Mid-week market update: As we wait to see if the stock market can break either up or down out of this narrow trading range, this week has been a light week for major market moving economic data, However, there are a number of political and non-economic developments to keep an eye on. The Fed gets hawkish Early in the …
Long live the reflation trade!
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 …
Things you don’t see at market bottoms, 23-Jun-2017 edition
It is said that while bottoms are events, but tops are processes. Translated, markets bottom out when panic sets in, and therefore they can be more easily identifiable. By contrast, market tops form when a series of conditions come together, but not necessarily all at the same time. I have stated that while I don’t believe that the stock market …
A market breadth model that works
Mid-week market update: Technical analysts monitor market breadth, as the theory goes, to see the underlying tone of the market. If the major market averages are rising, but breadth indicators are not confirming the advance, this can be described as the generals leading the charge, but the troops are not following. Such negative divergences are signs of technical weakness that …
Goldman’s “The death of value” and what being contrarian means
Recently, Ben Snider at Goldman Sachs published a report entitled “The Death of Value”, which suggested that the value style is likely to face further short-term headwinds. Specifically, Snider referred to the Fama-French value factor, which had seen an unbelievable run from 1940 to 2010 (charts via Value Walk). Goldman Sachs went on to postulate that the value …
Risks are rising, but THE TOP is still ahead
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 …
More surprises from the Fed?
In my last post, I suggested that the odds favored a hawkish rate hike (see A dovish or hawkish rate hike?) and I turned out to be correct. However, some of the market reaction was puzzling, as much of the policy direction had already been well telegraphed. As an example, the Fed released an addendum to the Policy Normalization Principles …
A dovish or hawkish rate hike?
Mid-week market update: I am writing my mid-week market update one day early. FOMC announcement days can be volatile and it’s virtually impossible to make many comments about the technical condition of the market as directional reversals are common the next day. Mark Hulbert suggested to wait 30 minutes after the FOMC announcement, and then bet on the opposite direction …
The risk to growth and growth stocks
Ed Yardeni may have top-ticked large cap growth stocks last week by postulating that a melt-up may be underway, led by the FAANG names. As the chart below shows, FAANG as a percentage of SPX market cap has been rising steadily for the last few years and now account for 11.9% of SPX market cap. Despite the air …
A Fed preview: What happens in 2018?
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 …
A possible volatility spike ahead
Mid-week market update: So far, the stock market seems to be following Jeff Hirsch’s seasonal map of June. The market was strong in the first couple of days, and it has mostly been flat this week. If history is any guide, it should start to weaken late this week. Evidence is building that of a volatility spike ahead. …
Peak smart beta?
A recent comment by Michael Mauboussin of Credit Suisse that nailed the dilemma of active managers, namely that using traditional approaches to alpha generation is akin to mining lower and lower grade ore: Exhibit 1 shows that the standard deviation of excess returns has trended lower for U.S. large capitalization mutual funds over the past five decades. The exhibit shows the …
Thrust and bust, or lower for longer?
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 …
Possible market turbulence ahead
Mid-week market update: Rob Hanna at Quantifiable Edges highlighted a historical study of what happens if the market pulls back after a persistent move to new highs, where yesterday (Tuesday) was day 0. If history is any guide, stock prices should grind higher over the next 10 days. Today was day 1 of that trading setup, and the …
Thinking Straight 101
Good afternoon, class. Welcome to another session of “Thinking Straight 101”. Your assignment today is to choose one of the topics below and write an essay for next week’s class: North Korea: George Friedman at Geopolitical Futures recently warned, “All the signs are there: The U.S. is telling North Korea, in no uncertain terms, that war is approaching.” Discuss the …
When does the market top out?
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 …
The market`s hurdles to sustainable new highs
Mid-week market update: So far, my recent VIX based buy signal has worked out according to plan (see A market top checklist). I emailed subscribers the buy signal from the trading system on Friday, which was triggered when the VIX Index rises above its upper Bollinger Band and then mean reverts below. If history is any guide, stock …
(Chinese) blood in the streets?
The worries about China ebbs and flows. The latest BAML Fund Manager Survey shows that China fears are at flood levels again. Indeed, developments such as the inverted Chinese yield curve is creating a sense of peak anxiety. I recently highlighted analysis indicating that China fears are overblown (see Are the Fed and PBoC taking away …
A market top checklist
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 …
From alpha to actual returns: Why your mileage will vary
One of the characteristics of a good financial modeler is to know his model’s limitations. He know how and why they work, and under what circumstances they will fail. I have been asked a number of times in the past to disclose the returns of my trading account, or the signal dates of my trading model, whose out-of-sample buy and …