Hi Larry:

In reading today's Smart Money newsletter you mentioned a possible move up from the 200 DMA to the 50 DMA. It certainly looks as if the SP500 is "surfing" up the 200 DMA.

I am, of course, looking to enter a short position from the short CoT signal of some eight weeks ago coming to the party at this late date.

Apart from reading candlestick patterns and trendline breaks to help make a good entry, would looking at a bounce down from resistance at the 50 DMA be perhaps a useful guide?

Excellent presentations here, Larry. I am very impressed.

Along that same line I notice that Fri and today the high for the dow was the 200d SMA. I'm wondering if that isn't a good entry for shorts.
h

Maybe this observation might be of help. The Nikkei, Hang Seng, CAC, FTSE, DAX, MIB, TSX, DJIA, S&P, and Nasdaq have all failed to reach the level of their last rally, the only exception is the DJTA which just barely squeaked by the May 13, 2855 level today. The S&P tried 5 times, the Dow 4 and the Nasdaq 3 and every time they have been turned back. Volume has been pretty weak also. If we break through resistance soon maybe the rally will be more sustained. However the futures are looking negative tonight, the Nikkei is already down 140+ points and oil shot right back above 41.00 to a new high today (which makes me wonder why the transports have been strong lately). Seems like the odds are that the markets are not going to be able to sustain this weak rally. Of course now that I've posted my thoughts we'll probably get a huge rally

Gary

Okay, now everyone who's long, thank Gary.
h

Smitty,

First of all, thank you for your kind comments. I think that one of the first decisions that needs to be made concerning the COT system is whether you want to play it straight or whether you want to try to improve returns through timing entries and/or exits. What I mean by playing it straight is to simply follow one of the COT strategies that we have posted. With the COT part of my portfolio I pretty much play it straight, although I do use multiple entries and I do make decisions as to which COT strategy to follow according to my opinion of market conditions. But I never fight the COT by trying to fade it.

However, I can certainly understand why someone would want to try to time their entries and use stops, and the various other methods that have been mentioned on this forum in the past. I can especially understand it when the COT is short because the only two significant losses that the COT has ever taken is on the short side of the market.

To answer your question, I think a rally up the 50-day moving average would be a good entry point. I don’t know about waiting for a rally to the moving average and then a decline off the average to enter. It seems to me that you would want to enter at resistance rather than a decline from resistance, but that’s just a personal choice.

But don’t do it until you’ve made a plan for all scenarios. After you enter, what will trigger an exit? Will you simply wait for the COT to flip to long? Will you place a stop loss somewhere? Also, what if it doesn’t rally to your entry point? What if it just declines from here without much of a bounce? What do you do then? Once the smart money gets on one side of the market or the other, they’ve been know to stay that way for several years. So you also need a plan for a market that just keeps declining.

Finally, all of this needs to be done within the framework of a prudent position sizing and/or prudent asset allocation strategy.

Larry

Yep, I jinxed us.

Gary

Thank you all for your kind assistance.

Specifically answering you, Larry, I am primarily asking what is a more generic question which I imagine has been addressed somewhere (and I am trying to read everything!).

I suppose my question is basically this:

Once you have decided upon your "game plan" (which variation of the COT method to use, whether or not to use stops - in other words having written down exactly what to do no matter what happens) is there a better way to time ONLY the initial entrance when there is no current switch signal (as it is now)?

I have not found (yet) this particular issue addressed although perhaps it was already.

In my own case I am waffling between the second and third CoT strategy with your model portfolio in mind placing some 60% of my equity there.

As far as trailing stops are concerned I can see where these seem to be a trade off between risk-reward ratios.

Your model Portfolio approach reminds me very much of Harry Browne's "permanent portfolio" concept in which he suggests evenly dividing capital into gold, T-Bills, T-Bonds and more aggressive stocks to weather different economic "climates" primarily with capital preservation in mind. He simply balances these annually back to 25% each whereas you are following the CoT signals.

Of course you are still focussed on growth whereas his approach is focussed more on preservation, but both of you skip stops with the same "diversification" concept if I understand correctly.

Excellent advice throughout, Larry. I remain very impressed and still hope there may be some more specific suggestions on timing the initial start up when one is not at a CoT switch signal.

And, no, I have no intention of jumping the gun and doing anything until I have determined my exit stratagy and all possible contingencies.

Thank you for the always appreciated reminder!