“I’m going to make a $1.95 million bet.
“You see, over the next few minutes, I’m going to show you a simple pattern I believe will allow you to achieve two incredible feats…
“You could capture a series of 164.68% windfalls, and…
“You will, with 100% certainty, only buy stocks that are going up.
“At its core, all you have to do is just grab regular, ‘boring’ shares of stock when you see this X…
“And sell them when you see it again.”
That’s the lead-in to the pitch for Money Morning’s “X-Pattern” trading idea — Keith Fitz-Gerald says he has found a “simple pattern” that will let you capture a series of windfalls and “with 100% certainty” only buy stocks that are going up. Pretty strong words. And he’s using them to sell a trading service that he calls High Velocity Profits.
And I’m not going to explain the X-pattern in detail for you here — I’m not a chart-trading expert, it looks like he’s using (at least in part) something called the Aroon indicator, which is a trend indicator that you can see described here or here,it basically measures the days since a high (or low) price was hit and gives buy (or sell) indicators when the “days since a high” indicator crosses over (or under) the “days since a low” indicator.
If you see “AROON 25” it means they’re using 25 days as the timeframe — so a stock would be at 100 on that indicator if it just hit a 25-day high (or low) price, or at 0 if it has been below the 25-day high (or above the low) for 25 days. For a lot of stocks, these lines will cross frequently — for some that are consistently rising or falling, they might not cross in a year or more.
Trend-following has certainly led to lots of huge gains over the years, particularly for those who can buy on the way up and sell after it starts to go down and do so consistently over time, and there are hundreds of indicators and strategies that trend-following chartists use, and variations on all of them (what time period you use, what but it’s far from being my strength or area of interest. I don’t know whether the AROON indicator (or oscillator, which visualizes the data differently) will work better than any other charting indicators at measuring the strength or direction of a trend.
So why do I mention it today? Because today I saw an ad from Keith Fitz-Gerald that said he just had a new indicator triggered last week, a new “X-pattern” on a stock that you should buy. So that I can sniff out for you, and we therefore get an actual stock to talk about and, for those who want to test this “X-pattern”, an example to consider.
Here’s how he put it in the email:
“Below is a stock chart for a company based out of Rochester, NY.
“As you can see, over the past few weeks it has fluctuated wildly.
“However, I believe I know exactly where this stock is going next – and that you can make a whole lot of money from it.
“In fact, I’m so confident that I’m putting $1.95 million on the line.
“You may think I’m crazy for doing this.
“But I’m not. You see, my team has spent the last six months investigating a single pattern that has been appearing alongside two to three stocks a month… every month… going all the way back to the bursting of the dot-com bubble, through the recession, all the way up to today.
“And it was spotted with the company in this chart.
“This same pattern has been detected with some of the market’s most exceptional windfalls, like 7,476% on Monster Beverage, 2,941% on Terra Nitrogen, 2,566% on Kingold Jewelry, and 1,478% on Radcom.”
I didn’t copy the chart, but I did check it to confirm — the stock he’s talking about here is Paychex (PAYX). The stock chart is an exact match, and it is a Rochester company. The AROON indicator for PAYX may have crossed on the bullish side over the last couple days, but if so that would mean you’re using a very short-term version of the indicator (like 15 days or so) — and if that’s what you’re using, then the up/down “X” of the crossing indicator would have happened a dozen times or so in the last six months. If you’re using a longer-term AROON indicator, like 25 days (which most of the chart systems default to) or longer, then PAYX has been in a positive trend on AROON for a month or more after doing a bit of back-and-forth crossover in January and early February.
So what does that mean? I have no idea. PAYX is at a 10-year high — so it doesn’t take a wizard to note that the trend is positive, but it might take an expert technical trader to get you in and out of bumps up and down over the next couple years. PAYX is, like its larger rival ADP, quite expensive and priced at a stiff premium to its growth rate. This is an HR outsourcing company, in case the name is new to you — they handle benefits outsourcing, HR, and payroll processing, particularly for small to midsize businesses who might not have big HR/Personnel departments. What will drive PAYX is the same thing that will drive ADP, broadly speaking: Employment and job creation, labor-law complexity, and short-term interest rates.
