1. Kevin G. Hockert, CMT
Director of Portfolio Strategies
MN MTA Chapter
Kevin@AskProspero.com

2. Quantitative Technical Research
• formal systematic process in which numerical
data are used to obtain information about
securities and financial markets
• describe variables
• examine relationships among variables
• assess probabilities associated with cause and
effect interactions between variables

3. strategy development considerations
• know thyself
• time frame- frequency of trades
• absolute or relative returns
• drawdowns
• simplicity
• practicality
• sweetspot and limitations

4. Testing
• Hypothesis
• Parameters
• Test – in sample, out of sample
• Indicators
• Portfolio Level Strategy

5. What to test
• Market breadth: advance/decline, 4 Week
High, 10 Week MA, 52 Week
• Sentiment: AAII, Investors Intelligence
• Trend and Trend Momentum:
Short, Intermediate and Long Term
• Relative Strength: ROC, Weighted
ROC, MA/MA,

6. WHY?
• Breadth: assess market risk – correlation
• Sentiment: extreme levels – market inflection
points
• Trend & Trend Momentum: probability of
market and individual security direction
• Relative Strength: assess attractiveness of
security vs. group of securities
• Relative Strength: broad asset allocation

7. Quantitative Strategy
• processes can improve ability to
collect, assimilate and apply information
• scientific repeatable process with definable
prospects
• methodical, systematic approaches to
managing market risk, allocating portfolio
capital and security selection
• reduce emotional and subjective components
of investment decision making process

8. Market breadth
• Market breadth models
• Advance Decline
• 4 Week High
• % above 10 Week MA
• 52 Week High Low
• Price Volume

9. Advance Decline
• represents the amount of liquidity in the
markets
• one stock – one vote
• Nasdaq preferred over NYSE
• advance decline line – moves too slow
• acceleration/deceleration in advancing vs.
declining issues tends to expand and contract
representing “liquidity waves”

10. McClellan
• Sherman and Marion McClellan created the
McClellan Oscillator and Summation Index (son
Tom continues on tradition of innovative
indicator development)
• Oscillator – difference of the 10% and 5% trend of
advances minus declines divided by advances
plus declines
• Summation Index – addition of the daily oscillator
values

11. Nasdaq Summation Index
at a 20 day high and Nasdaq 50 day MA positive slope
Test Period Nasdaq Average 21 Day Return Strategy Average 21 Day Return
1978-2000 1.55% 1.88%
2000-current 0.09% 0.49%
1978 - current 1.03% 1.43%

12. Nasdaq Summation Index
800
600
400
200
0
-200
-400
-600
-800
-1000
-1200

13. Summation Index Observations
• indicator Peaks 4/26/2010, 1/18/2011
• indicator Bottoms 7/7/2010, 8/23/2011
• direction and level are important (short and
intermediate term signals)
• daily data has become more volatile
• consult weekly advance decline
• include volume

14. 800
900
1000
1100
1300
1400
1500
1200
1/4/2010
2/4/2010
3/4/2010
4/4/2010
5/4/2010
6/4/2010
7/4/2010
8/4/2010
9/4/2010
10/4/2010
11/4/2010
12/4/2010
1/4/2011
2/4/2011
3/4/2011
4/4/2011
5/4/2011
6/4/2011
7/4/2011
8/4/2011
9/4/2011
10/4/2011
11/4/2011
12/4/2011
1/4/2012
S&P 500 Weekly price
2/4/2012
& Weekly A/D Oscillator
3/4/2012
4/4/2012
5/4/2012
6/4/2012
0
2
4
6
8
-8
-6
-4
-2
-14
-12
-10

15. 1000
1100
1200
1300
1400
1500
800
900
1/4/2010
2/4/2010
3/4/2010
4/4/2010
5/4/2010
6/4/2010
7/4/2010
8/4/2010
9/4/2010
10/4/2010
11/4/2010
12/4/2010
1/4/2011
2/4/2011
3/4/2011
4/4/2011
5/4/2011
6/4/2011
7/4/2011
8/4/2011
9/4/2011
10/4/2011
11/4/2011
12/4/2011
1/4/2012
4 Week High Oscillator
2/4/2012
S&P 500 Weekly Price &
3/4/2012
4/4/2012
5/4/2012
6/4/2012
0
0.1
-0.2
-0.1
0.05
0.15
-0.15
-0.05

