Sat 3/2/2013. Weekend Update.

Current SPX Position: None
Next Action: Go short at 1512.56 (1 penny below the 20dSMA) or go long at 1525.35
System Score: 6=Bullish=Trend Score + Turn Score=8-2
Proposed New Score: 56=Bullish=Trend Score + Turn Score=36+20

I did a little bit of backtesting for the 1 new Trend indicator and 1 new Turn indicator I've been considering and watching for the last few weeks. I will run the scores side-by-side for a week or two, so you can see there is very minimal impact on whether the Score is bearish or bullish. However, it does seem to add an extra 3-4% of sensitivity at turns. Not much but something that is more important when volatility is high with larger hourly moves. Plus, perhaps equally important, it gives me 12 possible trend indicator points and 13 possible turn indicator points for a total of 25pts which I can multiply by 4 to create a normalized 0-100 based Scoring system.

The current System Score is 6 (or the equivalent of 60 out of 100) while the proposed score would be 56. Very similar. I will probably treat 45-55 as neutral where short and long trades can be initiated. Both the current and proposed scoring will almost certainly drop to neutral (or even bearish) if SPX drops on Monday below 1513. However, they are currently bullish which is why a long trade will be initiated above 1525 and a short trade will be initiated below 1513. SPX closed its 5th consecutive week near 1518. We've got our first potential short setup in quite a while, so we'll see what Mr. Market decides on Monday. Although we missed out on shorting a sizable drop to 1485 last week, you can see that the System was ultimately right to stay bullish, and, of course, got out of dodge when support was broken to minimize losses. So, it's working on the hourly/daily level of trading that it focuses on. Sure, the System could have missed out on a big flush, but my backtesting shows it has caught the vast majority of swift downdrafts because they usually occur when the technical conditions are ripe for it and often after a failed rally (large % retracement of a top).

I used to lose money always thinking a big flush was around the next corner, because the flushes are fun and profitable to catch but a losing mindset in the long run. Although I am still generally bearish on the economy and market for the 2000s and 2010s due to demographics, debt, cycles and other reasons and know there will be plenty of flushes ahead, I am a little more measured about my near-term and intermediate-term expectations and I still trade what I see technically using the System rather than what I predict. Getting punched in the gut and face over and over and having your money and shirt stolen can make a man do that. Good luck.