Schulenberg and Associates (since 1981): Originators of the Thermodynamic Approach to Stock Market Timing and the Stock Strategist™ Newsletter

Schulenberg and Associates, Inc. is a company that specializes in innovative software products and solutions, and with a special emphasis on the design of mathematical algorithms and linguistics software . Our experience with stock market timing and equity modeling began in 1987 when we added neural network capabilities to our EDES™ (Empirical Data Expert System) program. Development of our Stock Strategist ™ software began in 2000, and we started publishing our daily Newsletter and market timing reports in October 2004. On 9/27/06 we began utilizing TimerTrac™ to conduct independent verification of our stock market signals. We are now also being tracked by Collective2™. At the present time we have closed our Newsletter to new subscriptions.

Auto-Trading: Our Signals may be Auto-Traded through Collective2

Our flagship IWM signal (and others) may be monitored, and auto-traded through our affiliate site. We are now tracking five different systems that are based upon our signals (including our flagship IWM signal) on this affiliate web site. The actual performance of the IWM signal since 9/4/08 can be seen here, but with collective2.com we have had to start tracking from scratch (i.e., from 12/8/10). Note that the "Schulenberg IRA" system is intended for use in retirement accounts; it utilizes the IWM signal and performs the cash management necessary for tax-deferred non-margined accounts like IRAs. It is intended to provide the largest possible gains commensurate with a reasonable degree of risk.

Schulenberg Stock Strategist™ (SSS) "Maxwell-Boltzmann" Stock Market Timing Models

The basis for the Stock Strategist™ is an entirely new approach to viewing the stock market, that is, from a thermodynamic standpoint. In thermodynamics, the Maxwell-Boltzmann distribution describes the relationship between the absolute temperature of a gas and the percentage of molecules that will have speeds within specified limits. This relationship works both ways: given a distribution of molecular speeds you can determine the temperature of a gas, and given the temperature of a gas you can determine the molecular speed distribution. We utilize an analogous concept in determining the effective temperature of the stock market. We call this value the MTI (Market Timing Indicator), although the acronym might also be considered to stand for "Market Temperature Indicator". Instead of gas molecules we consider an ensemble of over 8500 stocks and ETFs; instead of looking at the number of gas molecules within specified speed ranges we consider the distribution of "long" holdings within a spectrum of specially designed stock portfolios (with unusual buy and sell criteria). In a way, this is Technical Analysis ... but firmly rooted in the fundamental forces that underlie the stock market.

Signal Verification (Tracking by TimerTrac™)

We utilize Timertrac™ to monitor the actual signal performance of our IWM (and also QQQQ, SPY, DIA, MDY, and SMH) signal; we do not submit our other 133 stock/ETF signals for daily tracking. Timertrac™ is an independent market timing signal certification service that provides direct comparisons of the actual performance of hundreds of market timing signals. The tracking of our IWM signal began on 9/4/08. In addition, each week we submit a market analysis to TimerTrac for incoporation into their Broadcast emails. If you would like to receive their bi-weekly Broadcast emails, then you should contact TimerTrac at http://www.timertrac.com; it's free, and it summarizes the current thinking of many market timing organizations -- not just us.

If you click on the following link you can see the actual performance of our flagship signal (IWM) since 9/4/08. We generate 139 other equity signals, but we have found that IWM (the Russell 2000) has the best overall trading characteristics: (1) high potential annual gains, (2) extremely good liquidity (easy fills and exits), and (3) is highly amenable to accurate modeling. Moreover, the 2x companion ETFs, UWM and TWM, are also highly liquid and may be used to magnify gains and accomplish shorting.

Strategist Newsletter™ Subscriptions

Note: At the present time we are not accepting any new subscriptions.

A subscription to the Strategist Newsletter™ provides a multitude of daily reports that address a full range of investment strategies:

(1) Voted Signals™ for IWM and 139 other major stocks and ETFs. The Voted Signals are generated using: (a) the Market Timing Indicator (MTI) calculated by our Preprocessor, (b) the Grail System models, and (c) voting logic that considers all related signals before generating a final signal. Our IWM timing signal is one of our most accurate, and certainly our most popular signal.