16. 1000
1100
1200
1300
1400
1500
800
900
1/4/2010
2/4/2010
3/4/2010
4/4/2010
5/4/2010
6/4/2010
7/4/2010
8/4/2010
9/4/2010
10/4/2010
11/4/2010
12/4/2010
1/4/2011
2/4/2011
3/4/2011
4/4/2011
5/4/2011
6/4/2011
7/4/2011
8/4/2011
9/4/2011
10/4/2011
11/4/2011
Term Momentum
12/4/2011
1/4/2012
S&P 500 & Intermediate
2/4/2012
3/4/2012
4/4/2012
5/4/2012
6/4/2012
0.00
10.00
30.00
40.00
20.00
50.00
-50.00
-40.00
-30.00
-20.00
-10.00

17. 1000
1100
1200
1300
1400
1500
800
900
1/4/2010
2/4/2010
3/4/2010
4/4/2010
5/4/2010
6/4/2010
7/4/2010
8/4/2010
9/4/2010
10/4/2010
11/4/2010
12/4/2010
1/4/2011
2/4/2011
3/4/2011
4/4/2011
5/4/2011
6/4/2011
7/4/2011
S&P 500
8/4/2011
9/4/2011
10/4/2011
11/4/2011
12/4/2011
1/4/2012
2/4/2012
3/4/2012
& Long Term Momentum
4/4/2012
5/4/2012
6/4/2012
0.00
10.00
20.00
30.00
40.00
50.00
60.00
-30.00
-20.00
-10.00

18. Weekly Trend
Momentum Observations
• Momentum tends to precede price
• Unique metric characteristics: trend stability
yet responsive at market inflection points
• Recent Intermediate Term peak: 3.30.2012
• Recent Intermediate Term bottom?:6.8.2012

19. AAII Sentiment
• Threshold of 2 to 1 bears vs. bulls
• Recent signal on 5.17.2012
• Back tested results (4 week hold)
• 56 profitable trades – average gain of 4.79%
• 17 unprofitable trades – average loss of 3.82%
• Win Loss = 76.7%

20. 500000
1000000
2000000
2500000
3000000
3500000
1500000
1-15-88
1-15-89
1-15-90
1-15-91
1-15-92
1-15-93
1-15-94
1-15-95
1-15-96
1-15-97
1-15-98
1-15-99
Prospero
1-15-00
AAII Sentiment
1-15-01
1-15-02
1-15-03
1-15-04
1-15-05
1-15-06
AAII Sentiment
1-15-07
1-15-08
1-15-09
1-15-10
1-15-11
1-15-12
4 WK
3 WK
2 WK
1 WK

21. Intermarket Anaysis
• John Murphy
• branch of technical analysis that examines
relationships between
stocks, bonds, commodities and currencies
• relationships contain important information
about the business cycle and hold important
implications for asset allocation

22. Relationship of Stocks and Interest Rates
Weekly returns - S&P 500 & 10 Year Yields
• Correlations • In most of history, rising
• 1960s -.050 rates have been
• 1970s -.288 associated with
declining stock prices
• 1980s -.278
• Structural changes in
• 1990s -.268 economy (borrowing
• 2000s .388 and demand for goods)
• 2007-current .452 have caused
relationship to invert

23. Hypothetical results: Long SPY when intermediate term
trend is positive AND 10 Year Yield trend is negative
(1962-2011)
13000000
11000000
9000000
7000000
5000000
3000000
1000000

24. 8000000
9000000
10000000
11000000
12000000
13000000
14000000
9/17/2007
11/17/2007
1/17/2008
3/17/2008
5/17/2008
7/17/2008
9/17/2008
11/17/2008
1/17/2009
3/17/2009
5/17/2009
7/17/2009
9/17/2009
11/17/2009
1/17/2010
3/17/2010
5/17/2010
7/17/2010
9/17/2010
11/17/2010
1/17/2011
3/17/2011
5/17/2011
7/17/2011
9/17/2011
S&P 500 Trend up, yield trend up (green)
11/17/2011
S&P 500 trend up, yield trend negative (blue)
1/17/2012
3/17/2012
5/17/2012

