Sunday, December 15, 2019

Adventures in banking

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. As well, please join and "like" our Facebook page here.

Would you buy this chart?
Now that we have greater clarity on the Sino-American trade relationship, as well as Brexit tail-risk, can we get back to simple task of investing?

Consider the following question. Would you buy this chart, or factor? It was in an uptrend from 2011 to 2018. It consolidated sideways for about two years, and recently staged an upside breakout to fresh highs.

It is the ratio of the KBW Bank Index to the CRB, or what I call my Fed Report Card. It measures the Fed's ability to maintain growth and financial stability while keeping asset inflation (CRB) under control. Despite Powell's dovish tilt after the latest FOMC meeting, the Fed is performing well on that metric.

The full post can be found here.

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