True North Market Diary

Pre Market Review April 13 2006

Please find our Pre-market review attached here.

Download PMR130406.pdf

Pre Market Review

We'll be regularly posting our PMR (Pre-Market Report) here over the coming weeks.

We're a bit late in posting today, but it should hopefully give you a flavour of our research.

Download PMR120406.pdf

New multi-year highs prompted the question last week: is this the real break–out? Apparently not...

Last Thursday we said: In a word we’re not so sure whether this sudden surge in bullish sentiment has much substance to it. What’s sure is that the market is extended in the short term. SMH is the lone dissenting voice out there in this new wave of bullish sentiment. A weak close today would clearly be a dampening factor for the overall market. Earlier today, QQQQ backed off and made a lower high versus recent highs under 42.

One of our mantras is not to sign up to 'rally mode' if Nasdaq is acting poorly. Really, it's not rocket science, Nasdaq is not just Google, Microsoft or Amgen. It's the very heartbeat of the 21st century US economy. We love seeing the Dow shaping up nicely, but a Nasdaq-less Dow is a one or two trick pony, no more.

Trading-wise, we remain short SPY & QQQQ from 17 Mar 06 as the market gyrates around its equilibrium. Tuesday’s reversal was striking & may have shifted the bias to the downside. However, more decisive action is required for this view to really take hold. Today, LEH & MER action will be significant and well worth watching after yesterday’s bear patterns. Noteworthy looking at the two main indices are the Type 1 patterns on both QQQQ & SPY in recent sessions which presaged this sharp move yesterday.

Charts here: Download PMR220306.pdf

Looking for the reversal

We've paired back some of our exposure to the long side, closing our trades on TLAB and EBAY, but remain long on QCOM as it breaks nicely through the $50 barrier.

The short leash we've had on these longs is about to get shorter as we anticipate new market direction signals before the end of the week on the SPX & NDX (Perseus Trading)

Charts attached: Download TNMA1_160315001.pdf

NDX & SMH surge on brisk volume

Conspicuously absent from last week’s recovery move were the the leading technology groups. We saw health care stocks such as Genzyme (GENZ) & J&J (JNJ), & financials such as Citigroup (C), starting to recover in a substantially oversold market. Yet major weakness in semis & brokers warranted a cautious stance. That was last week. This is this week, and Goldman’s results yesterday provided the missing spark for a broad based move. Along with the brokers, SMH (semis) and NDX finally made a move of significance. As can be seen from the QQQQ chart, there is a major resistance zone around 41.50, where 50MA and the top of the recent major bear pattern converge. Current focus stocks include eBay (EBAY), having tested securely at 37, now above 39; Qualcomm (QCOM), which looks well set for another attempt at 50, although we may tighten stops in view of recent failures; Tellabs (TLAB), which has sprung off the rising 50MA but faces multiple layers of resistance; S&P 500 (SPY), moving impressively above recent layers at 130; Semiconductor Holders (SMH), having tested 36 & now above the first layer of resistance after a steep 10% decline in March.

Perseus Trading System

The Perseus Trading System continues its long positions in both SPY & NDX from last week’s turn. Recent market action has been choppy to say the least, but the aim of the game is to stay tuned in and remain patient, for sooner or later we might experience a position that the system can hold for more than nominal gains.

Looking at the broader picture, currently we are looking at returns of 87% on our internal Perseus Trading System Model since the launch of live data in July 2005.

Auto Trading

We have teamed up with Berkeley Futures Limited (BFL), for those subscribers who wish to auto trade the Perseus Trading System. This is a simple process whereby BFL will trade the Perseus signals at the time of their issue, on behalf of the subscriber who decides in advance position size and instrument to be traded. This avoids the problem of having to be in front of a screen, eagerly awaiting "the next call from on high"! With an auto traded account, you are assured of getting the same price as the system within very small margins of difference.

For full details on auto trading the Perseus Trading System, please contact us.

Sharpe Ratio & other statistics

This past week we ran some numbers on the live internal data since July 2005. Several key statistics were noteworthy and confirm the efficacy of the system, albeit over a limited timespan. The one piece of data that stands out is the Sharpe Ratio, which is the industry standard method for quantifying risk-adjusted returns on a fund or trading system. Since July 2005, the system has a Sharpe Ratio of 2.94, which would benchmark very favourably against most other systems or funds. This ratio is based on an average monthly return of 12.05% , a Standard Deviation of Monthly % Return of 0.1386 & a % of winning months of 75%.

PERSEUS (QQQ/SPY) WEEKLY REVIEW: 06 MAR 2006

WEEKLY WRAP-UP

WE’LL KNOW IT WHEN WE SEE IT

Monday, March 06, 2006

Dear Speculators,

The most interesting chart to my eye at the moment is this one.

The yield on the 10-Yr Treasury Note is making noises like it wants to breakout of a 19-month trading range (4% - 4.5%) and challenge its 2004 highs in the 4.9 – 5% area.

A move higher in long-term rates, should it occur and sustain,  presents a complex matrix of implications.

On the one hand, with short-term rates now at 4.5% and likely to head higher this spring, there would be no place left on the curve where money would be really cheap to borrow.  Pretty cheap, yeah, but not really cheap.  Put differently, that would tighten monetary conditions and could slow aggregate consumption (final demand).