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To simplify: If employment rises, they’ll collect more fee income for running payroll for their customers… if it becomes more complicated to deal with payroll laws and regulations (as with health insurance handling and tax law), they’ll get more new customers who want to outsource some of that headache… and if short-term interest rates rise, they’ll earn much more money on the brief window of “float” that they get to hold during the paycheck-generating process. (Like ADP, they collect money from the employer a day or two before it’s actually sent to the account of the employee or printed on a check, and earn some return on that money — or at least they did, when there was any money to be earned on very-short-term interest rates… even with low rates, though, that fund is more valuable than it might seem, because, like Warren Buffett’s famed insurance float, it refills itself every day with new employer money even as it disburses itself to the employees so you can, if you wish, consider it more of a steady asset to earn on than a liability to pay out. Like a dammed pond — it lets water out through the sluice every day and new water comes in every day, but the pond’s depth usually is pretty reliably within an expected range).
So with employment trends certainly improving (more people working), and with short-term interest rates widely expected to rise, there’s quite a bit of optimism baked into PAYX. Maybe that’s as it should be, I can’t claim to have have researched the company thoroughly — the twice-as-big ADP is similarly valued at about 30 times earnings (and is at all-time highs), but PAYX is generally more profitable (it’s a less complex company, they don’t offer as many different services even though both are huge in payroll processing)… and both are expected to grow earnings at a 8-10% annual clip, which is phenomenal for a $20-40 billion company but not that exciting for a company valued at 30 times earnings. They’re also both being bought as “dividend growth” stocks — PAYX has the somewhat higher yield (3% versus 2.25%) and the less-perfect record of dividend growth (PAYX has paused their growth a few times and is a younger company, ADP has raised the dividend every year for 40 years now).
And yes, Paychex (PAYX) and ADP (ADP) have been generally stronger bets for far longer than the “upstart” HR outsourcing/payroll companies that have come public more recently, particularly those who use the word “cloud” in every other paragraph like Paycom (PAYC) and Workday (WDAY). I don’t know if that will continue or not, but so far investors have generally been better-rewarded by the established firms that are actually profitable.
We’ll open the week with that — what do you think? Is PAYX a buy either because it’s in a strong and positive trend or because you like the business? Have any interest in or expertise with the AROON indicator or other charting tools Fitz-Gerald might be using to identify his “X-Pattern” stocks? Let us know with a comment below…
(Our readers had some discussion of this “X-Pattern” a few weeks ago when it was first touted by Money Map, so I’ve appended that discussion they had to the end of this article to get you started. Enjoy!)
think Bre-X
?? !!
I think they backtested until they got an optimal Aroon that produced many winning trades. They also may have cherry picked which Aroon Xs produced the best results stock wise. Aroons do not always produce consistent winning trades or they produce so many X’s that the trading costs would eat up your capital like Pacman.
I am with david. Long dr. Kss.
Pay chex is an outstanding firm. Did quite well over the years. Good management and direction.
3/22: $PAYX seems very extended at the moment. Best to wait for pullback to support before jumping in.
I’m not positive but I wouldn’t be surprised that that AROON Indicator emulates the nebutation of the castarooning. Should I elect to partronize my scimption no doubt it WILL result in a fraxity. I’m out.
Closing with a Spoonerism I can only say . . .
West Bishes everyone.
Ken
Thanks for a good laugh!!
Travis, your write up is ‘spot on’ Your thinkolator is working at warp speed. I am always a bit tepid when it comes to ‘guarantees’, I think of a quote from Mark Twain, “Only buy stocks that go up, if they don’t go up, don’t buy them”
Thanks Slim! I’ve mostly heard that attributed to Will Rogers, the wording I’ve seen most is: “Don’t gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don’t go up, don’t buy it.”
In the words of my rich uncle–“buy low–sell high!”
You can use the penny oscillator. Just flip it in the air, watch it turn (well, like an oscillator anyway), and if it comes down heads, buy, otherwise sell.
Well, for some stocks, sometimes. But as accurate as any setting on an Aroon oscillator. But the name sounds good, doesn’t it? More interesting than a moving average anyway.
Just baloney, but there’s one born every minute they say.
Caveat Emptor.
Read the hyperbole surrounding this “service” carefully. This is a new service based on back-testing with the aroon indicator through 15 years of winning trades. Ok, first lets talk about the massive confirmation bias right out of the gate. They didn’t look at random stocks. In their own words, they just looked at 15 years of winning trades to find the “x”. Forget for the moment that in hind sight it’s really easy to pick the correct number of days etc. to get the “x” to show up where you want it to show up. Here’s the crux of the matter: they never looked at just random stock trades to see if the “x” formed with losing trades as well…and it does! Consequently, they never saw a loosing trade in a 15 year back-test. How wonderful! Never a losing trade!
Well, they launched their service. I got suckered in with the hype and joined.
