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: Neutral*
- Trading model: Bullish*
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.
Subscribers can access the latest signal in real-time here.
Easy to be bearish
The sentiment backdrop is making it easy to be cautious about the stock market. Bloomberg reported that the bears are going extinct as the market rallied.
Skeptics are a dying breed in American equities. It’s another illustration of how risky it has become to doubt the resilience of the market’s $13 trillion surge since late March.
Going by the short positions of hedge funds, resistance to rising prices is the lowest in 16 years. Bears pulled out as buying surged among professional investors who were forced back into stocks despite a recession, stagnating profits and the prospect of a messy presidential election.
If that's not enough, TMZ published an article with the headline "Day Trading on the Stock Market Is Easier Than You Think".
Yet the stock market grinds higher. Even as bearish warnings of excessive bullish sentiment and deteriorating breadth, the bulls are holding steadfast, like the outnumbered Greeks at the Battle of Thermopylae.
The full post can be found here.