25. Relative Strength line
SPY/IEF
1.45
1.40
1.35
1.30
1.25
1.20
1.15
1.10
1.05
1.00

26. 0.15
0.25
0.35
0.45
0.2
0.3
0.4
1/3/20…
3/3/20…
5/3/20…
7/3/20…
9/3/20…
11/3/2…
1/3/20…
3/3/20…
5/3/20…
7/3/20…
9/3/20…
11/3/2…
1/3/20…
3/3/20…
5/3/20…
7/3/20…
9/3/20…
11/3/2…
1/3/20…
3/3/20…
5/3/20…
7/3/20…
9/3/20…
11/3/2…
Relative Strength &
1/3/20…
3/3/20…
5/3/20…
Asset Allocation (EEM/SPY)
7/3/20…
9/3/20…
11/3/2…
1/3/20…
3/3/20…
5/3/20…

27. Trend Scoring System
• uniform way to objectively assess the merits
of buying, selling or holding a security at any
point in time
• score weights are based on weekly
trend, trend momentum and relative strength
• metric weighting = 1 point if positive
• maximum score =7, minimum score = 0
• max score for SPY = 5, cannot achieve 2
additional from RS vs. itself

28. Scoring components
• Short term trend
• Intermediate term trend
• Long term trend
• Intermediate term momentum
• Long term momentum
• Intermediate term relative strength
• Long term relative strength

29. characteristics of scoring system
• Score = ideally 4 or higher (move from below 4
to above 4 is generally important
• Score direction – improving trend in score
tends to correlate with improving price trend
• Turnaround – a score of 0 that improves to 1
or 2 is indicative of improving trend
momentum (momentum precedes price)
• High score represents positive relative
strength

30. iShares ETFs scores
1.17.2011-1.9.2012
QQ
Date SPY DJP EEM EFA GLD ICF IJH IJJ IJK IJR IJS IJT IVE IVW JJG Q SH UUP
10/17/
2011 1 0 0 0 4 1 1 1 1 1 1 1 1 4 0 6 5 6
10/24/
2011 2 0 0 1 4 0 1 2 1 2 2 2 2 4 0 7 6
10/31/
2011 3 0 2 2 4 3 3 3 3 3 3 3 3 6 0 7 1 5
11/7/2
011 3 0 2 3 5 3 3 3 3 3 3 3 3 7 0 7 0 3
11/14/
2011 4 1 2 3 5 5 3 3 3 3 3 3 3 7 0 7 0 2
11/21/
2011 4 1 2 2 5 5 3 3 3 3 3 3 3 7 0 7 0 4
11/28/
2011 2 1 2 2 4 3 2 2 2 2 2 2 2 5 0 6 1 6
12/5/2
011 3 1 2 2 6 3 3 3 2 3 3 4 3 7 0 6 0 7
12/12/
2011 4 1 2 2 5 3 3 3 3 5 5 7 3 7 0 6 0 7
12/19/
2011 4 0 2 1 4 5 3 3 2 6 5 7 3 7 0 5 0 7
12/26/
2011 5 0 2 0 2 7 3 4 3 7 6 7 4 6 0 3 0 7
1/2/20
12 5 0 2 1 2 7 3 4 3 7 7 7 4 7 1 4 0 7
1/9/20
12 5 1 1 1 2 7 4 4 3 7 7 7 6 6 2 5 0 7

31. iShares scores 1.16-4.2.2012
Date SPY DJP EEM EFA GLD ICF IJH IJJ IJK IJR IJS IJT IVE IVW JJG QQQ SH UUP
1/16/201
2 5 1 3 2 1 7 5 5 4 7 7 7 6 6 1 5 0 5
1/23/201
2 5 1 3 3 1 7 5 6 5 7 7 7 6 6 2 6 0 5
1/30/201
2 5 3 4 3 2 7 5 6 5 7 7 7 6 6 3 6 0 3
2/6/2012 5 3 4 4 4 7 6 6 5 7 7 7 6 5 3 7 0 3
2/13/201
2 5 3 4 4 4 7 6 7 5 7 7 7 7 5 3 7 0 3
2/20/201
2 5 3 5 4 4 7 6 7 5 7 7 7 7 5 3 7 0 2
2/27/201
2 5 3 5 5 5 7 7 7 6 7 7 7 7 5 3 7 0 2
3/5/2012 5 3 5 5 5 6 7 7 6 7 7 7 6 5 3 7 0 2
3/12/201
2 5 3 5 5 5 6 7 7 6 7 7 7 6 5 4 7 0 2
3/19/201
2 5 3 5 5 4 4 7 7 6 7 6 5 7 5 4 7 0 2
3/26/201
2 5 2 5 5 2 4 6 7 5 6 6 5 7 5 4 7 0 2
4/2/2012 5 2 5 5 2 4 5 6 5 6 6 4 7 5 4 7 0 1
SPY DJP EEM EFA GLD ICF IJH IJJ IJK IJR IJS IJT IVE IVW JJG QQQ SH UUP

