TSP Challenge

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Relevant
Posts: 505
Joined: Thu Apr 26, 2012 1:01 pm

TSP Challenge

Post by Relevant »

The top chart is a simple S&P 500 (C-Fund) line chart. The vertical dashed red & green lines are simply to highlight peaks and troughs.

The second chart is the S&P 500 Bullish Percent Index. This index simply counts the number of companies in the S&P 500 which are currently in a buy signal based on Point & Figure Analysis and divides that figure by 100. The most recent chart value, 62.80 tells us that 62.8% of the 500 companies in the S&P are sporting a buy signal. If a Bullish Percent Index is above 70% it is considered over bought and an index below 30% is considered oversold. Beware that the index can stay at these extreme levels for a long time. A break down through 70% is bearish while a break up above 30% is bullish. Equally important is knowing the direction and the strength of the trend.

The type of chart I'm using for the S&P 500 Bullish Percent Index ($BPSPX) is called the Elder Impulse System daily Chart. Each day a new vertical red, blue, or green OHLC Bar is added to the chart. A Red bar indicates that the index had a strong downward move, a Green bar indicates a strong upward move, and a Blue bar indicates the move up or down was relatively weak. The Blue dots above or below the Elder Impulse bars are a Parabolic SAR (Stop & Reverse) indicator. This is a trailing indicator that can help confirm an earlier indicators directional change. Parabolic SAR dots above the Elder Impulse line confirms a falling index and dots below the bar support a climbing index.

This one chart combines 3 indicators. Since the S&P 500 Bullish Percent Index is an indicator by itself, Parabolic SAR and the Elder Impulse System are acting as indicators applied to an indicator.

A) Elder Impulse System gave a strong Red bar down on September 9th
B) Parabolic SAR confirmed the direction change on the same day
C) The Bullish Percent Index fell below 70% on October 4th and continues to fall

The next chart in the series is a Vortex Indicator (VTX) which uses 2 oscillators to capture positive and negative trend movements. Simply put, when the green line crosses above the red line that's a bullish sign and vice versa. The Vortex indicator confirmed the downward trend change on September 12th and continues to support a downward move.

The next chart is probably more familiar to some of you. The RSI chart is a relative strength indicator and is often an early warning indicator. A move down below 70 is bearish and a move above 30 is bullish. RSI moved below 70 on August 2nd and is now below 30 but still moving down.

Last but not least the Moving Average Convergence Divergence Indicator, probably the most popular indicator in trend analysis. But this time it is being applied to the S&P Bullish Percent index. As with the RSI above, I am using an indicator on an indicator. We saw the initial bearish crossover form on August 15th with a cross below the 0 line on September 15th as confirmation.

In summary:

August 2nd - RSI moved below 70%
August 15th - Market Peak
August 15th - MACD Bearish Crossover
September 9th - Elder Impulse Bearish Indication September 9th - Parabolic SAR Bearish Indication September 12th - The Vortex Indicator went Bearish September 15th - MACD Bearish Confirmation October 4th - S&P 500 Bullish Percent Index fell below 70%

As you can see, the current downward cycle has been unfolding for over 2 months and still could reverse back up - who knows?. Unfortunately most TSP investors fall into 2 camps: extreme Buy & Holders and the all or nothing "wanna be" Day Traders ( no offense intended). I believe a scale in / scale out approach may be better for some folks.

For Example:

If you had been 100% C-Fund on August 2nd and you noticed that RSI on the S&P500 Bullish Percent Index had just fallen below 70%. That would be your warning to make sure you watch your charts every day. By September 9th now you have 4 of the 7 indicators screaming BEAR. So Change your TSP to 75% C-Fund.

On September 12 decrease your exposure to 50%. On the 15th drop to 25%. October 4th 0%. As long as you are moving to the G-Fund the IFT limit will not affect you when the market goes bearish. As the indicators begin to trip to the Bullish side you might want to be more aggressive. You could jump back in at 50% when to indicators trip to the bullish side and 100% with 4 indicators.

Another investor might choose to increase/decrease the exposure 10% every time a single indicator triggers but always keep 30% invested. The combinations are endless and flexible to fit your individual risk tolerance and level of effort. You're also less likely to miss a move with a scaled in disciplined approach.

Now for the Challenge - I know one of the 1st questions that will be asked when I post this is have you back tested this method. The answer is no, because there are too many potential personal variables. My challenge is to the TSP Center "Techies" to back test this using scale in /scale out methods they think might work.

There have been 4 peaks and 4 troughs in the past 13 months. I look forward to your feedback and analysis.

BTW - to keep this simple only use the C-Fund and assume no ROI on the funds sitting on the sidelines. And of course, follow the IFT limitation rules.

Double Click Here for a larger image: http://tspadvantage.org/wp-content/uploads/2016/10/BullishPercent.png

Click on Chart for a larger Image. For those familiar with stockcharts.com you can re-create this chart based on the data provided.
Image
Last edited by Relevant on Thu Oct 13, 2016 10:04 pm, edited 1 time in total.

crondanet5
Posts: 4330
Joined: Tue Aug 19, 2008 8:51 pm

Re: TSP Challenge

Post by crondanet5 »

Relevant when do your charts indicate the markets will go up? I'm thinking the ides of November. You?

User avatar
Relevant
Posts: 505
Joined: Thu Apr 26, 2012 1:01 pm

Re: TSP Challenge

Post by Relevant »

crondanet5 wrote:Relevant when do your charts indicate the markets will go up? I'm thinking the ides of November. You?


"When" from a time perspective is an unknown. "November" statistically is positive but these charts are not forward looking. I have done extensive research on the "when" question and have come to the conclusion that "when" is predicated by market perception (ie. fear and greed). "Facts" relevant to the economic or political climate are routinely ignored by the invisible hand of the markets. The "talking heads" try to blame market movements on news bites" but if you watch it closely there is no real long term correlation.

The Elliot Wave Principle can give provide some expectation of what the future holds, but it too constantly adjusts to the changing environment. While the growing science of socio-economic theory is growing rapidly I doubt anyone will ever be able to forecast the future. We can only react to what has happened in the past and adjust accordingly.

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evilanne
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Re: TSP Challenge

Post by evilanne »

The VTX portion of the chart looks like the 538's chances over time between the 2 front runners in the election http://projects.fivethirtyeight.com/201 ... cast/ohio/ http://projects.fivethirtyeight.com/201 ... promo#plus

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Relevant
Posts: 505
Joined: Thu Apr 26, 2012 1:01 pm

Re: TSP Challenge

Post by Relevant »

evilanne wrote:The VTX portion of the chart looks like the 538's chances over time between the 2 front runners in the election http://projects.fivethirtyeight.com/201 ... cast/ohio/ http://projects.fivethirtyeight.com/201 ... promo#plus

That's a very interesting correlation and it may have some credence. But I wouldn't base my investment decisions on the political winds. I prefer to adjust based on market action vice trying to anticipate sentiment.

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