Sunday, April 4, 2021

A change in leadership?

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 that 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 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 those email alerts is shown here.

Subscribers can access the latest signal in real-time here.

The revenge of the tech nerds?
A reader pointed out an unusual market anomaly last week. Market leadership had shifted significantly some time during Q2 or Q3 2020. The old Big Three leaders of US over non-US stocks, growth over value, and large-caps over small-caps had made unmistakable trend reversals. Recently, even as the S&P 500, the Dow, and the Transports made fresh all-time highs, leadership was shifting back. US equities are dominant against non-US again; NASDAQ stocks are enjoying a minor revival; and small-caps are faltering against their large-cap counterparts.

Is this the start of a reversal, or just a blip?

The full post can be found here.

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