Sunday, March 13, 2016

All aboard the reflation train, but beware of derailments

Explaining our market timing models
We maintain several market timing models, each with differing time horizons. The "Ultimate Market Timing Model" is a long-term market timing model based on research outlined in our post Building the ultimate market timing model. This model tends to generate only a handful of signals each decade.

The Trend Model is an asset allocation model which applies trend following principles based on the inputs of global stock and commodity price. This model has a shorter time horizon and tends to turn over about 4-6 times a year. 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 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. Past trading of this model has shown turnover rates of about 200% per month.

The signals of each model are as follows:
  • Ultimate market timing model: Buy equities*
  • Trend Model signal: Neutral*
  • Trading model: Bullish*
* The performance chart and model readings have been delayed by a week out of respect to our paying subscribers.

Update schedule: I generally update model readings on my site on weekends and tweet any changes during the week at @humblestudent. Subscribers will also receive email notices of any changes in my trading portfolio.

The late cycle/inflation bandwagon
Just as I started to write about the late cycle and reflation trade theme last week (see RIP Correction. Reflationary resurrection next?), it seemed that the whole world was rushing to jump on this bandwagon.These conditions suggest that my thesis of late cycle sector leadership of capital goods and resource extraction industries should have some legs as the Street's stampede is just starting. Before rushing to hop a ride on the Reflation Express, though, I would caution that a couple of risks lie ahead. In the short run, the advance appears extended and vulnerable to a pullback. As well, the FOMC meeting next week could be a source of significant market volatility.

The full post can be found at our new site here.

Site Notice
I am happy to announce that the new site is now re-open for new subscribers. We closed our site to new subscribers in January in order to better control the rapid growth of our community. After listening to feedback and making a few tweaks to the site and the content, such as the addition of a mid-week technical update, the site is now re-open for business.

You can subscribe for 1 year (US $249.99), 1 month (US$24.99)  or 1 day (US$4.99);. Even if you are not ready to subscribe, you can always sign up for email notification of free posts as they are free and available to the public two weeks after publication.

As a reminder, here is a sample of some of past posts:

I am reminded of a variation on an old adage:
If you give a man a fish, he'll eat for a day.
If you teach a man how to fish...he'll want to get a boat.
We would love to have you join our community. We stand ready to help you build your own boat. Come over to the new site and take a look.

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