Friday, August 31, 2007

Predicting an ISEE September Buy Signal

Among the many indicators that have been giving contrarian bullish readings as of late is the ISEE, which narrowly missed making a new record low for its 20 day SMA earlier this week. Long time readers (can I already have any of these after only 8 months?) may recall that when it comes to the ISEE, I have a preference for using the 50 day SMA and for using absolute readings as well as movement away from well-defined tops and bottoms for the best trading signals.

In March I anticipated an upcoming buy signal from the ISEE 50 day SMA in April and suggested that it was a good time to “get long, perhaps in a big way.” Thanks in part to the predictability generated by older numbers rolling out of the SMA calculations, I was also able to see a double bottom coming in April.

With a month of august volatility now in the books, it is becoming clear that September will also likely trigger an ISEE buy signal. My best guess right now is that the buy signal will become official during the second or third week of the month. Given that this a very high probability signal, I see no reason why not to flag it now and look to grab 2-3 extra weeks of upside.

As an aside, consider how surprising it is that given all the recent turmoil, the broad indices are up over 1% going into this three day weekend, with investors large and small apparently more concerned about missing a bull leg than seeing subprime headlines and red numbers on their screen Tuesday morning. We may be turning a corner…


nodoodahs said...

The corner's already been turned, my brother.

I was getting signals the week of Jul 30-Aug 3 (as were you), and just about any index tracker bought then (and held) is in the money. That's a nice five-week base with only one real dip below it, and that came on a "messy reversal" day.

It looks as though our early buy signals are coming in at lower prices than most of the late buyers' signals will come in at.

Bill Luby said...


You were one of the few who made a bullish call before I did -- and it increasingly looks like your timing was excellent.

Regarding my comment about turning the corner, my intent was more along the lines of 'mainstream market psychology' than a confirmed technical bottom.

While usually it is expensive to be early, the last two weeks have been my best back to back trading weeks in a long time.

Enjoy the weekend,

-the other Bill

nodoodahs said...

While I wish my timing could have been better, I've done the post-mortem and realize that it really couldn't have been, and that I would do the same thing all over again, and probably on the same day. The VIX/[ATR/Close] ratio, super-low $SPXA50 and 200, indiscriminant across-the-board equity selling with corresponding T-buying, bear-#$$$#&% all over the TV, just screamed bottom. Coming in tandem with Wall Street's typical overreaction matrix and the knowledge that it was stupid-money over-leveraged-clown forced selling, it was a no-brainer to buy.

The lessons I took were: (1) it was the right thing to pull out my stops and ride it bareback, because I shouldn't ever underestimate how stupid the sellers can get in a panic, and (2) it was the right thing to add to the account in early August. That won't show in my percentages for the month, but it'll show in a year when I look at the $ and not the %.

BTW, I changed my Blogger handle to solve the "Bill problem" LOL!

Have a good weekend yourself!

Unknown said...

I'd have to agree on the intermediate -term buy signal. I recently started a blog; you may want to take a peek, Bill.

Bill Luby said...

Thanks, F. It looks like you are off to a good start on the blog -- and I like it that you have a futures focus.

FWIW, though I rarely mention my positions on the blog, I happen to be long GS in a big way at the moment.

Cheers and good trading,


nodoodahs said...

David Allan Coe is still looking for a retest of 1375. I'm confident that we bought at lower prices than most will wind up buying at ...

Unknown said...

Yeah, that's pretty unlikely. The trading on 7/16 was pretty much retail dumping and specialists buying. No need to retest that area imo.

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