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: Bearish*
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.
An exception to the rule?
The S&P 500 rallied to a fresh all-time high last week. While it is said that there is nothing more bullish than a market making new highs, this may be an exception to that rule, especially when there were more declines than advances on the day of a new high.
The S&P 500 kissed the top of a rising channel while exhibiting a negative 5-day RSI divergence. In addition, the VIX Index, which tends to be inversely correlated to stock prices, is testing a key support level at 20-21. More worrisome is the behavior of financial stocks. Large-cap banks reported last week and most beat expectations, but the entire sector is lagging the market.
The full post can be found here.