Developed by Trader Fred

Sample
TSP Trader System Commentary

MM/DD/YY

UPDATE: Close of Business Tuesday, Month XX,XXXX

The TSP Monthly Trader is 100% in the G Fund. Information on the historical back testing performance of the TSP Trader submodels is available in the document. Check in regularly and see how the TSP Monthly Trader is doing.

The TSP Aggressive Monthly Trader has given a Sell Signal. The TSP Aggressive Monthly Trader will exit the I Fund on Wednesday and move 100% into the G Fund. So, Thursday the TSP Aggressive Monthly Trader will be 100% in the G Fund. The TSP Aggressive Monthly Trader hit the one percent stop loss limit today (Tuesday). The I fund trade currently has a loss of –1.24%. Information on the historical back testing performance of the submodels is available on the TSP Trader system stop loss web page. Check in regularly and see how the TSP Trader system is doing.

The first image is the TSP Trader Stock Market Weakness-Strength chart for the stock market. It is based on the daily behavior of the S&P 500 Index. Information on the historical back testing performance of the TSP Trader submodels is available in the model information and stop loss document. The red diamond is today’s value.



The negative Strength—Weakness value (vertical axis) has increased. The positive Loss—Gain value (horizontal axis) has decreased. The red diamond is in the SE quadrant below the minus three level (dotted green line). Vertical movement is most important in this quadrant. If the market weakness does not significantly decrease, then the left-right movement (Loss—Gain) of the red diamond is simply market churning by the professional traders. Historically, when the red diamond is below the dotted green line the daily oscillations in the S&P 500 Index typically exceed ±1%. The median daily value is +1.34% for the four green values and one red value. This percentage is different from the S&P 500 Index’s median daily value since June of +0.21%. All of these charts are provided for informational purposes only and are not meant to predict future market behavior.

+2.56% (R)

+1.19% (R)

+1.53% (M)

+1.34% (F)

–1.27% (T)

In the image below, the stock market strength (blue line) has leveled off at minus four in the Region of Market Weakness (below the dotted green line). Historically, when the blue line is level or decreasing, it typically means gains in the S&P 500 Index will be difficult to retain.


This indicator typically tends to be a forward-looking indicator of market’s behavior by approximately two weeks. However, during unstable market conditions, the forward time seems to increase or decrease by a factor of at least two (e.g., a month or more; a week or less). The S&P 500 Index scale (black line) is on the right.
When the value of the dollar goes down, the value of the US stock market generally goes up. The chart below examines the question, “How do the dollar and the TSP stock funds (C, S & I) behave during an ETF Dollar Trader market signal?” The vertical red line is the beginning of the signal. The horizontal red line is the duration of the signal.



The above signal (red box) hypothetically bought the CSI Allocation for $14.10 on 30-Jul-09 (C Fund @ 33%, S Fund @ 33%, & I Fund @ 33%). Currently, the trade has a gain of +1.56%. It will be interesting to see if popular market wisdom prevails. The 19-Jun-2009 Friday and 29-Jul-2009 Wednesday updates contain more information about the ETF Dollar Trader model. All of these charts are provided for informational purposes only and are not meant to predict future market behavior.

The Market Resistance Indicator chart monitors the C Fund’s Loss—Gain with respect to daily changes in the summed NYSE volume. Market resistance decreases as buyers outnumber sellers going from the Maximum Resistance Boundary (left green line) to the Minimum Resistance Boundary (right green line). The red diamond is today’s value.


Today’s (Tuesday) loss of over one percent in the S&P 500 Index moved the red diamond directly to the Neutral Resistance Boundary (dotted green line) where buyers are approximately equal to sellers. This means the stocks in the S&P 500 Index are continuing this mini-market valuation cycle.

It also means the overall market dynamics are exactly balanced, a rare occurrence. Thus, the profit and loss potential of the five hundred stocks are viewed as equivalent. Historically, the red diamond has typically remained balanced on or near the dotted green line for a short time. Generally, after a few days the red diamond has made a sudden and large move toward one of the solid green lines. Thus, the rest of this week should prove instructive. All of these charts are provided for informational purposes only and are not meant to predict future market behavior.

