Sunday, September 5, 2021

A consolation prize for the bulls

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. The performance and full details of a model portfolio based on the out-of-sample signals of the Trend Model can be found here.

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 is 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.

Cautiously bullish
Last week, I alerted readers to a possible rare Zweig Breadth Thrust buy signal (see The Zweig Breadth Thrust Watch). Unfortunately for the bulls, the ZBT failed to materialize, but the S&P 500 remains on an upper Bollinger Band ride while flashing a series of "good overbought" readings on the 5-day RSI. Historically, such advances have not stalled until the 14-day RSI becomes overbought.

You can tell a lot about the tone of the market by the way it reacts to news. The bears had a golden opportunity to seize control of the tape when presented with a huge Non-Farm Payroll miss on Friday. Instead, the S&P 500 closed roughly flat on the day.

The full post can be found here.

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