Sunday, October 2, 2022

Seven reasons why traders should grit their teeth and buy

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 prices. 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: Sell equities*
  • Trend Model signal: Neutral*
  • 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.

So much for the BoE 
The market took a risk-off to begin last week until the BoE announced a surprise intervention to buy gilts with maturities of 20 years or more “on whatever scale is necessary” in order to stabilize markets. Global markets rallied for all of one day and the S&P 500 weakened for the rest of the week. So much for BoE intervention.

As the S&P 500 violated support on Friday, the midcap S&P 400 and the smallcap Russell 2000 did not confirm by holding their respective support levels. Should you believe the breakdown?

Here are seven reasons why traders should grit their teeths and buy stocks.

The full post can be found here.

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