Trading Techniques  |  FEB 1999

Trading Stocks With A Cyclical System by Jeffrey O. Katz, Ph.D., with D.L. McCormick

Trading Stocks With A Cyclical System by Jeffrey Owen Katz, Ph.D., with Donna L. McCormick There may be a tradable pattern in individual stocks and indices. Read about one way to systematically look for and track this cycle. More than a decade ago, we noticed that a recurrent pattern could be seen on the charts of individual stocks as well as on the indices. Roughly 90 calendar days after the occurrence of a large, sudden, strong move (mostly upward but sometimes down), there would be a fairly good probability that another such move would occur. The quarterly timing suggested that the pattern was induced by the occurrence of surprises (for example, earnings surprises) associated with corporate reports. When this pattern was present — and it frequently was — it was quite dramatic: It could be used to predict turning points in stocks (as well as in stock indices such as the Standard & Poor’s 500 index) months ahead with a fair degree of accuracy. This forecasting pattern produced such good results that we developed and marketed software based upon it: NexTurn for the S&P 500, and The Stock Analyzer for individual stocks. Several years after we discovered it, however, the pattern disappeared from the indices, and the software became moot. Neither NexTurn nor The Stock Analyzer were complete trading systems; they had no entry or exit orders but merely generated signals. Let’s see whether we can develop a successful trading system for stocks based on the pattern we observed more than a decade ago. We will be working in TradeStation and fully disclosing all trading logic and Easy Language source code.

by Jeffrey Owen Katz, Ph.D., and Donna L. McCormick