Within the first month they had 2 out of 5 trade recommendations tank. A third trade treading water around break-even and two trades in profit. After going back with a more critical eye and analyzing the marketing hyperbole, I exercised my guarantee and got my money back. By the way, the guarantee is only 30 days. If Mr. Fitz-Gerald really had confidence in this system, the guarantee would have been substantially stronger than that. 30 days is not nearly enough time to properly analyze a service where the trades may last months.
A selling point they love to tout is the so called 1.95 million dollar guarantee. Mr. Fitz-Gerald is putting $1.95 million on the line…twice! Eh, not so fast. He’s risking nothing…as in zero, zip, nada. The $1.95million he’s talking about doesn’t really exist. It pertains to money he wouldn’t get through second year subscription fees if the first year doesn’t live up to performance guarantee. If he doesn’t deliver the goods, he won’t give you your money back. He’ll just give you all an extra year of the service for “free.” At $1950/subscriber times 1000…he says it will “cost” him $1.95million. How much money does it take to keep a name on an e-mail distribution list? His subscribers won’t see a penny of that phantom money and who would want a free year of a poor service? In the mean time he’ll just go advertise for new (paying) subscribers. Marketing gimmickry. Smoke and mirrors.
With this service, you’ll be trading in the dark where his aroon indicator is concerned. For 2 grand, I expected daily updates with charts at a minimum so I could track his aroon indicator and at least see if there was a correlation between it and the indicators I use. Nope. No daily status report, nothing, until a new trade “alert”. He did put out a couple of trade reviews and some videos explaining the aroon indicator along with some very basic trading information, none of which was helpful in managing any specific trade on a daily basis. He would show a chart on initial recommendation but never in any detail that I could use.
One final thought…going to the shadier side of things. In the month I participated in this service, not a single trade alert gave an entry price recommendation. Not one. Even his option recommendations contained no entry price. In fact, he recommended buying options at market. That gave me pause. In my experience, buying options at market has never been a good idea. The fact he never pins himself down with a price is a major red flag for me. I’m not making any accusation here but when no price recommendations are made, the door is left WIDE open for anyone to manipulate the profit and loss claims. I asked about that and never got an answer. I didn’t like where all of this seemed to be going to I exercised my guarantee before the 30 days was up and got out. To their credit, they did honor the guarantee with no problem and I was issued a prompt refund.
As I said…”Caveat Emptor”
That is what SGS is all about. If there was a magical system, would you sell it? I wouldn’t.
I’m so glad I did not take the bait, I was considering doing so. The thing that held me back was his phony guarantee. Who wants a free year of a serviced that did not preform as advertised? And no guarantee of any % gain. So if a stock went up 2 cents, it’s a WINNER!
My investment newsletter experience has shown that the more expensive the service, the more likely I will be disappointed with it after loosing larger amounts of my $.
Thank you for your post, John. Well written.
Mark Twain!
Paychex was one of my best picks. I bought it in 98 and sold it in 2004. I guess I should have held on to it but I can’t complain on my return back then.
This talk of Aroon
Is making me swoon.
What gets the gold
Is buy and hold.
Oh, yeh…and if the stock goes down, don’t buy.
I subscribe to Keith Fitz-Gerald normal $39 newsletter and he is a decent stock picker. I am up on all the picks have entered so far… While I think the guy is decent, I would never buy into graphs and number concept et all… To me, it takes away from the fundamentals and doing your DD
Personally, Travis and his team with Dr KSS and Myron have the best investment site by far.
#27 Paul Bormann above is right: “The more expensive the service, the more likely you will be disappointed.
I bought PAYX in 2009 because I had been waiting for a sale on the shares of this usually fully priced, well regarded growth company. It had a long reputation for positive revenue/earnings surprises, treating employees and clients well, and a commitment to increasing the dividend.
Besides the financial crisis which made rev growth slump and interest income disappear, the company’s second CEO retired and for the first time there was worry about if the company could ever come back to it jolly growth days. (I’m from Rochester and have since moved, but receive irregular scuttlebutt about how morale is at the company. I do not know any insiders. The morale was concerned then and good now–has been for some time.) It’s probably hitting new highs now because recent buyers anticipate a growing economy and, if interest rates go up, that that source of income will return and juice the net yet further. But the truth is the company several years ago had already adjusted itself to expect near zero interest income, was growing revenues and clients numbers again, and had never stopped innovating and trying to do more for their clients.
Do this if you’re wondering whether to put PAYX on your watch list: read the earnings transcripts from ’09 until recently. They’re a model for how good managment can speak plainly about all that’s going poorly; what can be done anyway; how they will prepare for an uncertain duration of a time of great macroeconomic uncertainty — all very pragmatic and reassuring within the scope of their ability to work.
