Frequently Asked Questions
We calculated the performance of two of the best performing timing sites that have been on the internet for at least five years.
The top performing sites as tracked by TimerTrac show 23 sites that have track records at least 5 years or longer. I omitted sites with shorter lifetimes since there have been a few that have been around since mid-2008, made massive gains on the short side, but the inherent logic of their system is suspect such that these models may underperform the markets once the highly unusual black swan period of 2008-2009 ends. Following is the total returns (not annualized) over the last five years as of June 2009:
|Rank||Strategy Name||Gain/Loss %||Trades in time frame|
|2||Market Systems II-DD||105.81%||634|
|3||Premium Trust NDX Trader||53.75%||153|
|4||Premium Trust SPX Trader||42.41%||135|
|6||Premium Trust RUT Trader||35.10%||109|
|8||Bonner Mutual Fund Signal||13.60%||0|
|9||Performance Signal Short Term||13.22%||107|
|10||Vinny Index VM Allocation||4.01%||61|
|13||Highlight QQQQ (Pre-Close)||-10.86%||59|
|15||Highlight QQQQ (After Close)||-14.27%||59|
|16||Highlight SPDRs (Pre-Close)||-14.72%||62|
|17||Highlight DOW (Pre-Close)||-18.33%||56|
|18||Highlight SPDRs (After Close)||-22.22%||62|
|19||Highlight DOW (After Close)||-25.77%||55|
|20||Vinny S&P Index||-26.95%||35|
|21||Stockbarometer.com QQQ Trader||-31.79%||124|
|22||KT Mid Term||-33.78%||91|
Upon closer investigation, it seems many sites with 5 year or longer track records could not beat the markets, which should not come as a surprise, and the top 2 performers shown in the table below had stellar returns in 2008 which catapulted them to the top of the list and skewed their annualized returns to what you see in the table below. However, prior to 2008, their returns were not as impressive. Based on their annualized performance records, following are the results of the top 2 timing sites vs. this site’s Dr K MDM:
|May 2000 to
|Dr K MDM Systematic +20.8%/yr||$100,000
|April 2003 to
|10.4%/yr||Market Systems II-DD
inception: April 2003
|Dr K MDM Systematic +20.7%/yr||$100,000
*PsiTrade: Flat performance from 2005-2007 then soared in 2008, putting it in first place overall.
**Market Systems II-DD: Flat performance from April 28, 2003 to apprx April 28, 2008, then soared in 2008, putting it in second place.
In addition, the maximum drawdowns in the Dr. K Market Direction Model™ were lower, so the model beat the top two timing sites tracked by TimerTrac on both an absolute return basis and on a risk/reward basis. Keep in mind that these two sites have logged signals real-time with TimerTrac whereas the model’s signals are theoretical but are largely responsible for my long term audited track record as an investor in individual stocks for two decades. That said, the model's theoretical returns are based on having bought 100% NASDAQ Composite (QQQQ is a good proxy) on a buy signal, shorting 100% NASDAQ Composite (PSQ is a good proxy) on a sell signal, and moving to 100% cash on a neutral signal.
After examining TimerTrac, we then focused on three sites we believe have sound long term track records: Timing Cube, Decision Moose, and Investor’s Business Daily (IBD) Big Picture/market commentary. IBD is an excellent resource we still use to this day. We focused on roughly the last 4½-years (January 2005 - July 2009) which represent the most challenging period to timing models. These years were fraught with much sideways, trendless action as well as numerous false price/volume signals in 2007.
Mike Scott, a former engineer who is now a full-time individual investor and a notable market research and data wizard, showed us his spreadsheet of IBD’s market calls all the way back to 1994. The Big Picture column began in 2003, but he painstakingly went through old issues of IBD to ascertain changes in market direction given by the paper. Below, we show IBD’s returns going back to 1994 as well as over the last 4½- years when the Big Picture column was running.
