Since 2009 we have been trading the Zweig/ Ned Davis 4% system.  You can read about the system here.

Our interpretation of the sell and buy is a weekly 4% move. Period. I did get a few notes asking me why it had not already sold out as many are using a 4% trailing sell stop with the system.  We base our interpretation from the description in Dr. Zwieg’s  Winning On Wall Street.

The spirit of the system was for the lazy trader to catch long trends.  These trends are marked by mammoth weekly moves in a particular direction.  An upside move is a buy and the downside move is a sell. Some interpret the sell signal as any week that has a 4% swing.  We go Friday’s close to Friday’s close on the Value Line Arithmetic index (VLAI).

That being said this Friday had the VLAI down 5.5% for the week.

image

Our strict interpretation of the system is based on Dr. Zweig’s description of an investor picking up the Sunday Barron’s Newspaper and looking at the weekly data for the Value Line and then acting on Monday’s open.  So Monday we will sell our UWM at the opening price to exit a long that we had for 165 days.  If we open flat that will be a disappointing 1+% negative return.  Disappointing in that we were over 10% profit on the highs for the trade.

image

That had us thinking, is UWM the correct vehicle to hold for a long?  What would the returns have been if we were trading a different symbol.  The spreadsheet below shows some other possible returns and the effect of a leveraged ETF over the same trading period using Friday’s close.

image

Almost any other trade would have been profitable, the Apple trade is just for comparison but the QQQ’swould have returned a 5.7% trade and that is unleveraged?  Our leveraged UWM is about 3x more down that the unleveraged IWM.

We will not switch our trading vehicle, but instead wait patiently for another 4% value line up week to let us know that a new upside trend may be starting, oh, and hope we get a monster gap up on Monday that brings the UWM trade green. Go G8!

– Exiting UWM on Monday’s open.

Red