32. iShares scores 4.2-6.18.2012
Date SPY DJP EEM EFA GLD ICF IJH IJJ IJK IJR IJS IJT IVE IVW JJG QQQ SH UUP
4/2/2012 5 2 5 5 2 4 5 6 5 6 6 4 7 5 4 7 0 1
4/9/2012 5 1 4 4 1 4 4 4 5 5 6 4 6 6 5 7 0 2
4/16/201
2 4 1 3 3 1 4 4 4 4 3 4 4 4 7 5 7 1 3
4/23/201
2 4 0 3 3 1 5 4 3 4 3 3 3 4 6 5 7 1 1
4/30/201
2 4 0 2 3 1 7 4 3 4 3 3 3 4 6 5 6 1 0
5/7/2012 4 0 2 2 1 7 3 3 3 2 2 3 3 6 5 6 2 0
5/14/201
2 2 0 1 2 0 7 2 2 2 2 2 2 2 5 2 4 2 2
5/21/201
2 2 0 0 0 0 6 2 2 2 2 2 2 2 4 4 4 3 5
5/28/201
2 2 0 0 0 0 4 2 2 2 2 1 2 2 4 2 4 3 5
6/4/2012 2 0 0 0 0 4 1 1 1 1 1 1 1 4 0 4 3 6
6/11/201
2 1 0 0 0 0 4 1 1 1 1 1 1 1 4 0 4 3 6
6/18/201
2 2 0 0 0 0 5 1 1 1 1 1 1 1 4 0 4 3 6
Perf.
Signal 8.74%NA -0.47% -2.93% -3.64%14.01% 8.72% 8.77% 7.68% 8.35%10.63% 9.28%10.88% 9.96% -4.38%13.27%NA 0.18%

33. EEM & Trend Score
55.00 7
6
50.00
5
45.00
4
3
40.00
2
35.00
1
30.00 0

34. QQQ and Trend Score
70.00 8
7
65.00
6
60.00
5
55.00 4
3
50.00
2
45.00
1
40.00 0

35. IJH (iShares S&P Mid Cap)
Red =Trend Score 0-3, Green = Trend Score 4-7
110
100
90
80
70
60
50
40
30
20

36. Dividend and Yield ETF Universe
Date SPY DEM DES DLN DON DOO DVY DWX EDIV FDL FVD HYG IYR JNK PFF PHB SCHD SDY VIG
4/23/2
012 4 3 2 5 3 0 3 1 2 3 3 3 6 3 4 3 5 3 4
4/30/2
012 4 2 3 5 3 1 4 0 2 3 3 3 7 3 4 3 4 3 4
5/7/20
12 4 2 2 4 3 0 3 0 0 3 3 3 7 3 3 3 4 3 3
5/14/2
012 2 2 2 4 2 0 3 0 0 3 3 3 7 3 3 3 4 2 2
5/21/2
012 2 1 2 4 2 0 4 0 0 5 2 2 6 2 2 3 2 2 2
5/28/2
012 2 0 2 4 2 0 4 0 0 5 2 2 4 2 3 3 2 2 2
6/4/20
12 2 0 1 4 1 0 4 0 0 5 4 3 4 3 4 3 3 2 1
6/11/2
012 1 0 1 4 1 0 4 0 0 5 4 3 4 3 4 3 3 3 2
6/18/2
012 2 0 1 4 1 0 5 0 0 7 4 3 5 3 5 3 4 4 2
Symbol SPY DEM DES DLN DON DOO DVY DWX EDIV FDL FVD HYG IYR JNK PFF PHB SCHD SDY VIG
YTD
Perf. 7.9% 0.7% 5.9% 6.8% 4.2% -3.8% 4.9% -4.1% -4.8% 6.4% 4.6% 2.2% 10.9% 3.7% 10.5% 2.8% 5.9% 4.4% 4.2%
Perf.
Signal 8.7% 1.2% 7.5% 13.1% 8.8% -3.3% 3.5% -5.3% 0.6% 4.8% 4.3% 5.9% 10.3% 4.0% 1.6% 5.5%NEW NEW 11.2%