(2) Differential Signals that support partially-hedged or fully-hedged low-risk trading by identifying pairs of ETFs that are diverging in price. One ETF will be held Long while the other is Shorted, thus dramatically reducing drawdowns and risk. An especially important differential signal is QQQQ vs. DIA (the 'techs' versus the Dow, and another is IWM vs. SPY (the Russell 2000 versus the S&P 500).

(3) Day Trading signals for 1800 stocks and ETFs. These daily 'picks' are intended to be bought (or Shorted) at the market Open, and sold (or Covered) at the market Close. Our Generalized Candlestick technique is used to filter out trades that have a low probability for success.

(4) Signals and equity ratios for Trading Pairs. Trading Pairs are pairs of ETFs (stocks will be added soon) that are ideal for trading simultaneously because they provide a natural 'hedging' effect. Such pairs may be traded Long/Long, Short/Short, or Long/Short, and the equity ratios that are given have been back-tested to produce the highest G/d ratio (Annualized Gain divided by Maximum Drawdown).

(5) Prediction Tables that help predict the Close based upon Open conditions. The Market Open Signature (MOS), together with the MTI (Market Timing Indicator) value, are used to generate the probabilities that key ETFs will close higher than the Open -- or higher than the preceding day's Close.

(6) Mutual Fund daily buy/hold/sell signals for over 1,000 mutual funds. Our mutual fund signals are constructed by 'decomposing' each fund into a weighted sum of 5 'equivalent' ETFs, and then using our ETF timing signals to predict the near-term outlook of the fund as a whole.

