Sunday, February 5, 2023

Has the market reached escape velocity?

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: Buy equities*
  • Trend Model signal: Bullish*
  • 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. I am also on Twitter at @humblestudent and on Mastodon at 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 market gods smile on the bulls
Last week was a very data-heavy week, filled with macro events and earnings reports from several megacap growth stocks. I was expecting volatility as anything could have happened. Instead, the market gods smiled on the bulls as most of the events resolved in bullish fashions. Inflation (Employment Cost Index) was tame. Employment (JOLTS, ADP, and NFP) were either weak or exhibited weak internals. The Fed raised rates by an expected quarter-point. Powell tried, but failed to put on a hawkish face. The positive market reaction to META overwhelmed to negative reactions to AAPL, AMZN, and GOOGL earnings results.

As a consequence, all of the market averages staged convincing upside breakouts through resistance.

Is this a sign of a market liftoff that signals a new bull?

The full post can be found here.

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