37. Nasdaq 100 Top 10
RS RANK vs. S&P 500
3/5/20 3/12/2 3/19/2 3/26/2 4/2/20 4/9/20 4/16/2 4/23/2 4/30/2 5/7/20 5/14/2 5/21/2 5/28/2 6/4/20 6/11/2 6/18/2
12 012 012 012 12 12 012 012 012 12 012 012 012 12 012 012Date
4 5 5 5 5 5 5 5 4 4 2 2 2 1 1 1MNST
92 90 89 84 83 83 85 88 88 87 35 11 3 2 2 2VRTX
7 7 8 9 9 8 9 8 8 6 5 3 4 4 3 3ROST
12 14 16 15 15 13 13 12 11 11 10 10 9 8 7 4DLTR
3 3 2 3 3 3 3 3 5 5 7 7 6 6 6 5ALXN
5 4 4 2 2 2 2 2 2 2 3 4 5 5 5 6AAPL
1 1 1 1 1 1 1 1 1 1 1 1 1 3 4 7STX
97 97 96 96 96 95 95 95 91 82 67 47 28 20 16 8EXPE
11 11 14 16 16 14 12 11 10 9 6 6 7 7 8 9ORLY
9 10 10 12 14 16 14 14 16 13 11 13 12 11 9 10WFM

38. Nasdaq 100
Top Scores
Date 4/2/2012 4/9/2012 4/16/2012 4/23/2012 4/30/2012 5/7/2012 5/14/2012 5/21/2012 5/28/2012 6/4/2012 6/11/2012 6/18/2012Date
AMZN 3 3 3 3 5 6 7 7 7 7 7 7AMZN
BMC 4 4 4 4 6 6 6 6 7 7 7 7BMC
DLTR 7 7 7 7 7 7 7 6 7 5 5 7DLTR
EXPE 3 3 2 1 3 4 6 6 7 7 7 7EXPE
MNST 7 7 7 7 7 7 7 7 7 7 7 7MNST
VRTX 5 5 3 2 1 1 7 7 7 7 7 7VRTX
WCRX 3 2 1 1 4 6 6 7 7 7 7 7WCRX
BBBY 6 7 7 7 7 7 7 7 7 7 6 6BBBY
CERN 7 7 7 6 6 6 6 6 6 6 5 6CERN
COST 6 6 5 4 3 2 2 2 2 4 5 6COST
EBAY 7 7 7 7 7 7 7 7 7 6 6 6EBAY
QGEN 3 3 2 3 5 6 6 6 7 7 7 6QGEN

39. Nasdaq 100
Lowest Scores
Date 4/2/2012 4/9/2012 4/16/2012 4/23/2012 4/30/2012 5/7/2012 5/14/2012 5/21/2012 5/28/2012 6/4/2012 6/11/2012 6/18/2012Date
ORCL 3 4 2 1 2 0 0 0 0 0 0 0ORCL
PCAR 6 6 4 3 2 2 0 0 0 0 0 0PCAR
SHLD 7 6 5 2 1 0 0 0 0 0 0 0SHLD
SIRI 7 7 6 6 5 4 4 3 2 1 0 0SIRI
SNDK 4 2 1 0 0 0 0 0 0 0 0 0SNDK
SPLS 5 5 5 5 4 3 1 0 0 0 0 0SPLS
SYMC 5 5 5 5 3 1 0 0 0 0 0 0SYMC
TEVA 4 4 4 4 4 4 3 0 0 0 0 0TEVA
TXN 4 4 3 2 2 2 2 1 0 0 0 0TXN
VMED 4 5 3 2 2 0 0 0 0 0 0 0VMED
WYNN 4 5 5 5 5 6 3 0 0 0 0 0WYNN
XLNX 6 6 3 3 3 2 2 1 1 0 0 0XLNX

