1-day 3-day 3-day 5-day 5-day
Trade Summary Net cost
($ return) (% return) ($ return) (% return) ($ return) (% return)
Sell to open (-100) TLT FEB 2010 92 Call @1.025 $10,250 $500 4.88% $500 4.88% $3,250 31.7%
Buy to open 263 JNK @38.99 $10,254 ($97) -0.95% ($97) -0.95% ($24) -0.2%
80
81. 10/27/2009
Low Consumer Confidence Reading
Situation Trend Algorithm S&P 500
Date Summary
Description Dates Alert Type Performance
10/27/09 Low Consumer 10/21/09- Catalyst Sell -6.9% The consumer confidence index fell to 47.7 vs. leading economists
Confidence Reading 11/02/09 prediction of 53.5. This was a significant disappointment and
followed a second consecutive Dow close below the psychologically
important 10,000 level. The prior trend Fibonacci midpoint
retracement level of 1060.65 was breached during today's session
triggering a short-term sell.
Symbol Prev. close Close Chg 1-day Chg 3-day Chg 5-day Chg
JNK 38.54 38.37 -0.44% 37.85 -1.36% 37.99 -0.99% 37.79 -1.51%
GLD 101.86 101.85 -0.01% 100.73 -1.10% 102.53 0.67% 106.46 4.53%
TLT 93.72 95 1.37% 95.45 0.47% 95.78 0.82% 94.1 -0.95%
81
82. 10/27/2009
Low Consumer Confidence Reading
1-day 1-day 3-day 3-day 5-day 5-day
Trade Summary Net cost
($ return) (% return) ($ return) (% return) ($ return) (% return)
Sell to open (-100) TLT NOV 2009 94 Call @1.875 $18,750 ($2,250) -12.00% ($4,250) -22.67% ($4,250) -22.7%
Buy to open 488 JNK @38.37 $18,725 ($254) -1.36% ($185) -0.99% ($185) -1.0%
82
83. 10/1/2009
ISM Contraction
Situation Trend Algorithm S&P 500
Date Summary
Description Dates Alert Type Performance
10/1/09 ISM Contraction 9/23/09- Catalyst Sell -5.9% The ISM index fell to 46.1 for the Chicago region. Following a quarter
10/2/09 that witnessed the largest gain in 11 years institutional selling
pressured stocks lower 2.4% triggering a (near 52 high) protective
trailing stop sell.
Symbol Prev. close Close Chg 1-day Chg 3-day Chg 5-day Chg
JNK 38.49 37.25 -3.22% 37.29 0.11% 37.78 1.42% 37.9 1.74%
GLD 98.85 97.89 -0.97% 98.37 0.49% 102.28 4.48% 103.64 5.87%
TLT 98.66 99.7 1.05% 99.01 -0.69% 98.04 -1.66% 98.15 -1.55%
83
84. 10/1/2009
ISM Contraction
1-day 1-day 3-day 3-day 5-day 5-day
Trade Summary Net cost
($ return) (% return) ($ return) (% return) ($ return) (% return)
Sell to open (-100) TLT OCT 2010 99 Call @2.60 $26,000 $4,500 17.31% $4,500 17.31% $9,750 37.5%
Buy to open 698 JNK @37.25 $26,001 $28 0.11% $28 0.11% $370 1.4%
84
85. 9/1/2009
ISM/Housing Expansion
Situation Trend Algorithm S&P 500
Date Summary
Description Dates Alert Type Performance
9/1/09 ISM/Housing 8/28/09- Behavioral Sell -4.7% An 11.3% spike in the VIX following the announcement of a positive
Expansion 9/2/09 ISM report (52.9% vs. 50.5% expectation) triggered a major sell off
and an automatic sell.
Symbol Prev. close Close Chg 1-day Chg 3-day Chg 5-day Chg
JNK 36.64 36.08 -1.53% 35.48 -1.66% 36.02 -0.17% 36.23 0.42%
GLD 93.40 93.90 0.54% 96.19 2.44% 97.53 3.87% 97.08 3.39%
TLT 96.6 96.06 -0.56% 97.46 1.46% 95.21 -0.88% 94.43 -1.70%
85