What is the Buy/Sell Signal Generator?

In late July of 2009, and quite by accident, I combined a set of stock market indicators and oscillators in a non-traditional way. At first I considered the result of this combination and the signal this combination generated as merely an anamoly and discounted the results. But I decided, after looking at the signal and its correlation to stock market ups and downs, that I should at least do some back testing.

I began back testing using the S&P 500 Index/$SPX starting in 2000 and proceeded through to the present day. I checked the ability of the buy/sell signal generator to confirm hundreds of moves in the $SPX. I haven’t, as of 8/23/2009, done a tally of all the correct signals and rated the buy/sell with a percentage accuracy but with just a cursory glance I know that the accuracy is well more than 50%.

Of note would be a call the buy/sell gave back in May of 2007. During the first few days of May, with the $SPX trading close to 1500, the signal generator gave a ‘sell’ signal. It then gave a ‘buy’ signal around the 20th of August of 2007, and it eventually gave another ‘sell’ signal around the 10th of October of 2007.

The buy/sell generator also gave a ‘buy’ signal in March of 2009.

Unfortunately I wasn’t aware of this signal generator in May or 2007 or in March of 2009. Fortunately I am aware of it now.

So what does all this mean? It means that while all the bulls were going pamplona after May of 2007 and long after October of 2007, the signal generator said they were wrong. By the same token, while all the bears, myself included, were salivating after the March rally started with thoughts of shorting the markets to major new lows, the signal generator said the bears were and remain, as of 8/23/2009, wrong.

Recently the buy/sell generator issued a ‘sell’ signal during the week of May 11th followed by a couple of minor ‘buy’ and ‘sell’ signals over the next several weeks, and then finally issued another, stronger and confirmed ‘buy’ signal on about July 15th. It then issued a ‘sell’ signal on August 6th that was confirmed first in the Nasdaq on Monday, August 17, and then on the $SPX on Wednesday, August 19. And on Thursday, August 20th, the most sensitive of the 4 indicators that I use ticked up, just as it ticked down on August 6th as a prelude to the whipsaw decline that lasted until Monday, August 17th. This still could be a false signal and even after the strong rally on Friday, August 21st, the signal has not been confirmed in either the Nasdaq or the $SPX. If this ‘buy’ signal is going to be confirmed by the remaining three oscillators that I use, then it should be confirmed by no later than Wednesday, August 26th.

That’s how things stand as of August 23rd, 2009. I created this blog as a place where I will update the progress of the buy/sell signal generator and anyone who’s interested can track its accuracy. I will update the blog within 1-2 hours of the market close. In this way, if the signal generator spots trouble, and if its track record warrants action, you can make adjustments to your positions or portfolios before the After Hours session ends