Profile image
By Humble Student of the Markets (Reporter)
Contributor profile | More stories
Story Views

Now:
Last Hour:
Last 24 Hours:
Total:

Watch what they do, not just what they say

Sunday, February 19, 2017 13:09
% 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 the 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-aHR0cHM6Ly8zLmJwLmJsb2dzcG90LmNvbS8tNmVYR3VSbW1aQncvV0tpcGEyQjktZ0kvQUFBQUFBQUFWT1kvdldlTHc3S3JCejh6VzZrWHlpamJvZ01EUTRNb2Z2dVFRQ0xjQi9zNDAwL1RyZW5kJTJCTW9kZWwlMkJIaXN0b3J5LXByZXYuSlBH

The latest signals of each model are as follows:

  • Ultimate market timing model: Buy equities*
  • Trend Model signal: Risk-on*
  • Trading model: Bearish*

* 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 will also receive email notices of any changes in my trading portfolio.

Great expectations
Bloomberg recently highlighted the huge gap between expectations and reality. As the chart below shows, soft (expectations) data has been surging, but hard (actual) data has risen, but it has not caught up with expectations.

B4INREMOTE-aHR0cHM6Ly80LmJwLmJsb2dzcG90LmNvbS8taG1KSWI1MVNxWVEvV0tkZ2RnQVAwSUkvQUFBQUFBQUFWSDQvZEE4WjBISThva0F0bjVEY0dSN1ZiLWpuNndBOC11VWtRQ0xjQi9zNDAwL1NvZnQlMkJ2cyUyQmhhcmQlMkJkYXRhLnBuZw==

The markets are pricing for perfection, which sets up a situation where minor disappointments could spark a market sell-off. BCA Research found that such divergences between “soft” expectations data and “hard” economic data has seen equity corrections in the past.

B4INREMOTE-aHR0cHM6Ly8zLmJwLmJsb2dzcG90LmNvbS8tVFhjaEVoR1FTRWsvV0tpZEIxZGxkUEkvQUFBQUFBQUFWTnMvb3ktT3FKUktETkFnaUNRS0FvNHM1dVlvQmZOMlZ4aHNRQ0xjQi9zNDAwL0JDQSUyQnNvZnQlMkJ2cyUyQmhhcmQlMkJkYXRhLmpwZw==

This week, I examine the details of how expectations have diverged from actual data on a number of dimensions.

  • Small business confidence
  • Corporate confidence
  • Consumer confidence
  • Federal reserve expectations
  • Wall Street’s tax reform expectations

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



Source: http://humblestudentofthemarkets.blogspot.com/2017/02/watch-what-they-do-not-just-what-they.html

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
 

Featured

 

Top Global

 

Top Alternative

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.