Visitors Now:
Total Visits:
Total Stories:
Profile image
By Humble Student of the Markets (Reporter)
Contributor profile | More stories
Story Views

Now:
Last Hour:
Last 24 Hours:
Total:

Don’t be fooled, Election 2016 isn’t the Brexit referendum

Sunday, November 6, 2016 12:44
% of readers think this story is Fact. Add your two cents.

(Before It's News)

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 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 the trading component of the Trend Model to look for changes in direction of the main Trend Model signal. A bullish Trend Model signal that gets less bullish is a trading “sell” signal. Conversely, a bearish Trend Model signal that gets less bearish is a trading “buy” signal. The history of actual out-of-sample (not backtested) signals of the trading model are shown by the arrows in the chart below. Past trading of the trading model has shown turnover rates of about 200% per month.

B4INREMOTE-aHR0cHM6Ly8xLmJwLmJsb2dzcG90LmNvbS8tekxKZm5SWlAwTncvV0I2UDBlUjczbUkvQUFBQUFBQUFUbFUvdE1LQUlOWnFjSm9jdnhaZmhuUWEwZlMtZG1wanQ1MVBBQ0xjQi9zNDAwL1RyZW5kJTJCTW9kZWwlMkJIaXN0b3J5LXByZXYuSlBH

The latest signals of each model are as follows:

  • Ultimate market timing model: Buy equities*
  • Trend Model signal: Risk-on*
  • 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 any changes during the week at @humblestudent. Subscribers will also receive email notices of any changes in my trading portfolio.

It’s all about the election
I have some terrible news to report. As a result of the change from Daylight Savings to Standard Time this weekend, the entire world will have to endure the US election for an extra hour.

All kidding aside, I could see the market anxiety rising all of last week. It wasn’t just the market action, which had taken on an increasingly risk-off tone as the week went on. It wasn’t the rising bearishness on social media. The biggest indicator of concerns over electoral uncertainty occurred when I saw that the traffic on my last post (see Trading the Trump Tantrum) was roughly triple the usual rate.

Despite some half-hearted rally attempts, the SPX ended the week testing its 200 day moving average (dma), and oversold on a number of key metrics. Traders are treating next week’s US election as the same kind of market moving event as the Brexit referendum. There is one key difference. The market was relatively sanguine going into the UK vote and expected a favorable outcome. By contrast, the market is positioning for a bearish outcome, even though the polls show that the bullish scenario, namely a Clinton win, as the more likelyt scenario.

B4INREMOTE-aHR0cHM6Ly8zLmJwLmJsb2dzcG90LmNvbS8tWWxRRjlaTmV4NlEvV0IwbXdBRGtTOUkvQUFBQUFBQUFUaEEvNjVWU1V0cHlPZWdJbnFpbEx0UlZrNVFzdU5pMG1IVFNRQ0xjQi9zNDAwL1NQWC5KUEc=

Market analysis in the face of event risk involves answering the following questions:

  • How would the market likely behave in the absence of tail-risk?
  • How are market participants positioned ahead of the event?
  • What are the likely bullish and bearish scenarios after the event?

The full post can be found at our new site here.

Report abuse

Comments

Your Comments
Question   Razz  Sad   Evil  Exclaim  Smile  Redface  Biggrin  Surprised  Eek   Confused   Cool  LOL   Mad   Twisted  Rolleyes   Wink  Idea  Arrow  Neutral  Cry   Mr. Green

Top Stories
Recent Stories

Register

Newsletter

Email this story
Email this story

If you really want to ban this commenter, please write down the reason:

If you really want to disable all recommended stories, click on OK button. After that, you will be redirect to your options page.