A flock of hawks circle Wall Street

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 Asset Allocation Model is an asset allocation model that applies trend-following principles based on the inputs of global stock and commodity prices. This model has a shorter time horizon and tends to turn over about 4-6 times a year. The performance and full details of a model portfolio based on the out-of-sample signals of the Trend Model can be found here.

My inner trader uses a trading model, which is a blend of price momentum (is the Trend Model becoming more bullish, or bearish?) and overbought/oversold extremes (don't buy if the trend is overbought, and vice versa). Subscribers receive real-time alerts of model changes, and a hypothetical trading record of the email alerts is updated weekly here. The hypothetical trading record of the trading model of the real-time alerts that began in March 2016 is shown below.

The latest signals of each model are as follows:

• Ultimate market timing model: Sell equities*
• Trend Model signal: Neutral*
• Trading model: Neutral*

* 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 receive real-time alerts of trading model changes, and a hypothetical trading record of those email alerts is shown here.

Subscribers can access the latest signal in real time here.

Waiting for the FOMC

As investors look ahead to the FOMC meeting next week, rates are rising and the 2s10s yield curve is inverting further. The 10-year to 3-month spread is not inverted yet, but it likely will once the Fed raises rates.

It's difficult to make definitive bull or bear views on equities and bonds as there is much policy uncertainty. Here is what I am watching:

• The Fed has given the obligatory nod to a “soft landing” but what’s the body language about a possible recession?
• The Fed has said higher for longer, but how much longer?
• What are its inflation projections for 2022, 2023, and 2024 in the Summary of Economic Projections (SEP)?
• How far does the dot plot get revised up, and what is the terminal rate?

The full post can be found here.