Our goal is to make money, period! We don't write a weekly report just for the fun of it. We write our weekly update because it is just good discipline to document the reasoning behind your analysis and trades. We publish our system analysis and its results to provide ourselves and others a stable, reliable and fully documented history of this trading methodology. We have designed our system so that it allows us to profit from a relaxed approach which attempts to give you only a weekly trend analysis and a minimal number of signals per year.

Reaction, Not Prediction
We do believe that the market moves in cycles, Elliott Waves and Fibonacci retracements. But we have found that the equities markets frequently shrug off long term negatives and move in unexpected contradiction to everything that might be predicted by economics, wave and cycle theory in the short term.

The markets have changed their personality in recent years and this change has diminished the predictive power of cycles and waves. Much of this personality change has been due to program trading, Federal Reserve interventions, Plunge Protection Team manipulation and extreme use of derivatives.

Regardless of what is moving the markets, we want to take advantage of the “contrariness” of the markets when they are whispering that they don’t want to do what we expect them to do. Our Market Listener system seeks to make money no matter which way the market decides it wants to move and irrespective of the forces behind that move. You might say that we are contrary contrarians because we love making money, for example, on the long side when all the shorts have to cover and go long. That is easy money! In some cases the Plunge Protection Team can help you make money if you listen to the markets.

Suppress Your Bias, Follow Price Trends
We have found that the best way to make money in a contrary market is to put our economic long term forecasts, cycles and wave bias behind us and let the market tell us what it wants to do in the next 1-3 month time frame. Therefore the name, the Market Listener fits our philosophy very well. There is a myth out there that trend timing is impossible. We would like to assure our subscribers that you can time the market. We do not try to pick tops and bottoms. Our signals are usually based on weekly, not daily signals. We give back some profit and let the market reverse its trend and then jump on board in the opposite direction after the train has left the station. We hope that the myth of trend timing continues. It will allow us to make money when others cannot or will not. The proof or denial of the myth will be in whether we make money or not. Our Market Listener gains in 2005 reveal that our trend following method works well in what has been a rather range bound market. Our system prefers a more trending market, but we can still make money in the 1-3 month trends which move the market up and down by a few percentage points.

We avoid making "predictions" about what the market will do. Most predictions are based on what we read and result in an emotional bias that is typically contrary to what the market forces are doing in the short term. We don't ignore the potential long term forecasts. We just seek to take advantage of shorter term swings that can be contrary to our emotional convictions. We do look over the horizon as we view certain sentiment indicators and market "ratios".


Over The Horizon Listening
We believe that ratio extremes can tell us when technology, sentiment, volume or other factors have strayed too far. These ratio extremes can give us a heads up that the market has moved to a point of imbalance and is ready to pause or reverse. When this happens we start looking for our mature/stale signal to go to cash and expect that a trend change may be in the works. We try to go to cash for at least a full week while we wait to see if the trend is truly reversing. We believe that each of us can learn to be a better “listener” in our daily interactions with family, friends and colleagues. And likewise, in time, we can learn to become better Market Listeners if we apply ourselves to the development of that skill

The Basis of the Market Listener System
Our study of various indicators, indexes and time frames has led us to conclude the following;

1. Technical Analysis - Momentum based moving average indicators are preferred for our weekly analysis time frame. The moving average convergence divergence (MACD) indicator clearly reveals waning and building momentum in equity prices. And we found that the time frame was best represented by a weekly chart showing a MACD with parameter (12-26-18). These standard parameters are not cast in concrete and will change depending on what type of trend we are seeing at the present time. Slower momentum indicators have the advantage of eliminating hourly and daily “noise” from the market price.

2. Indicator Voting - Systems employing slow momentum indicators (like ours) can be subject to large drawdowns (temporary decreases in maximum account value). Even though the portfolio might eventually recover, large drawdowns can affect results in the short and long term. So our system includes three (3) indicators that are faster than the weekly MACD. These include Slow Stochastic, StochRSI, and Rate of Change (ROC) or Commodity Channel Index (CCI) as we deem best. These 3 faster indicators are used to “vote” to move us to cash when the trend reverses course or pauses. These 3 combined votes can also reverse or override our main MACD signal. If it is a temporary reversal, then we get back on the trend after it resumes. If it is a true trend reversal, then we get on board in the other direction when we are sure the new trend has been established.


3. Sentiment - We also look closely at sentiment indicators and volume. The “VIX” (symbol - $VIX or ^vix on Yahoo) volatility index and the CBOE Total Put/Call ratio ($CPC) are two of our favorite sentiment indicators. Mid-range values for these sentiment indicators don’t tell us much. We do get interested when these indicators start moving toward extremes and away from a long term moving average. Volume is a bit more difficult to judge, but we use proprietary calculations to tell us when NDX market volume is amplifying or diminishing the current trend.

4. System Data - Our system is based on the Nasdaq 100 Index. We generate "buy", "sell" and "cash" signals. We go long or short the Nasdaq market based on the 1-3 month trends. We multiply our profits by using leverage of 200% in each direction. This is done by trading Rydex Dynamic Funds. We use RYVNX - Venture 100 when we want to be "short" the market and we use RYVYX - Velocity 100 when we want to be "long" the market. We have chosen to trade the Nasdaq 100 ($NDX) since it has a high beta compared to the S&P 500 which just means that when a trend is in place, the NDX tends to move more in terms of percent. You could also trade “Ultra” ProFunds and use UOPIX - UltraOTC for “Buy” signals and USPIX - UltraShort OTC for “Sell” signals. For “Cash” signals we use Rydex RYMXX - Gov’t. Money Market and ProFunds MPIXX - Money Market fund.

5. Ratios/Extremes - We watch several ratios. The NDX/SPX, RUT/SPX, SPX/VIX, and SPX/CPC ratio for advance indications that extremes have been reached. These extremes give us an advance indication of potential trend changes as money begins changing sectors or as sentiment is reflected in market pricing.


6. Not a Black-Box System - The Market Listener “system” is discretionary and not purely mechanical. We discuss with you our logic in arriving at a signal with input from our entire suite of trend following indicators. We also provide you with a “Cash” signal option. Many systems must always be long or short. Our system is more flexible than other hard-coded systems and can move us to Cash when the trend is in question.

7. Risk Management - The ML system is also unique in that we provide you with a “stop” level for each buy or sell signals. We will teach you how to use stops to protect your account value. Our Fault Tolerant Cash Safety Stop (FTCSS) method is a key to our success. These stops move in step with our profits (trailing stops) to ratchet up our gains. When the NDX price moves against our position, the stop acts like a barrier to prevent a great loss in account value by warning us to preserve profit and move to cash. Periodically, we may also recommend going to cash when the trend appears to be waning or at risk of reversal even if our stop has not been hit. We visually review the indicators, market sentiment, key ratios and our proprietary adaptive indicators to determine when a signal change to cash is necessary. Our system has a conservative tendency to go to cash and overrule our faster system indicators when we have had a good run and seek to hold on to profits until the next trend develops.

We also encourage you to work with your financial adviser to employ other strategies to manage the risk in your trading account. For instance you may not want to trade 100% of your trading account if you are unsure about a signal. Also, you might want to trade other Rydex funds or ProFunds that give you a beta of 1.0 (no leverage).