Here are the results of top performing sites for the most difficult period - the last four and a half years (this comparison was made in August 2009):
|Period||Site||Return||Configuration||Comparison||Dr K $ Growth|
|Jan 2005 -
|Timing Cube||11.5%/yr||100% long/short model gave best results (100% NASDAQ Composite 100 long, short, or cash).||Dr K MDM Systematic +17.3%/yr*||$100,000 becomes $207,680|
|Jan 2005 -
|Decision Moose***||13.4%/yr||100% long only (100% various Exchange Traded Funds (ETFs) such as EPP, EWJ, ILF, bonds, GLD).||Dr K MDM Systematic +17.3%/yr*||$100,000 becomes $207,680|
|Jan 2005 -
|IBD Big Picture||8.4%/yr||100% long NASDAQ Composite when 'market in rally', 100% short NASDAQ Composite when 'market in correction', 100% cash when 'market under pressure'. *||Dr K MDM Systematic +17.3%/yr*||$100,000 becomes $207,680|
|Dec 1994 -
|IBD Big Picture||14.8%/yr||100% long NASDAQ Composite when 'market in rally', 100% short NASDAQ Composite when 'market in correction', 100% cash when 'market under pressure.*||Dr K MDM Systematic +31.1%/yr||$100,000 becomes $5,183,788|
|July 1974 -
|Long Term Historical
Return of Dr K MDM
|+33.4%/yr*||100% long NASDAQ Composite on buy signal, 100% short NASDAQ Composite on sell signal, 100% cash on neutral signal. **||Dr K MDM Systematic +33.4%/yr*||$100,000 becomes massive [this is how William O’Neil made his 10-figure fortune]****|
* Going to cash yielded better returns for IBD than not going to cash when 'market under pressure'. Using these same parameters, Dr. K MDM’s +33.4%/yr return since July 1974 is massively larger than its return of +17.3%/yr since January 2005 especially over such a long time frame. The large difference is due to the action of the major US indices over the last few years. Consequently, the last few years have been extremely challenging for timing systems. These years were fraught with much sideways, trendless action as well as numerous false price/volume signals in 2007.
** I also spot tested the model in the late 1920s and early 1930s using the Dow Jones Industrial Average to make sure my systematic rules would work in completely different eras. Our belief is that charts are human nature on parade and day-to-day price/volume action form the chart patterns we see, and since human nature has not changed, these patterns repeat with statistical significance.
*** 2009 was a tough year for Decision Moose but they have still managed to maintain a solid annualized return. The Decision Moose market timing site wrote the following in their January 15, 2010 weekly summary:
Looking back, 2009 was the worst year I can remember for the Moose (+1%), especially relative to the S&P (+26%). Of the last four non-cash switches post-2008 crash, two (T-bonds and gold) were losers. One (EPP) was a winner, and the latest (ILF) is flat to slightly underwater. It shows how government intervention can distort normal market activity by truncating trends and causing price spikes (bonds) and collapses (gold). It also shows how extremely volatile price action can render an intermediate term trend-following mechanism virtually useless in the short term.
**** O’Neil has been compounding his wealth since 1958. The key is to stick with a system that works over many market cycles, even during the challenging times where it may seem the system no longer works. The very few trend followers with 25+ year track records are managing billions (John Henry, Bill Dunn, etc) because they stuck with their system even when the market was in a challenging, choppy, trendless phase.
Reasons why the systematic portion of the Dr K Market Direction Model™ outperformed IBD's big picture market calls:
1) It is important to keep in mind IBD is not putting out their market calls as a timing model for ETFs. Readers use IBD’s signals typically as follows: to buy the right stocks on a buy signal, to possibly tighten sell stops on a ‘market under pressure’ or equivalent signal, and to keep stops tight and not buy any new stocks on a sell signal. IBD’s ‘Big Picture’ daily column should be read each day, and I believe IBD is the finest financial newspaper in the world. The Dr. K MDM results are based on having bought 100% NASDAQ Composite (QQQQ is a good proxy) on a buy signal, shorting 100% NASDAQ Composite (PSQ is a good proxy) on a sell signal, and moving to 100% cash on a neutral signal. Of course, results can be further improved by individual stock selection on buy signals.
2) The model has a self-protection mechanism which limits losses regardless of price/volume action.
3) The systematic portion of the model has no discretionary intervention. We learned over the several years we worked with William O'Neil that the market can fool even the best. We figured if someone with Bill O'Neil's market experience could get whipsawed in his market calls during challenging periods, perhaps it is better to stick with the set of systematic rules that have statistically proven themselves based on actual price/volume action of the major indices. Bill always said opinions dont matter, just the facts, and price/volume is as factual as it gets. That said, the model does account for material changes in the market should market conditions warrant. As we have written, it is not a black box and will remain flexible to material changes (albeit very rare) in the market such as quantitative easing in 2009. The discretionary portion of the model is left up to position sizing and diversification.
Sidebar: Here is where Bill O’Neil is one of the best, if not the best: He jumps on the stocks with huge potential near the beginning of a new trend, then pyramids his winning positions. This makes all the difference in performance and accounts for the years in which he has achieved triple digit percentage returns.
4) The model has no gray area of what constitutes a distribution day or a follow through day. The timing method that O’Neil discusses in his book “How To Make Money In Stocks” caused some confusion among many followers of his methods. What if the day finishes higher by a small amount but has a shooting star tail? How do you define a distribution day caused by churning? How many distribution days over what time period are necessary to signal a sell? What is the percent threshold required for a follow through day? Is it still a follow through day if the volume is well under average but is still higher than the previous day?’ and so on.