Global cyclical recovery: Easy come, easy go?

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 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 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 those email alerts are 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: Buy equities*
• Trend Model signal: Bullish*
• Trading model: Bullish*

* 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 the those email alerts is shown here.



Cyclical recovery losing steam?
About a month ago, I had suggested that investors position themselves for a global cyclical rebound (see An upcoming seismic shift in factor returns). Since then, the stock market has rallied to fresh highs, and more and more investors have jumped on the cyclical rebound bandwagon, such as Goldman Sachs (via CNBC):

“The equity market is anticipating an acceleration in US economic growth during the coming months,” David Kostin, Goldman’s chief U.S. equity strategist, said in a note Friday. “Investors who want to capture further cyclical upside can improve risk-reward by narrowing their focus to select cyclical stocks.”

Credit Suisse came out with a similar bullish equity market forecast based on a "reversal of decelerating economics":

Jim Paulsen at the Leuthold Group is also tilting towards more cyclical exposure.

Just as everyone starts climbing on the bandwagon, the yield curve steepened, which is a signal that the bond market expects better growth, but flattened again back to roughly where it started.

It is therefore useful to issue an interim report card on the cyclical recovery thesis, and see how things are going.

The full post can be found here.






Don't forget our Thanksgiving $2 Sale!
We are proud of our Trend Asset Allocation Model, which showed a steady record of improving performance and reducing risk against a passive 60/40 benchmark in a simulation using actual signals.

We are announcing our Thanksgiving Sale $2 sale, where you can get 14 months for the price of a 12 month annual subscription, plus $2 off! Just use the coupon code Thanksgiving2019 when you sign up for an annual subscription (two month adjustment will be made within 24 hours after checkout). This offer expires at midnight, Pacific Time, on US Thanksgiving weekend (December 1, 2019). Subscribe here.

Existing subscribers who would like to extend their subscription for 14 months at the price of 12 at their current subscription price, please drop me a note by email.