Wednesday, January 16, 2019

There is no magic black box to profits

Mid-week market update: Since my publication detailing the Zweig Breadth Thrust buy signal (see A rare "what's my credit card limit" buy signal), I have been inundated with questions about the possible twists and turns of the market after such a signal. I discussed this issue extensively in 2015 (see The Zweig Breadth Thrust as a case study in quantitative analysis), my conclusion was:
What can we conclude from examining the data? Perturbing the data can yield different ZBT signals, Even discounting the different versions of the ZBT buy signals, I think that everyone can conclude that we saw a bona fide ZBT buy signal last week.

The question then becomes one of what subsequent returns were and how much can we rely on ZBT to take action in our portfolios. My conclusion, which agrees with Rob Hanna, is that the stock market tends to rise after ZBT buy signals. At worse, stocks didn't go up, so a long position really doesn't hurt you very much. The poor ZBT returns from the 1930's represent a market environment from a long-ago era that may not be applicable today and therefore those results should be discounted.
Investors and traders should not treat these models and indicators so literally. History doesn't repeat, it rhymes.

This is another reason why I am not a big fan of analogs. I recently referred to the 1962 Kennedy Slide as a possible template for the stock market, though I was thinking in terms of the bottoming pattern. From a different perspective, Global Macro Monitor highlighted a 1962-2019 analog for the stock market, which was picked up by Zero Hedge (bless their bearish hearts).

Does this look scary? Does this mean that the stock market is about to fall off a cliff, or is this just click bait?

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

A Special Announcement
We told you so. We told you the market was going down.

Here is the track of Humble Student of the Markets, where we are neither perma-bulls nor perma-bears. Most recently, we have been correctly bullish since the correction of 2015, and turned cautious in August 2018 (see Market top ahead? My inner investor turns cautious, August 5, 2018).

We were also timely at the 2009 bottom. We issued a call to buy beaten up low-priced stocks with high insider buying a week before the ultimate bottom (see Phoenix rising? February 24, 2009).

The out-of-sample record of our model trading portfolio in 2018 was up 42.9%. For more details, see our weekly updates here.

The recent market volatility has brought a flood of new subscribers, and we are announcing a price increase, and a number of other changes in order to better control the growth of our community. However, all subscribers will be grandfathered at their old prices.

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