It is possible to be aware of what the market is doing each day, and if we are lucky, perhaps how it is doing it. For example, the how in the Market Resistance Indicator is the observed relationship between the C Fund’s Loss---Gain and the summed NYSE share volume. Why those dynamic relationships exist and why they affect market behavior is discussed each day in Tom’s Comments.

-- TSP Trader Fred

The possibility always exists a submodel trade may not be profitable. Investing in the stock market is gambling, as past performance does not guarantee future performance.

Current Submodel Signals

COB Signal

* Date of

Effective

C Fund

C Fund

Submodel

Signal

Date

Transfer

Date

Buy in Price

Stop Price

A

Sell

n/a

n/a

n/a

B

Sell

n/a

n/a

n/a

C

Sell

n/a

n/a

n/a

D

Sell

n/a

n/a

n/a

E

Sell

n/a

n/a

n/a

F

Sell

n/a

n/a

n/a

G

Sell

n/a

n/a

n/a

H

Sell

n/a

n/a

n/a

J

Sell

n/a

n/a

n/a

K

Sell

n/a

n/a

n/a

M

Sell

n/a

n/a

n/a

P

Buy

10/4/07

10/5/07

10/9/07

$17.48

$17.22

R

Sell

n/a

n/a

n/a

S

Sell

n/a

n/a

n/a

U

Buy

10/09/07

10/10/07

10/11/07

$17.54

$17.36

W

Buy

10/01/07

10/02/07

10/03/07

$17.35

$17.18

X

Sell

n/a

n/a

n/a

Y

Sell

n/a

n/a

n/a

Z

Sell

n/a

n/a

n/a

COB Signal

* Date of

Effective

F Fund

F Fund

Submodel

Signal

Date

Transfer

Date

Buy in Price

Stop Price

KF

Sell

n/a

n/a

n/a

MF

Sell

n/a

n/a

n/a

NF

Sell

n/a

n/a

n/a

n/a = No signals given

* Transfer uses this COB date's share prices

The TSP Trade system has four design goals. The first is to stay out of the stock market and in the safety of the G Fund during periods of stock market gyrations. The last fifteen trading days from June 8 to June 28 have been just such a time. Tom describes this trading period in his TSP Comments:

Stocks rallied after an early morning panic sell-off. Ironically, yesterday's 90 point gain on the Dow was the smallest gain this week when you look at intraday charts. Monday the Dow was up 130 points before collapsing, and Tuesday saw a 100 point gain disappear. So all three days have seen huge intraday reversals as volatility is in full force. That means we don't want to leave our guard down.

The TSP Trade system achieved its first design goal during this volatile period. It exited the market to the safety of the G Fund, and then re-entered the market at a slightly lower C Fund price: $16.82 (exit), $16.81 (re-enter). That is the best risk avoidance behavior the TSP Trade system can achieve.

The second TSP Trade system design goal is to exit each submodel system trade with at least a one percent profit. There were four system trades in the first half of this year. They averaged 1.39% per trade, which meets the second design goal.

The third TSP Trade system design goal is to be out of the stock market for least 40 percent of the trading days. That meant being in the safety of the G Fund for at least 50 of the 125 trading days experienced so far this year. The TSP Trade system was in the G Fund for 70 days during the first half of this year. This realizes the third TSP Trade system design goal.

The fourth TSP Trade system design goal is to use a –1% to –2% stop loss to exit trades no longer following the relevant submodel pattern. This happened at the end of the last system trade. This caused the –1% stop loss to execute. The system trade exited the market with a profit of +0.71 percent. This nice stock market gift satisfies the final TSP Trade system design goal.

It is hoped the TSP Trade system behaves as well in the second half of this year. However, there are no guarantees when investing in the stock market, only preparation and hope.

To sign up to receive email alerts when the TSP Trader System's signals change, go to the email alert page.

More on The TSP Trader System:

More on The TSP Trader System, taken from a late December Daily Market Commentary:

... "Trader Fred" will not be giving us the system. He will be telling us when we have a buy or a sell signal. It's kind of like taking an indicator like the ARMS index. We don't need to know exactly how each measurement is determined. We just need to know what the market tends to do at specific levels of the indicator. That's what we'll be getting here. But it is based on more than just one piece of market data.

