This Week’s Battle Plan

Heard On CNBC Friday Morning:

Happy Happy Joy Joy Joy!

Yes, Friday morning, they were singing the Happy Happy Joy Joy
song on CNBC! It was like old times again. And why shouldn’t they be
happy? The NASDAQ
(
COMPX |
Quote |
Chart |
News |
PowerRating) is up nearly 25% from its March lows.
The leader of all leaders, the Semiconductor Index
(
$SOX.X |
Quote |
Chart |
News |
PowerRating), is
up over 40% from its bottom. And I’m happy too. I want the market to
rise. Everything in life is better when the markets rise. And on
Friday, those unemotional creatures from CNBC just couldn’t
control themselves. They were very buzzing. And they were not only
happy about the market, most of their excitement was focused on the
biotechs
(
BTK.X |
Quote |
Chart |
News |
PowerRating). This weekend’s Cancer Research meeting was the
buzz, an event that Dr. Paul Ruggieri, from this site, has been
focusing on for weeks. And I’m just as excited about this because I’m
long calls on a few of these biotechs. And Friday morning was the
juice. It was pure energy as they focused on just how great the world
is (funny how it looked so bad to them 75 days ago). And by the time
the market opened, you knew big things were in store for us in the
future.

But then, horror passed before my eyes! Why? Because I saw the attire
these people were wearing. It’s the same attire they wear just after
markets run up and soon reverse. What was this attire? Happy
Helmets! That’s right, Happy Helmets. What’s a Happy Helmet? Well,
if you’re a juvenile delinquent…er, I mean a devoted parent, you
watched the Ren and Stimpy Show in
the early 1990’s with your kids. Ren was a mean SOB Chihuahua and his
sidekick Stimpy was a happy, fat cat. One day Stimpy decided he wanted
Ren to be happy all the time. So what did he glue to Ren’s head? A
Happy Helmet! And before you knew it, Ren was always happy.

You can see by clicking
here just how the Happy Helmet works. Have you ever seen a
Chihuahua smile while ironing his underwear? If that’s not proof that
it works, then nothing is! And, what did I see the guys on CNBC
wearing on Friday morning? You guessed it…Happy Helmets! And
every single time they have put on their Happy Helmets, it has
coincided with a short term/intermediate term top. I wish I didn’t see
it for myself, but I did. They had them on. And now I’m concerned.

One of the things I consistently do is research the market. It’s been
a passion of mine for over two decades. And the more I learn about the
markets from my research, the more means I have to improve my trading.
The results of my better research nearly always find their way into my
trading and it’s a chance to continue to refine my knowledge of how
Wall Street works.

A few nights ago I was looking at some old notes and found a research
study done in 1979 done by The Institute for Economic Research (don’t
let the name scare you). Their research had a 5-point checklist that
predicted market direction for the upcoming day. In fact, when all 5
factors on the checklist occurred, the market rose and astounding 90 %
(!) of the time.

Now, the question is, have these findings held up over the past 24
years? If they have, we’ll now have a new indicator to apply to our
daily training. And this week, I’m going to give you a chance to test
these results with us. If your results come close to ours (we’ll
assume our results are correct because the guy doing this testing for
us got an 800 on his Math SAT’s when he was in high school; something
I sure as heck didn’t do), you will get a free year added to your
TradingMarkets subscription.

Here is some further upside to doing this research: If it works, we
will all have more knowledge to apply to our trading. If it doesn’t
work, we’ll try to understand why (this type of knowledge is
invaluable for all of us) and we’ll look for ways to improve the test
over the next few weeks.

The Test

Here goes: Let’s test from 1/1/85-6/1/03. If you do not have data that
goes back that far, start on 1/1/90 (any date after that starts making
the sample size too small).

1. If the market went up today, you give it a score of 1.

2. If today’s advancing minus declining issues was higher than
yesterday’s advancing minus declining issues, you give it a score of
1.

3. If today’s closing TRIN reading was under 1.00 you give it a score
of 1.

4. If today’s closing TICK was above 0, you give it a score of 1.

5. Markets have historically shown strength near the end of the month
and the beginning of the month (Kevin Haggerty also alludes to this
often). It also shows a small upward bias on Fridays. Therefore, if
today is a Friday, or today it’s the last trading day of the month or
the first 4 trading days of the month, you give it a score of 1.

The previous research from the 1970’s found that a total score of
zero or one led to the market declining over 70% of the time the next
day. A score of 4 saw the market rise 78% of the time and a score of 5
saw the market rise 90%. The question I ask is “Have these
results held up, and if they have, then how can we best trade them;
and if they didn’t, why not?”

Those of you who want to do the research this week can send me the %
correct for the time frames I mentioned above. If you come close, you
get a free year added to your subscription (and more importantly
you’ll know further what may or may not work for your trading in the
future). Send the results and any questions you may have to lconnors@tradingmarket.com
and we’ll look at the numbers together next week.