The Dual-Control System, Instant Trading, And Pulse Of Bull Plateau (SP500)

A Single-Control System with the C/C Ratio Only

The “C/C” (Cash to Capital) Ratio and the “A-A” (Asset-Allocation) Decision were mutually constrained: in a short term (in a couple of months), the A-A Decision would dictate by rebalancing toward a target allocation, leaving the C/C Ratio disrupted temporarily. while, in a near term (in a couple of weeks), the C/C Ratio is somewhat free to maneuver to take an advantage when any security is mis-priced, disregarding a target of the A-A Decision (i.e., a 60:40), on the other hand.

Two well-diversified ETF Portfolios, however, were replaced by three online Savings accounts in 2020, so it becomes no longer available that the luxury of a dual system with two controls (A-A Decision and C/C Ratio), mutually well-constrained along in a short term (Trend) and in a near term (Momentum).

As a result, the C/C Ratio with the online savings accounts at Goldman Sachs Bank USA (Marcus) has become the only control since 2020. Now I have five accounts in Marcus.

A Dual-Control System with the C/C Ratio and the S&P 500 Index (SP500) (SPX)

The instant (a few seconds or a few sessions) trading has had two brokerage accounts at Charles Schwab and TD Ameritrade since 2009. The Holdings at these two accounts are not selected for Portfolios to accomplish an investment goal. The Group was bought for trading purpose, randomly in an instant term.

Recently I rebuilt a dual-control system by adopting the S&P 500 as a proxy of my Portfolios before 2020.

The Cap of the C/C Ratio

The current S&P 500 Index ( $4,769.83 as of Dec 29, 2023 ) is just a hair shy of its all-time high ($4.796.56 on Jan. 03, 2022). I want to put a cap of Cash as 80% or $6,000 of the S&P 500, whichever comes first. As of Dec 29 (Friday), $4770 is an inch below a cap, $4,800. As a consequence, my buying has been somewhat restricted in the recent weeks.

All holdings don’t sync upward at the same time. Tier # 1 leads, Tier # 2 follows, and Tier #3, and so on. Some holdings move to the opposite or some holders don’t move at all. This kind of divergency in price movements gives me room to adjust my trading actions on the current Bull Plateau.

The Nadir of the C/C Ratio

The S&P 500 Index ($4,769.83 as of Dec 29, 2023) was 33.3% higher than a nadir of S&P 500 Index ($3,577.03 on Oct.12, 2022). The S&P 500 has spiked enormously in the recent months.

I want to stop buying when the C/C ratio is 50% or the S&P 500 Index is $3,600 whichever comes first.

The Magnificently Swift Upswing from Oct 27 to Dec 29

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A summary table, Table 1, addressed the current historical shooting from Oct 27 ($4,117 of the S&P 500 Index’s a trough) to Dec 29 ($4,783, a peak of the index). briefing Table 5 which is in Reference after the main text because of its volume. (I really recommend taking a look at Table 5 first, jotting down some essential figures, and then reconciling Table 1.)

Finally popped up was the last-minute harsh normalization of the coiled spring, largely caused by 1) the Covid-19 pandemic in 2019, 2) the questionable recession of the NBER (National Bureau of Economic Research), and 3) the ensuing invalid bear market in Mar 2020, proved by here, here, and here.

The U.S. Economy (or SPY (SPDR S&P 500 ETF) or the S&P 500) has surged on a highway, without slumping or stepping sideways, recording a whopping $652 gain, and a 15.8% increase by the traditional asymmetrical formula, (A-B)/B, or a 14.7 % by the Moore’s symmetrical formula, 2*(A-B)/(A+B), a $15 per day (average).

Table 1 asserted that the current 9-months old Uptrend was too strong, logging Bulls vs. Bears as 33 vs.10 (more than 3 times). A small breakage, on today (Dec. 29 (Friday), the last day of the year) will make the Uptrend slow a bit.

Table 5 in Reference is placed after the main text.

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The Santa Claus Rally counts 7 days from last Friday (Dec 22) to Jan 3 new year. Four days (Dec 22, 26, 27, and 28) were in the positive column while today (Dec 29) in the negative. As a result, Santa already called us. If we add one or two pluses in Table 2, the rally will become firmer, and the positive January rally is expected to follow.

Pulse Check #1 by The TDI (Trifecta Distribution Index)

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A Signal was Proudly on in Jun: Trifecta occurred in six days (Jun 07, Jun 08, Jun 09, Jun 12, Jun 13, and Jun 14) in a row. This was extremely rare.

Table 3 exhibits a very high level of bullishness in Nov and Dec: Bulls vs. Bears are 22 (= 12 (Nov) + 10 (Dec)) vs. 7 (= 3 (Nov) + 4 (Dec), again 3 times more), as of Dec 29. We want to stay on the plateau as long as possible. Therefore, any one-sided score is not good with either bull’s or bear’s favor.

The source data of Table 3 is Table 6 in the Reference after the main text because it is too long.

Pulse Check #2 by The SDI (Sector Diffusion Index)

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The TDI has nicely reached readers. The quite positive response encourages me to explore capturing the rotation trend of 11 Sectors of SPY, comparing other equal weighted ETFs, Russell 2000 ETF, and mid-cap ETFs.

If you want to know the source of the PPO (Paper and Pencil Only), Please click this.

The PPO approach recently has contributed on 1) the Momentum/Trend Analysis, 2) The Trifecta Distribution Front in particular. As the third contribution, the PPO approach to monitor the stock-market breadth and turning direction.

Uptrend, Trifecta Front, and Diffusion Index have a common thread of the PPO approach which distinguishes any movement with a plus (“P”) and a minus (“m”) without considering the size differences.

In any special situations with any external shock such as oil embargo or Covid Pandemic or internal impacts of over-tightened monetary policy and undue fiscal expansion, the PPO approach has worked to fill the vacuum of traditional approaches.

Every day 11 SPY sectors together make a Diffusion Index [“DI”] which oscillates between 0% to 100%. If all 11 sectors rose, the DI is 100%, and if all fell, DI is 0%. We have 11 sectors so we don’t have an exact 50%. The DI also indicates market breath which mean how tightly the components stick together. As DI goes further more sessions, more weeks, more months, the breadth is more accurately revealed.

Table 4 reported 100% as of Dec 01. The SDI has increased steadily in recent months. In Dec the SDI was 61%. In the same token, we want the SDI to remain at around 50% in the future in order to avoid a high level of pulse.

Concluding Thoughts

We had a very dynamic and unusual year in 2023, and we anticipate a continuing climate in the economy and market in the new year. We have learned many technical tools and skills to encounter brand-new phenomena which have different risks and complexity.

We had a calm environment, albeit a couple of regional military conflicts and drastic challenges from non-democratic regimes. We have to contemplate the best actions to encounter them. We wish to have wisdom rather than knowledge to win over the problems on us.

Wishing healthy and productive new year to all investors.

REFERENCE

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