Sunday, March 22, 2020

This is insane! Where's the bear market rally?

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: Sell equities*
  • Trend Model signal: Bearish*
  • Trading model: Neutral*
* 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.

Where's the rally?
For several weeks, I have been saying that a bear market rally could happen at any time, but the market keeps weakening. One of the challenges for the bulls is to put together two positive days, which they have failed to do. Another is to stage an upside breakout through the declining trend line.

The market closed Friday in the red. One constructive sign that can be found in the above hourly chart is the index closed while testing a support level. Should it stage an upside rally from here, the logical first resistance level is the first Fibonacci retracement at about 2700, with additional resistance at the 50% retracement objective of about 2840.

This is insane! Where's the bear market rally?

The full post can be found here.

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