Our Major Market Timing Innovations
Grail System™ Stock Timing Models The MTI (Market Timing/Temperature Indicator) that is generated by the thermal model in our Preprocessor is used to develop customized short-term timing models for 1,000 stocks and ETFs. These Grail System™ models utilize the MTI value, multiple neural networks, as well as both traditional and proprietary technical indicators (based on price and volume), in order to generate daily buy/sell signals. These highly accurate signals are tuned to the intrinsic (natural) characteristics of each individual stock (average maximum drawdown and trading frequency). The intrinsic values (AMD-Average Maximum Drawdown, and trading frequency) are determined by performing an analysis of the entire price history for a given stock, using Monte-Carlo techniques to evaluate hundreds of thousands of possible trades. The objective is to maximize the annualized gain, and the only restriction imposed is that any trade must be held for at least 4 trading days. When this analysis is complete, the natural trading frequency and associated Average Maximum Drawdown are then available. This data is then fed into the optimization process for each of our custom models so that our model values (AMD and trading frequency) can be 'coaxed' to converge to these natural values. This process produces a stock timing model that reflects the natural rhythm of the stock or ETF, and since it is MTI-based, it quickly reacts to the overall temperature of the stock market. The Grail System signals are no longer traded explicitly; instead, they are used to construct the even more accurate Voted Signals, and to corroborate our Day Trading signals.
Generalized Candlesticks (the RaDiSH Transform™) Although our short-term signals (Grail System™) are based on our Market Timing (Temperature) Indicator (MTI), and are thus thermally-based, they do not operate on a sufficiently reactive time scale to be able to predict the daily movement of a single equity like QQQQ (since the temperature of the stock market can't change very much in a single day). Instead, we turn to an elegant generalization of Japanese Candlesticks. By applying our proprietary transform (RaDiSH Transform™) we can convert the four daily prices (High, Low, Open, Close) plus volume, into a set of 5 dimensionless and time-invariant numbers. Then, by using this data to train a neural network we can predict the average price that a given stock 'may' exhibit on the next trading day (the sum of the High and Low prices divided by 2). Finally, by looking at the actual Open price of QQQQ, together with this estimated average price for the next day, we can calculate the probability that QQQQ will Close higher than its Open. This gives us a QQQQ day-trading signal that is probably about as accurate as is theoretically possible. A sample Prediction Table report can be seen here.
ETF Decomposition of Mutual Funds Our Mutual Fund Timing Indicator (MFTI) was developed using our Stock Market Timing Indicator (MTI) as a basis, and this works very well to identify those protracted periods when mutual funds (as an investment class) are in either a 'buy' or a 'sell' state. However, the task of developing buy/sell/hold signals for individual mutual funds requires a different approach. Simply looking at the recent price history of a fund shows its current performance, but offers little insight as to how the fund will perform over the next month or two. Our solution is to try to determine the current holdings of the mutual fund, and then to use our intermediate-term buy/sell/hold (and short-term buy/sell) signals to calculate a weighted signal for the entire fund. Our approach is to decompose each mutual fund into a weighted sum of 5 different ETFs (basis vectors) that are chosen from a large set of 175 ETFs. Monte-Carlo methods are then used to determine the 5 'best' ETFs, and their associated weightings, that reproduce the recent price history of the mutual fund most accurately. These decompositions are often uncannily accurate, and correlation coefficients (R**2) of 0.9900 or better are routinely achieved. While these decompositions can never exactly reflect the current holdings of a mutual fund, they nonetheless give us an analytical way of assigning a net Score (and a buy, sell, or hold recommendation) for over 1,100 funds on a daily basis. A sample mutual fund decomposition report can be seen here.
Differential Signals -- Comparing Two Indices By employing a mathematical device we can utilize our Grail System™ techniques to generate models for new 'signals' that predict the relative performance of one index against another. We actually utilize ETFs for this purpose, and the objective is to predict whether, for example, QQQQ (the Nasdaq 100) will outperform (or underperform) the S&P 500 (SPY), the DOW (DIA), or the Russell 2000 (IWM) over the near-term. A '+/-' value for the $NQ-RU signal, for example, would mean that a simultaneous Long of QQQQ and a Short of IWM (i.e., a hedged situation) would likely be profitable; a '-/+' signal would suggest a profitable QQQQ Short while going Long on IWM. We currently generate a total of 31 differential signals, and a recent Differential Signals report can be seen here.
Trading Links
For Auto-Trading of our IWM Signal: Collective2.com
For up-to-the-minute market news and analysis: Briefing.com
For information on stocks, ETFs, and mutual funds: Yahoo.com
For information on stocks, ETFs, and mutual funds: MSN/Money
For details and ratings of specific mutual funds: Morningstar.com

Our Major Market Timing Innovations

Grail System™ Stock Timing Models

The MTI (Market Timing/Temperature Indicator) that is generated by the thermal model in our Preprocessor is used to develop customized short-term timing models for 1,000 stocks and ETFs. These Grail System™ models utilize the MTI value, multiple neural networks, as well as both traditional and proprietary technical indicators (based on price and volume), in order to generate daily buy/sell signals. These highly accurate signals are tuned to the intrinsic (natural) characteristics of each individual stock (average maximum drawdown and trading frequency).

The intrinsic values (AMD-Average Maximum Drawdown, and trading frequency) are determined by performing an analysis of the entire price history for a given stock, using Monte-Carlo techniques to evaluate hundreds of thousands of possible trades. The objective is to maximize the annualized gain, and the only restriction imposed is that any trade must be held for at least 4 trading days. When this analysis is complete, the natural trading frequency and associated Average Maximum Drawdown are then available. This data is then fed into the optimization process for each of our custom models so that our model values (AMD and trading frequency) can be 'coaxed' to converge to these natural values. This process produces a stock timing model that reflects the natural rhythm of the stock or ETF, and since it is MTI-based, it quickly reacts to the overall temperature of the stock market.

The Grail System signals are no longer traded explicitly; instead, they are used to construct the even more accurate Voted Signals, and to corroborate our Day Trading signals.

