Before using this guide one should read the
introduction to this web page. One should also check out the definitions
at the top of the Leaderboards and the color codes at the bottom
of the Leaderboards. To use the information on this site most
effectivly it is a good idea to at least check out all of the
links on the home page.
Momentum investing is safest when momentum
is rising. Those who were surprised by the April 2000 correction
in the market leaders might want to look at the Archives that
I have added to this site. You will notice that the entire Leaderboard
was green in early March. By the middle of March red had started
to take over the right side of the Leaderboard. This was a warning
that the strong rally the leadership on the Leaderboard had enjoyed
over the last 6 and 18 months could be nearing it's end. The arrival
of the Red Sea on the Leaderboard is always a warning that the
trend may be turning down. Since corrections tend to be much quicker
than rallies momentum tends to drop behind price during a correction.
For that reason the arival of the Red Sea is a warning to timers
that the time may be right to start making exits. All investors
should consider being more defensive at time like these. Non-timers
might simply chose to reduce the volatility of their portfolios.
This may be done by shifting to a more conservative allocation
or by moving to value plays. This shifting of part of your portfolio to value (bottom fishing) works best when the
weakness on the Leaderboard is caused more by a rotation than
a shift out of stocks.
This is a graph of FSELX for 1995. I will use this graph to give you a graphical depiction of my mutual fund ratings. I no longer have a printer that is capable of doing a screen dump. The graphs I have added to my web page were created by screen dumping a Q-Basic graph and scanning the results. Therefore, I have to use old graphs because I no longer have the equipment necessary to create new ones.
You can use the following explanation of the above graph to learn how to read all other graphs on my web page.
In the above graph the dots are at the intersection of the NAV level printed at left and the change of month on the time scale at the top of the graph. STG (strength of trend) follows an arrow that points to the graph of the funds momentum (MO on Leaderboard). The graph of MO or STG uses the momentum scale at right. The dashed line through the center of the graph is at zero momentum. All other graphs use the NAV scale on the left. All graphs use the time scale at the top.
The jagged graph, that the arrow following NAV points to, is the graph of the funds price (NAV). This line consists of a series of vertical lines from one days close to the next days close followed by a one pixel move to the right. This process is repeated for every date from left to right. The result is a non-smoothed representation of pricing action.
The two smoothed lines that tend to trend with the NAV are marked BUY and SELL. The upper one is marked BUY. BUY on the graph is represented by STRONG on my Leaderboard. The term BUY was used because my test program would only consider for purchase a fund that was rated short term STRONG. A fund is rated short-term STRONG if its NAV is above the graph of BUY. Below the BUY line is a SELL line. The space between the two lines is a neutral zone that is used to reduce whipsaw trading. If the NAV of the fund drops below the SELL line my trading program sold the fund at the next trading days NAV. SELL which is represented by WEAK on the Leaderboard is thus my trading programs sell stop.
My program uses a loose sell stop since I consider a sell stop as an emergency exit. The main exit used by my trading program is switching to a better trending fund. My trading program required a fund to have 10 points more momentum before a switch was executed. If 10 points was less than 10% of the momentum of the fund then a 10% momentum bypass was needed before a switch was made. A fund with a momentum of 300 would not be traded until another fund had a momentum of 330. This bypass limit was used to prevent whipsaws in trading between two funds that were in very similar trends.
The graphs are all scaled to fit a given space. At the upper right of the above graph is printed the scale factor. For this graph it is 115.6%. That is the gain from the sell stop at the lower left ( the lowerst point on the three graphs that use the NAV scale at right) to the highest point on those three graphs. The higest point is a September NAV.
A vertical line drawn on any date passes through the numbers that appear on my leaderboard for that date. The NAV graph is crossed at that dates NAV. The STG graph is crossed at that dates momentum (MO). The BUY graph is crossed at that dates value of STRONG on the Leaderboard and the SELL graph is crossed at that dates value of WEAK on the Leaderboard.