Sunday, February 7, 2016

Waiting for the market to heal

Model signal summary
Ultimate market timing model: Buy equities
Trend Model signal: Risk-off
Trading model: Bearish (downgrade)

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.

Forming a bottom
Despite the recent recession scare that's been spooking markets, I have been saying for the past few weeks that disciplined macro and fundamental analysis do not support a recession call (see Bottomed, but wait for a re-test of the lows). So equities should rise in the absence of a recession, right? Wrong! From a macro and fundamental perspective, much damage has been done to risk appetite by the recent episode of industrial weakness in the US. In parallel, we have also seen a lot of technical damage in the charts. The market needs time to heal before stock prices can rise again in a sustainable way.

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

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