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It is often said that success in themarkets, as in life, is about being in theright place at the right time.TheTechnicalTake is all aboutidentifying that right opportunity at theright time.TheTechnicalTake employs a top down,quantitative and disciplined approach totrading and investing. Consideration isfirst given to the overall marketenvironment. We then seek the strongest(weakest) sectors, and those sectors withthe greatest potential for priceappreciation (depreciation).
Market Timing?
 
At TheTechnicalTake, we are oftenasked:
can you time the market?
Simplyput, our answer is no. However, ourmodels can improve the efficiency withwhich you will make money.How do we do this? By seeking marketexposure during those times we expectprices to appreciably accelerate (ordecelerate), and by avoiding those nastydraw downs to our trading and investingcapital. Although it would always benice to buy a stock or market at its verylow and sell sometime later at the exacthigh, things rarely work out so neatly.What we can do is identify those timeswhen we should be in the markets andthose times when we should be on thesidelines. This is what market timing isabout.A Simple Example
 
Most traders and investors have heard of the old stock market adage “Sell in Mayand go away.” This is a stock markettiming strategy that takes advantage of the historical tendency for the DowJones Industrials to make over 90% of its gains during the best six months of the year. Those months are the winterand spring months, and when thesummer and fall months come around,Wall Street hits the beach and so shouldwe.This strategy isn’t about buying low andselling higher. This strategy is aboutbeing in the market at the right time.
The Price Cycle
 
Markets move in a predictable fashionfrom low to high and back to low again.This is the price cycle. Marketpractitioners have devised many tools todivine those highs and lows, but few of these work with any consistency.At TheTechnicalTake, investorsentiment plays a big role incharacterizing the most important highsand lows. Fear and greed are fairlyconsistent behaviors at market bottoms
 
and tops, respectively. Exhaustiveresearch has shown that the best, mostaccelerated market gains occur when themajority of investors are on the sidelinesand fearful of further market losses. Asthe market turns, those on the sidelinespile back into the market chasingperformance and propelling priceshigher. This is when our price cyclebegins.When those same investors are overlybullish and complacent in their outlook,stocks are generally facing headwinds asthose already invested are “all in” andthere are few investors on the sidelinesto keep prices moving higher. At thispoint, we expect the price cycle to end.
Beat The Market WithDecreased Risk: The MarketBias Timing System
 
At TheTechnicalTake, the Market BiasTiming System attempts to capture thehighs and lows of the price cycle. Thisextensively researched model is basedupon 16 years of sentiment, marketbreadth, and price data.From February, 1992 until August, 2007,there have been 37 bullish signals withthe average bullish signal lastingapproximately 50 trading days. TheMarket Bias Timing system will be inbullish mode 50% of the time; 25% of the time there will be a neutral marketbias and 25% of the time the model willbe in bearish mode suggesting that thereis no edge to being long the market orthat there is potential for significantlosses.The Market Bias Timing System hasbeen tested on the S&P500, NASDAQ,and Russell 2000 markets. As manysectors and international markets arehighly correlated with the major stocksindices, this model has also served as anexcellent guide to the direction in thesemarkets as well.S&P500Over the past 16 years on the S&P500,when the Market Bias Timing System isbullish, it has generated a 13.6%compound annual growth rate. (Thisincludes the returns from being incommercial paper when the model isneutral or bearish.) Over the same timeframe, a buy and hold strategy generatedan 8.4% compound annualized return.With the model, a $10,000 investment in1992 becomes $73,078 in August, 2007.With buy and hold, a $10,000investment turns into $35,173.
With the Market Bias Timing Systembullish and applied to the S&P500,you are able to generate a return thatis twice that of buy and hold with 50%less market exposure. This is efficientmarket timing!
The equity curves for the Market BiasTiming System and buy and hold of theS&P500 are shown in the followinggraph.
 
 Not only does the Market Bias TimingSystem beat buy and hold for theS&P500, but it does so withsubstantially less risk. To measure risk,we look at the underwater equity curve.The underwater equity curve looks at thedepth and duration of the draw downgenerated by a particular strategy. Thisis an important measure of risk becausedraw down tells us how much money astrategy could lose and how long thelosses could be sustained.Over the past 16 years when applied tothe S&P500, the Market Bias TimingSystem has had two draw downs of about 10%. In other words, followingthis strategy on the S&P500, you wouldhave never lost more than 10% of yourequity at any one time. With a buy andhold strategy for the S&P500, themaximum loss would have been 44%with several periods exceeding 20%.The underwater equity curves comparingthe bullish signals from the Market BiasTiming System versus buy and holdS&P500 is shown in the next figure. Atall times, the drawdowns with theMarket Bias Timing System aresignificantly less than buy and hold. 
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