Sunday, December 13, 2015

The only market indicator that matters in 2016

Trend Model signal summary
Trend Model signal: Neutral
Trading model: Bullish

The Trend Model is an asset allocation model which applies trend following principles based on the inputs of global stock and commodity price. In essence, it seeks to answer the question, "Is the trend in the global economy expansion (bullish) or contraction (bearish)?"

My inner trader uses the trading model component of the Trend Model seeks to answer the question, "Is the trend getting better (bullish) or worse (bearish)?" The history of actual out-of-sample (not backtested) signals of the trading model are shown by the arrows in the chart below.

Update schedule: I generally update Trend Model readings on my blog on weekends and tweet any changes during the week at @humblestudent.

The Dollar and euro's most excellent adventure
I had expected that the markets might become little sloppy as we approached the FOMC meeting (see Waiting for the whites of their (oversold) eyes), but I didn't expect the kind of risk-off tone seen last week. Despite the market weakness, I could tell you that:
  • Fundamentals, such as forward EPS revisions, remain constructive
  • The US economy remains strong with no sign of a recession on the horizon
  • The market is oversold
  • Sentiment is showing a crowded short reading, while insiders are buying
  • Seasonality is bullish for stocks
None of that matters very much, as the signals from the Federal Reserve next week will set the market tone, not just for the rest of the year, but for most of 2016. If I had to focus on one key market indicator coming out of FOMC meeting, it would be the reaction of the US Dollar to the Fed decision.

The full post is at the new website here.

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