Trader Fred will run his programs each night using that day's data, and the output will tell him whether the system is on a buy or sell signal.

A quick and simple overview shows us that there are 8 separate short-term trading models, each based on certain market criteria. If any one of those 8 models is on a buy signal, then the system (labeled the long-term trading model below) is on a buy signal. If all 8 go to a sell signal, then the system goes into a sell signal.

In the example below, which is tough to see, The A, D, E, and F sub-models all had a buy signal at one point which put the entire system into buy mode (the black bars). Those are dates on the left of those black bars. You can see that there were a couple of points where there is a gap in the black bar and that is because none of the 8 sub-models were giving a buy signal. That would be a time to sell. But once one sub-model gives a buy signal, it's back to a buy for the system, and for us.

That doesn't tell you too much and I may be oversimplifying the explanation, but that is the gist of what we will be seeing.

The system has been on a buy signal since early August of this year. That would have equated to a 10.8% gain if you used a 100% C fund allocation during that time. (More on allocations later.) The other day Trader Fred had told me that it looked like we would be getting a sell signal by the end of the week, but the last two days' activity set another one of the sub-models (sub-model J) into a buy mode so the system remains on a buy signal.

Oh, how I was hoping it would give that sell signal because you know I don't want to be a buyer with the market up this high. Perhaps a sell off in the next couple of days will put us both on the same page.

What you do with the buy signal is basically up to you. More conservative investors may never want to go to a 100% stock allocation, while aggressive investors / traders may want to move all their chips into one stock fund. Not surprisingly, the back testing has proven that using 100% S fund on a buy signal and 100% G fund on a sell has shown the best results. That may not always be the case and that may be where we have to use some analytical information. Trader Fred is working on tweaking the system to generate an optimal allocation. But to reiterate, your own situation should determine the amount of risk you wish to take.

As an example of the type of returns the system has been seeing (and again this is back testing and back tested results always seem to be a best case scenario since they are designed around past data) the system generated a return 2.5 times that of a buy and hold of the C fund since July 2003. That is when share data was first introduced. And, very importantly, you would have only been in the market 68% of the time. That means about a third of the time you would have been safely in the G fund, as opposed to a 100% C fund buy and hold allocation where your account is at risk 100% of the time.

We will begin monitoring the returns of the system for tracking purposes on the first day of January 2007. The signal will be determined by the program each evening and Trader Fred will then pass the info along to me. I will then update the site with that information in the following morning's market comments.

- One of our readers made an interesting point, asking if there was a "hold" signal rather than a buy or sell signal. That is a great question. The over-simplified answer is that the system is either on a buy (in stocks) or a sell (in the G fund). But the buy signal, once given, really turn into a "hold" signal because you may have missed the optimal buy point. We started offering the system signals here earlier this month, five months into a buy signal, so the buy signal is not very strong at all at that point, which we have stressed.

I posed the question to Trader Fred and here is his response:

"The Buy signal means to go from the G Fund to some combination of the C, S, I Funds the very first day the Buy signal is listed on the TSP Talk web site. The official trade is entered only on the first day the Buy signal is listed on the web site and not on any subsequent days. After that first day, the trade enters its Hold mode until a Sell signal is given to exit that trade and return to the G Fund. The trade is always exited on the very first day the Sell signal is listed on the TSP Talk web site. Exiting the trade after the specific Sell day has passed nearly always yields completely unpredictable and possibly catastrophic results.

"Since we never really know in advance, the duration of a Buy or Sell signal, for each trade there is officially only one day to Buy into some combination of the C, S, I Funds and only one day to Sell those C, S, I Funds and return back to the G Fund. Outside of those trade dates, the results are unpredictable."

Read about System Stop Loss Analysis | Relative Strength Trends

S&P 500 (C fund))

1d 5d 3m 6m 1y 2y

Dow Completion (S fund)

1d 5d 3m 6m 1y 2y

EFA (I fund)

1d 5d 3m 6m 1y 2y

Bonds (F fund)

1d 5d 3m 6m 1y 2y

20min. delay http://finance.yahoo.com

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