My original 5% dividend is now 6.3%, the stock has doubled (so the dividend if you buy today is ~3%) and I’m holding indefinitely. But I hope it drops in half in the next panic where I’ll be glad to buy more.
I bought and then after about 20 days asked for and received my money back. The stocks touted at that time were the CTCT and CMTL. I bought my standard 2% of portfolio of both and only lost a bit on one and made an insignificant gain on the other. I have not followed them afterward and so I might have gotten out too early, but there seemed to be no supporting info coming along so I just couldn’t stand it. I will look at PAYX, do some DD, and may buy.
Thanks for all of the info here, folks. I heard the tease and was filled with optimism until reading the posts here. I subscribed today and already sent in the cancel request. As the saying goes, “if it sounds too good to be true…”
I tried one of Fitzgerald’s earlier offerings. He claimed he had a way of measuring movement in stocks by analyzing the micro trades of stocks, promising a minimum number of trades per week off it. It had several months for the trial, and I bailed. During the few months he never gave a single related to his pitch. He finally sent out one totally ridiculous three month out credit spread for under a dollar, with a page of analysis on how good a percentage gain (annualized, I think) the trade was. That was it. He seems to have these ideas that are totally untested in real trades, but make for excellent sales copy. For me he was a complete disappointment.
I went to the following site to check the F score for PAYX:
http://www.grahaminvestor.com/quotes/?ticker=payx
The site reveals the F score to be 7 – I viewed the entire video about the High Velocity Profits trading system and it was stated that the minimum F score would be 8. Is he violating his own system?
I too bit on this service because it specified a longer term approach with both fundamentals and, of course the technical charting, not unlike my own research process. I suffered the drop in oil and gas and was looking for assistance. I love stock gumshoe but am lost with the vast number of recommendations. HERE’S THE OUTCOME—-on the 40th day of the service I received a sell recommendation timed at 3:56 PM for CtCT and CMTL which I read a few minutes later and of course after the close. Next day CMTL OPENS DOWN nearly 4 points and I suffer the worst short term loss in a long time. I’m a big boy but I was very irritated when they showed a profit on the trade using the 3:56 sell. I asked for a prorated return due to the short term sale and was told it was past the 30 day period. They said they would adhere to a policy of at least a one hour before close in the future.
I also bought the service and bought small amounts of CTCT and CMTL. Both have been disasters so far, but I did request a refund of the $1,950 fee within 30 days, and (to my surprise) it was honored promptly.
Yes, I can verify this info–was quite disappointed with the 3:56 alert!
No matter what a high priced service says, here is a test:
If they believe their BS, why let us in? Would they not be richer by using their technique in the options markets to gain riches? It does not matter if they limit subscriptions, The only reason to let others into the deal is to create liquidity or to enable their “Pump and Dump”.
Many of these services promise that they will not trade in these issues. What, it is not good enough for them to eat their own cooking?
It is easy to talk about their “winners” as even with a dart board you will hit winners as well as losers. Again, why let us in on the trade?
Now there are services which offer research without too many false claims. Weiss Ratings sold itself to The Street.com and latter realized that it needed to recreate it in-house to serve as a feeder. Credibility is what they sell and Weiss Ratings gives them that to sell other services.
The Motley Fool offers a lot of free posts to make you think they have your back. But as usual they keep you in a stock long after it should be sold.
There is a lot of data available, but the further one goes back, the more difficult it is to normalize as the cost of a trade and the gap between bid and ask has decreased dramatically. 1987 was nothing like 1999. Yet many base their “models” only back to the 1990’s. These models are suspect in they are based on limited data. It takes real money to dig way back and few do it. One can find patterns and claim that these prove a winning strategy. One must also account for the effect of sector ETFs. One service I shall not name picked two energy stocks that of course went down as the influence of the sector was greater than their individual thesis. I lost $1,000 on that and cancelled all their services and unsubscribed to their numerous emails.
The basic premise of all of these services just does not pass the smell test.
Travis passes`the smell test.
Use 100 calendar days not trading days as the base period for the cross-over chart.
The F score is generally easy to follow but some of the items do not have to be set out in a company’s accounts as always standing-alone and comparable. You may find “Working Capital” and “Operating Cash Flow” difficult to isolate particularly in companies such as banks and insurance which receive client money. “Return on Assets” is not generally spelt out but “Earnings Per Share “will do as a proxy.
Thanks for that article. As I have come to know his ideas he is a great analyst, and this is his Premium letter I think goes for about 1 or 2 thousand$. Keep them coming Travis. Thank You.