On the other hand, the Yield Curve (for our purposes the difference between the yield on the 10-Yr Treasury Note and the Fed Funds Rate) could steepen or at least remain flat, avoiding the inversion so much discussed in the financial media.

Download full report here: Download qqqspy_weekly_wrap_06.03.06.pdf

NQ rallies smartly - no decision yet...

NQ 1693.5 -- a higher volume close on a +BE D would change the picture to a significant degree. The key new piece of data is the volume today, which was clearly absent on Monday's attempt.

1/03/2006 17:25 The signs that were there in recent sessions, as we meandered to new high ground on diminishing breadth & conviction, came home to roost on a bruising day. Google smoothed the waters late in the day with a re- assuring press release about their growth prospects, after the earlier statement at a Merril Lynch conference. CSCO had a huge day on 137m shares as money sought refuge in the 'utility' end of the spectrum. Not sure if CEO John Chambers would approve of that tag, but he might know what I mean. Actually, perhaps it's not a bad time to be looking at the 'utility techs' which have been showing a pulse of late: MSFT, CSCO etc.

Radar-wise, with yesterday's break, we will re- calibrate once the dust settles a bit, fully expecting this shake-out to throw up some good trading candidates. The negative position held by Perseus for the last week or so has held firm despite the meander to the top of the recent range. Today will provide many more clues about the potential intensity of any further move to the lower end of the range.

NQ chart here:

PERSEUS (QQQ/SPY) WEEKLY REVIEW: 20 FEB 2006

WEEKLY WRAP-UP   

WEEKLY WRAP-UP: SOLID PRICE ACTION AT A CYCLICAL TURNING POINT

Sunday, February 19, 2006

Dear Speculators,

The QQQ/ SPY Advisor fared well again last week, taking a profit on SPX instruments.  SPY traders took a +1.2% gain off the table. The System has been on a tear this year, closing 8 straight winning trades for +134% in net trading gains without a loser.  And since the system’s launch in mid July it has closed trades at a 75% win rate, in line with long-term historical back-testing, racking up +346% in net trading gains and a total return of +95%, net of all commissions and fees.

(Note: Trading Gains are defined as the sum of percentage gains and losses on individual trades.  Total Return is defined as the portfolio’s percentage gain relative to its initial value. Because the portfolio does not allocate 100% of assets to each trade these figures are not identical.)

Of course the System may not always perform as it has over the past 7 months.  And past performance is not a guarantee of future results.  But so far, so good. And we’ll continue to trade the System’s signals carefully and with discipline.

****    ****    ****

Let’s check in on how the market is doing relative to our forecast for 2006.  If you’ll recall previous weeks, we’ve been looking for the market to top out by mid February, which is right where we are now.

The analogues of 1966 and 1994 are still in our minds as we anticipate that a move lower into October of this year will be forthcoming.

The correlations noted on this chart are continuing to improve, albeit fractionally.  And they will continue to do so if the market follows the script that they have written.  However, if those correlations begin to deteriorate then we’ll have an indication that the market may be planning to diverge from the script (and continue to rally).

This past week’s rally left the SPX at a weekly close just -0.4 points below its Jan. 13 weekly close of 1287.6.  And there are several ways to look at this story as it unfolds.

This weekly chart of the S PX is busy with a horizontal support line (black at 1245), a parallel trend zone (bullish in pink), and 2 possible longer-term lines of rising lows (red—one intact the other broken).

The SPX is above important support (1245), at the top of a parallel trend zone (regression to the bottom would imply a test down toward 1200), and either holding support on top of an intact trendline or rallying up to test a broken trendline from below, depending on your predisposition.

Any way you slice it price levels are solid, but momentum measures are deteriorating.  So, how should we think about this chart? Let’s go to our confirming/diverging indices to get a broader perspective.

Continue reading here: Download qqqspy_weekly_wrap_20.02.06.pdf

Market update

The market is sending out mixed signals once again. Both retail sales and the latest housing data rather put a spanner in the works for the short term bearish camp.

Latest charts on SPY's attempt to break through 4 key barriers and SMH's equally tough challenge can be seen in the Chart Room.

PERSEUS (QQQ/SPY) WEEKLY REVIEW: 13 FEB 2006

PERSEUS WEEKLY REVIEW: 13 FEB 2006

Monday, February 13, 2006

This week I want to look specifically at some of the footprints in the sand that we see as liquidity dries up in a variety of markets.

First of all, as far as the 4-Year Cycle on the SPX goes, we are entering the phase of the cycle that can be hardest on the bullish case.

On this chart we see the SPX in the top pane (log scale) and the 9-month Rate of Change on the SPX in the bottom pane.  The 4-Yr Cycle lows are marked with blue dashed vertical lines.  And the 4-Yr lows that showed notable troughs on the 9-month Rate of Change(ROC) line are highlighted in green.  Nine of the past 11 4-Yr lows have seen significant ROC troughs.

Now look at the pink dashed vertical lines. Those are placed 26 months subsequent to each 4-Yr Cycle Low.  When the market continues to make new highs subsequent to (to the right of) the pink verticals, then the ensuing 4-Yr Cycle low tends to be relatively benign. And such is the case subsequent to the most recent pink line (Dec. ’04).

Article continues here: Download qqqspy_weekly_wrap_13.02.06.pdf