The start of a new Trump bull?

Preface: 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 the 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 to look for changes in direction of the main Trend Model signal. A bullish Trend Model signal that gets less bullish is a trading "sell" signal. Conversely, a bearish Trend Model signal that gets less bearish is a trading "buy" signal. 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 the trading model has shown turnover rates of about 200% per month.

The latest signals of each model are as follows:

• Ultimate market timing model: Buy equities*
• Trend Model signal: Risk-on*
• Trading model: Bearish (downgrade)*

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 mid-week observations at @humblestudent. Subscribers will also receive email notices of any changes in my trading portfolio.


Market is following my road map
Last week, perennially bullish strategist Tom Lee appeared on CNBC and stated that the Trump win could produce a major bull market. While it is true that stock prices have rallied significantly since the election, the fundamental underpinnings of the advance were not mainly attributable to Trump's win, notwithstanding the change in psychology.

Many of the reasons for the stock market gains were already baked in before the election. Consider, for example, the better growth outlook. The chart below shows the evolution of the NY Fed's nowcast of Q4 GDP growth, which shows an upward acceleration in Q4 growth. Those factors were already in place well before the election, regardless of who won the White House.

In fact, the bull market seems to be following the script that I set out for it (see The roadmap to a 2017 market top):

1. Rising growth expectations, which leads to...
2. Higher inflation expectations, which leads to.
3. Tighter monetary policy, which leads to...
4. Three steps and a stumble.

We are somewhere between Act 2 and Act 3 of that script.

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



Announcing our Black Friday/Anniversary promotion!
We are making a limited number of discounted annual subscriptions available at a price of US$199.99, which is US$50 off the regular price of US$249.99, for the first year. This offer is open to the first 100 subscribers, or until December 15, 2016, whichever comes first. Click on this link to subscribe and use the code anniversary2016 at checkout to get the discount.

Hurry before they're all gone!