HOUSTON April, 2009

WALL STREET AND MY STREET

The following is just my perspective. I was a lookout at Pearl Harbor. May not be dependable. Am certainly not responsible ***Redneck disclaimer

This has my reality written all through the process. It is not necessarily “right” but appropriate for ME. …it fits my age (old), tolerances (not very) and blood pressure (very high)…

… it does not matter how frequently something succeeds … …if failure is too costly to bear… Optimizing…..over confidence….believing Wall Street BERNIE MADOFF!!!

“TRILLION DOLLAR BAND AIDS” AND “SITUATIONAL ACCOUNTING RULES” …in the land of…..

PLANNING FOR (AND DEALING WITH) FAILURE*** ***FAILURE = BAD DECISION OR LOSING MONEY

NO INDICATOR OR SYSTEM GIVES CONSTANT ADVICE

"You can't simply plan to get a 10% return because that's the number you need"

“I don’t care about the economy, I just need to make some money”

20%, 20%, 20%, 5% beats 30%, 30%, 30%, -20%. 15%, 15%, 15%, 5% beats 25%, 25%, 25%, -20%. 20%, 10%, 5%, 5% beats 30%, 20%, 15%, -20%. 5%, 5%, 5%, 5% ties 15%, 15%, 15%, -20%. Winning by NOT LOSING It doesn’t matter what year the -20% occurs in examples above

WALL STREET YOU MUST STAY FULLY INVESTED AT ALL TIMES IF YOU MISS THE BEST 10 DAYS OVER THE PAST 5 YEARS YOUR RETURN IS _____ MY STREET IF YOU STAY FULLY INVESTED YOU PAY THE MANAGEMENT FEES REGARDLESS OF PERFORMANCE (FUNDS) IN ANY TEST YOU RUN, IF YOU “MISS THE 10 WORST DAYS” IS ALWAYS SUPERIOR TO THE “MISS BEST 10 DAYS”

WALL STREET ASSET ALLOCATION REDUCES THE VOLATILITY OF YOU PORTFOLIO YOU CAN’T TIME THE MARKET MY STREET ALLOCATION REDUCES RETURNS & MAY HELP VOLATILITY HAD POSITIVE RETURNS IN 2000,2001 AND 2002 ASSET CONCENTRATION (INCREASES RETURN AND VOLATILITY)

WALL STREET THE MARKETS ARE EFFICIENT THE MARKETS ARE RATIONAL MY STREET WHO BEST TO EXPLOIT INEFFICENCIES THAN INDIVIDUALS IF THE MARKETS ARE RATIONAL (THEN MAYBE WE INDIVIDUALS ARE NOT)

Optimism“Investing isn’t so difficult” Excitement“I’ll be able to retire early!” Thrill “I am a brilliant investor” (Maybe I should write a book) EuphoriaThe point of maximum risk Complacency“It’s just a normal correction, a great time to buy” Anxiety“If I double down it won’t take long to recover” Denial“Its only paper losses. I’m in it for the long-term” Range Of Investor Emotions

Desperation“What’s going on? When will it stop going down?” Panic“I’ve lost most of my money. I may never be able to retire” Capitulation“I’m selling everything and I’ll never own stocks again” Depression“I wonder how cat food tastes?” Defiance“Stocks may be going up but I’m not taking the risk” Range Of Investor Emotions

HOW FREQUENTLY DO YOU TRADE? HOW MUCH MONEY DO YOU TRADE? WHAT ARE YOUR PERSONAL TOLERANCES? There are no RIGHT or WRONG answers….but we all must know our personal answer to the three questions above.

Why we do what we do How we do what we do

Do you have measures to determine if you have an investment “edge” ? Do you have a process to identify and purchase leading stocks/funds/ETFs/futures? Do you have a process to “trade up” positions you own? Do you have “disciplines” that preserve capital?

DECISION MODELS Market Risk Model Asset Commitment Model Fund Selection & Management Model linked..And how they are linked to each other..

SOME EXAMPLES OF AND “EDGE” ***DEFINITION OF “EDGE” A positive expectancy for a profitable outcome

To trade profitable in the long run, you must know your edge…. If you have no edge, you should not trade for profit… Establishing and recognizing your edge is a prerequisite to predicting whether trading will be profitable.