40. Nasdaq 100
Score increase from 3 to 4
• Short Term trend is positive
• Intermediate Term trend is positive
• Intermediate Term momentum at a 4 week
high
• Score = >4, Score < 4 for previous consecutive
7 weeks

41. Nasdaq 100
Score Buy Signal Back Test
Holding Period Avg. Gain Avg. Loss # of wins # of losses WinLoss %
4 WK 12.01% -10.44% 309 238 56.49%
8 WK 18.32% -14.37% 298 248 54.58%
12 WK 24.33% -18.72% 301 247 54.93%

42. Nasdaq 100
Score Buy Signal
(position size = 20, 4 week hold)
2500000
2300000
2100000
1900000
1700000
1500000
1300000
1100000
900000
700000
500000

43. Nasdaq 100 Score Sell Signal
• Short Term trend is negative
• Intermediate Term trend is negative
• Intermediate Term momentum at a 4 week
low
• Score = <4, Score > 4 for previous consecutive
7 weeks

44. Nasdaq 100
Score Sell Signal Backtest
Holding Period Avg. Gain Avg. Loss # of wins # of losses WinLoss %
4 WK 11.29% -14.54% 80 112 41.67%
8 WK 19.49% -22.48% 82 110 42.71%
12 WK 24.58% -28.40% 93 99 48.44%

45. Nasdaq 100
MA Cross Parameters
• Short term trend is positive, previous 4 weeks
negative
• Intermediate term trend is positive
• Intermediate term momentum is at a 1 week
high
• Weekly Closing price is < 5% above short term
moving average

46. Nasdaq 100
MA Cross Back test
Holding Period Avg. Gain Avg. Loss # of wins # of losses WinLoss %
4 WK 11.46% -7.01% 285 208 57.81%
8 WK 18.26% -9.63% 296 197 60.04%
12 WK 23.70% -12.72% 283 209 57.52%

47. Nasdaq 100 MA Cross
Recent Buys
• 12.27.2011 AAPL, LINTA, MSFT, WFM
• 1.17.2012 GOLD, SPLS, TXN
• 1.23.2012 BBBY, EBAY, PCLN
• 2.6.2012 COST
• 2.21.2011 ATVI
• 3.5.2012 GOOG, SNDK
• 4.2.2012 VOD
• 6.11.2011 COST, FISV, SRCL
• 6.18.2011 ADP, INTU, PAYX, SIAL

48. Multiple Models & Metrics
• ETF Relative Strength Rotation
• ETF Trend Scores
• Individual Equity Strategies
• Trend, Momentum, & RS rotation
• Buy/Sell Signals
• Trend Score up/down
• MA Crossover
• High RS Continuation Up
• Trend Reversal

49. Variety of Universes
• ETFs
• Funds
• Nasdaq 100
• IBD 100
• MN Growth 100
• Dividend Aristocrats
• Dividend & Buybacks
• Consumer Staples

50. Biography
• Kevin Hockert, CMT, is the Director of Strategies for Prospero Institute, Inc. an
investment advisory firm founded in 2005. Prospero delivers quantitative
investment solutions to RIAs and portfolio managers ranging from Barron’ Top 100
advisors to HNW wealth management firms. Several proprietary rules based
strategies have been developed that are designed to help financial advisors and
portfolio managers systematically allocate portfolios into and out of various asset
classes. By providing a broad spectrum of solutions ranging from market breadth
models, broad asset allocation, sector rotation, dedicated high yield, fixed income,
alternative asset classes and individual security selection, Prospero’s strategies are
designed to help financial advisors bridge the gap between hiring third party
money managers and tackling the monumental task of managing client assets on
their own.
• Kevin is a 21 year veteran of the financial markets. He was awarded the CMT
designation in 2008 and the culmination of his research at that time included his
CMT 3 paper titled “Intermarket Analysis and Dynamic Asset Allocation”. Kevin also
serves as a Co-Chair of the Minnesota Chapter of the Market Technicians
Association.