Equities in a macro sweet spot

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: Risk-on*
• 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 earnings recession is over!
Back in the depths of the February market lows, Morgan Stanley strategist Adam Parker had become so despondent that he wrote that the "only bull case for equities was the was no bull case" (via Zero Hedge). I responded with a post (see Dear Morgan Stanley, here is the bull case) indicating that the bull case was a growth surprise:

If Parker had read my commentary last weekend, he would have understood the bull case (see Profit by thinking like Big Money). To put it very simply, the bull case for stocks can be summarized in two words: “Growth surprise”.

Subsequent to that post, the market seems to be starting to wake up to the growth surprise possibility. Today, most of the hand wringing about an imminent recession is gone as stock markets around the world have surged from their February lows. Nevertheless, I am still seeing widespread signs of investor skepticism, which represents potential buying power that can propel stock prices to new highs as growth recovers.

The full post is available at our new site here.