|Asking professional market timers like Serge Dacic about his "outlook" on the markets is a lot like trying to get a guffaw out of a Beefeater, the impassive yeoman of the guard outside of Buckingham Palace. You know better. They know better. And you know that they know better. Still, when the chance comes, it's pretty hard to resist. |
"We don't know," said Dacic, one of the founders of the market timing service known as Timing Cube (TC). "We don't believe in any of those [outlooks]."
For the average CNBC-watching, Wall Street Journal-perusing retail investor or trader, the idea of a market strategist without some sort of outlook, opinion, forecast, prediction, or prophecy on the market might be hard to believe. Yet that is precisely the world in which many technical traders live and it is truly the home of professional market timers like Dacic who, along with partner Frank Minssieux, developed their mathematical model specifically geared toward detecting trends in the stock market.
"We worked together on the mathematical model to detect trends in 1996," Dacic explained, noting that the project really began to take shape in 1999. "We saw that [the model] was working very well... but everybody was a genius back then, right?"
It wasn't until a few more years had passed that Dacic and Minssieux were convinced that their model — based on more than 10 years of backtested data — was ready for prime time. That time came in June 2001, shortly after it became evident that the bull market of the preceding decade was over.
This, however, was no stumbling block for Dacic, Minssieux, and Timing Cube, as it might have been for a more discretionary trader or system. Dacic and Minssieux, whose backtesting period for the model that would eventually become Timing Cube included both the bear markets of the late 1980s and early 1990s, as well as the sideways markets of the mid-1990s and the increasingly volatile markets of the prebubble and bubble years, were more than ready. Noted Dacic: "Our model held up pretty well. And we started to believe we really had something interesting here."
What exactly is Timing Cube? While the actual inputs that make up the mechanical trading system are proprietary, the general picture of what Dacic and Minssieux have created in TC is almost startlingly clear and concise. The system provides trading signals anywhere from three to five times a year, and subscribers are encouraged to follow those signals using any one of a variety of investment/trading vehicles, from exchange-traded funds (ETFs) to mutual funds.
Interestingly, even though TC has discovered that its QQQQ-derived signals work well with a variety of stock market proxies that investors and traders might use, Dacic and Minssieux insist that the QQQQ remains — for them — the best source of trading signals. Asked why they don't use the $SPX for Standard & Poor's 500-oriented trading or the $INDU for Dow Jones Industrial Average, blue chip-oriented stock or mutual fund trading, Dacic explains that it's all about the volatility.
"Volatility was key," he says, adding that the mathematics behind the trading model used by Timing Cube allows the model to "detect real trends out of the noise." With a broad index, it is much easier and the model more effective, he explains, because "the amplitude of the big trend was much larger than the noise" that would obscure the trend. Such obscurity is precisely what he found when he tried to "seed" the data with the S&P 500 or the Dow industrials. "It was very difficult to extract [the trend] from the S&P and Dow," Dacic comments.
Timing Cube generates buy, sell, and sell short signals that remain in effect until another signal cancels out the previous signal. Essentially, those following TC's signals tend to pursue one of three basic strategies: (a) long only; (b) long and short; and (c) long and short with margin.
At the same time, however, TC suggests dividing resources among the three strategies as a way of both controlling risk and maximizing opportunity. Signals are provided as postings at timingcube.com, by phone or by email. At any time, TC subscribers can log onto the website to take note of the current or most recent signal, current status of the trade, and other subscriber-only features such as weekly updates. Both Hulbert Financial Digest and TimerTrac.com independently verify performance results for TC.
TIME FOR THE CUBE?
For all their devotion to the cold hard reality of the timing signal, Timing Cube provides an impressive educational/trading coach service by way of its Weekly Updates (back issues of which are available for free at the website). Rather than just provide an overview of current market conditions and recent economic news (about which we already know TC has little concern), the Weekly Updates provide information that will actually help traders and investors execute the trades they recommend.
One excellent example is a series of Weekly Updates from late January to early March that included — in addition to a wrap-up of the week's financial news — minicourses on what options are, how they are used, and how they can be deployed effectively as a response to Timing Cube's market timing signals. In many ways, it was one of the better explanations of how to use options in a trend trading format that I've come across.
The Weekly Update also gives Timing Cube an opportunity to communicate with their subscribers, says Dacic. In addition, TC conducts customer surveys and tries to keep investors on track during good times and bad, warning them of the perils of being too aggressive.
Although Timing Cube is affiliated with a money management entity, a sister company called MarketTrend Advisors, Dacic and Minssieux are themselves pure professional market timers who live and die (or, more accurately, whose reputations live and die) by the accuracy of their market calls. It is worth wondering how many of those touting stocks on the financial news outlets in the mainstream media would be willing to trade in their guest appearances for the unequivocal world of real market timing.
What can average retail traders and investors learn from professional market timers like Dacic and Minssieux? Beyond many of the interesting and helpful tips and explanations in their Weekly Updates — with subjects that range from retirement planning to the right way to choose strikes prices and expiration months for trading options — Timing Cube's message to traders and investors might be summed up in one phrase: No news is good news.
By that I refer once again to Dacic and Minssieux's resistance to the shakes, bakes, and headfakes of the news events in the financial media. "We are never, ever influenced by any news," Dacic insists. "It's just a question of a strict discipline." That, and having trust in the testing and backtesting of your trading model, system, or methodology in different types of markets and under different types of conditions: bear markets and bull markets, sideways markets, and hysteria-driven "mania markets." Only then will a trader know he or she has discovered a worthwhile approach to trading and investing the markets, he says, as well as gained the confidence to stick with the methodology when times seem to get tough — as they inevitably do.
This sort of trading almost amounts to a "different philosophy of investing," Dacic reflects — something other than what most people are given to think investing and trading are all about.
David Penn may be reached at DPenn@Traders.com.
Current and past articles from Working Money, The Investors' Magazine, can be found at Working-Money.com.
|Title:||Traders.com Technical Writer|
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