Generalized Candlesticks (the RaDiSH Transform™)

Although our short-term signals (Grail System™) are based on our Market Timing (Temperature) Indicator (MTI), and are thus thermally-based, they do not operate on a sufficiently reactive time scale to be able to predict the daily movement of a single equity like QQQQ (since the temperature of the stock market can't change very much in a single day). Instead, we turn to an elegant generalization of Japanese Candlesticks. By applying our proprietary transform (RaDiSH Transform™) we can convert the four daily prices (High, Low, Open, Close) plus volume, into a set of 5 dimensionless and time-invariant numbers. Then, by using this data to train a neural network we can predict the average price that a given stock 'may' exhibit on the next trading day (the sum of the High and Low prices divided by 2). Finally, by looking at the actual Open price of QQQQ, together with this estimated average price for the next day, we can calculate the probability that QQQQ will Close higher than its Open. This gives us a QQQQ day-trading signal that is probably about as accurate as is theoretically possible. A sample Prediction Table report can be seen here.

ETF Decomposition of Mutual Funds

Our Mutual Fund Timing Indicator (MFTI) was developed using our Stock Market Timing Indicator (MTI) as a basis, and this works very well to identify those protracted periods when mutual funds (as an investment class) are in either a 'buy' or a 'sell' state. However, the task of developing buy/sell/hold signals for individual mutual funds requires a different approach. Simply looking at the recent price history of a fund shows its current performance, but offers little insight as to how the fund will perform over the next month or two. Our solution is to try to determine the current holdings of the mutual fund, and then to use our intermediate-term buy/sell/hold (and short-term buy/sell) signals to calculate a weighted signal for the entire fund.

Our approach is to decompose each mutual fund into a weighted sum of 5 different ETFs (basis vectors) that are chosen from a large set of 175 ETFs. Monte-Carlo methods are then used to determine the 5 'best' ETFs, and their associated weightings, that reproduce the recent price history of the mutual fund most accurately. These decompositions are often uncannily accurate, and correlation coefficients (R**2) of 0.9900 or better are routinely achieved. While these decompositions can never exactly reflect the current holdings of a mutual fund, they nonetheless give us an analytical way of assigning a net Score (and a buy, sell, or hold recommendation) for over 1,100 funds on a daily basis. A sample mutual fund decomposition report can be seen here.

Differential Signals -- Comparing Two Indices

By employing a mathematical device we can utilize our Grail System™ techniques to generate models for new 'signals' that predict the relative performance of one index against another. We actually utilize ETFs for this purpose, and the objective is to predict whether, for example, QQQQ (the Nasdaq 100) will outperform (or underperform) the S&P 500 (SPY), the DOW (DIA), or the Russell 2000 (IWM) over the near-term. A '+/-' value for the $NQ-RU signal, for example, would mean that a simultaneous Long of QQQQ and a Short of IWM (i.e., a hedged situation) would likely be profitable; a '-/+' signal would suggest a profitable QQQQ Short while going Long on IWM. We currently generate a total of 31 differential signals, and a recent Differential Signals report can be seen here.

Schulenberg and Associates, Inc.: Thermodynamic Stock, ETF, and Mutual Fund Timing Signals and Portfolios

Stock Market Timing

Our Products ($): Stock Strategist Newsletter™ LinguaPro/SPANISH™ EDES/Model™

Our Freeware: English Literature Assistant™ Spanish Literature Assistant™ Large Number Factorization Suite "Q" Text Editor

Schulenberg and Associates (since 1981): Originators of the Thermodynamic Approach to Stock Market Timing and the Stock Strategist™ Newsletter

Signal Verification (Tracking by TimerTrac™)

Note: At the present time we are not accepting any new subscriptions.

Our Major Market Timing Innovations

Grail System™ Stock Timing Models

Generalized Candlesticks (the RaDiSH Transform™)

ETF Decomposition of Mutual Funds

Differential Signals -- Comparing Two Indices

Trading Links

For Auto-Trading of our IWM Signal: Collective2.com

For up-to-the-minute market news and analysis: Briefing.com

For information on stocks, ETFs, and mutual funds: Yahoo.com

Last Changed: 4/8/13