DETERMINING THE MARKET ENVIRONMENT LONG TERM: Relative Strength Price New Highs / New Lows Advancing / Declining

IMPORTANCE OF LEVEL AND DIRECTION FOR PRICE OSCILLATOR

USE WEEKLY DATA ASSUMES PERFECT TRADES BIG PICTURE MARKET FORCES MOST PRODUCTIVE: LONG OR SHORT WHERE WE ARE TODAY

WEEKLY PRICE OSCILLATOR LEVEL AND DIRECTION IMPORTANT 12/26 MACD  Mid point level 67% of time  Data since 1930

BIG PICTURE …. LEVEL AND DIRECTION

WHICH AREA IS MOST PRODUCTIVE FOR LONGS AND SHORTS?

12 / 26 MACD ((Mov(C,12,E)-Mov(C,26,E))/Mov(C,26,E))*100 Above 0 level Below 0 level Going UP 8.40% -0.90% Going DOWN 1.70% -7.70% From 1930 to Current

12 / 26 MACD ((Mov(C,12,E)-Mov(C,26,E))/Mov(C,26,E))*100 Above 0 level Below 0 level Going UP 7.16% -0.08% Going DOWN 0.40% -6.81% From 1990 to Current

12 / 26 MACD ((Mov(C,12,E)-Mov(C,26,E))/Mov(C,26,E))*100 Above 0 level Below 0 level Going UP % +3.0% Going DOWN -1.1 % -9.7% From 2000 to Current

PRICE OSCILLATOR DATA POINTS (level only) S&P 500 Data: (1930) 62% time >0 level >0 LevelWeeklyMonthlyYearly +0.21%+0.86%+10.32% <0 Level+0.05%+0.23%+2.76% OTC Data: (1980) 62% time >0 level WeeklyMonthlyYearly >0 Level+0.50%+2.11%+25.36% <0 Level -0.11%-0.48%-5.74% Any conclusions???

Level and direction 3-4 up/down moves per year >0 Level, down direction = correction <0 Level, down direction = “cat food”

COMPARING “THEN” AND “NOW”

OTC WEEKLY PRICE OSCILLATOR (19 / 39 MACD)

OTC data (Bear Market 2000, 2001, 2002) 5000 to 1300

LEVEL AND DIRECTION USING DAILY DATA

Price oscillator using daily data

DOMINANT MARKET THEORY An edge Relative measure Jim Stack OTC / NYSE NDX / SPY Russell growth / Russell value Smoothing……macd & stochastic rsi

OTC / NYSE RELATIVE STRENGTH 11/2007

BEAR MARKET RELATIVE STRENGTH 5000 TO 1300

“THEN AND NOW”

RETURNS FOR DOMINANT MARKET Daily 1990 SPX & Nasdaq Relative Ave. Ret Ave. Ret Strength Nasdaq SPX SmlCap 3.44% 1.83% LrgCap -0.36% 0.15% % SmlCap Dominant 57.1% % LrgCap Dominant 42.9% For period of dominance Data points from 1980

YEARLY NEW HIGHS & NEW LOWS (smoothed)

COMPARING “THEN” AND “NOW”

DETERMINING THE MARKET ENVIRONMENT SHORT TERM: Price Highs / Lows Advancing / Declining

ALL BUY SIGNALS ARE NOT CREATED EQUAL VARIED EXPOSURE TO THE MARKETS IS APPROPRIATE WHEN CONSIDERING THE MARKET ENVIRONMENT

ASSET COMMITMENT PROCESS

SELECTION PROCESS

UNDERSTANDING “UP FROM DOWN”

5 YEAR OLD NEPHEW

THE DECISION ZONE SIMPLE DECISIONS Stoch(28,13)/2+RSI(14)/2

Trend measure for all mutual funds / ETF’s 65 50

Trend Measure for All Mutual Funds Sell Zone <50 No Sell Zone >65 Our trend measures keep us with the trend Fund Decline Fund Rise

THOUGHTS AND POSITIONS FOR THE MARKETS AT THIS TIME: Long term: level (low) and direction (up) Intermediate term: measures positive (but weakening) Timing signals: 2 of 3 models are positive (long term is negative) BE CAREFUL: A “trading” opportunity is upon us soon… ….MAYBE….SBIG

you should expect that the next 10 years won't be anything like the last 10

IN CLOSING EVERY DAY I want to know: What is the “dominant market” What is the long term level and direction of weekly measures What is the consensus of 3 timing systems What is the intermediate term market environment

At age 66, I’m developing a 3 rd and last career path

OUTDOOR SWING SET $49.95

ATHENS CAPITAL MANAGMENT (returns data up front)

Questions?