Sunday, January 31, 2016

Bottomed, but wait for re-test of lows

Model signal summary
Ultimate market timing model: Buy equities
Trend Model signal: Risk-off
Trading model: Bullish

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.

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 model readings on my blog on weekends and tweet any changes during the week at @humblestudent.

Confirmation of limited tail-risk
Whew! Q4 GDP came in at 0.7%, which was below expectations of 0.8%, but growth was still positive and well above some of the Apocalyptic calls for a negative print. This week, we saw further confirmation that macro tail-risk is limited. The US economy is not headed for a recession and the downside risk from China has also been contained.

The full post is at our new site here.

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