A Humble Student 2019 report card

Mid-week market update: Normally, this is the I arrived back home last night from my vacation after celebrating two New Year's Eves. We celebrated NYE when we connected through Taipei just as we boarded our flight home, and we arrived on the night of December 31 after crossing the International Date Line to celebrate a second....

Factor investing: Theory vs. practice

As regular readers know, I have been an advocate of taking an overweight in cyclical exposure in equity portfolios (for the latest update, see Adventures in banking). While I continue to believe that the approach is sound, the reality has been less than fully satisfactory in the US. Among the cyclical groups, the semiconductors are...

An upcoming seismic shift in factor returns

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...

Whatever happened to the Momentum Massacre?

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...

Market breakout = FOMO surge?

Mid-week market update: Last week's upside breakout through resistance was impressive. Since then, the market has consolidated above the breakout level, but a FOMO (Fear Of Missing Out) rally has yet to materialize. In the past, such surges have been accompanied by a series of "good overbought"  5-day RSI readings, signs of buying stampedes from...

Fun with quant: Pure and naïve factors

A reader alerted me to a CNBC report of a bullish analysis by Bespoke's Paul Hickey: Bespoke Investment’s Paul Hickey believes a market hot streak is unfolding. The independent market researcher is building his bullish case by zeroing in on the Citi Economic Surprise Index, which is built to measure optimism in the economy. In...

Fun with quant: MS Business Conditions edition

Marketwatch recently reported that Morgan Stanley's Business Conditions Index had deteriorated to levels last seen during the 2007-08 financial crisis. Wow! Is this an alarming signal, or contrarian?     In reality, it was a lesson for data analysts in quantitative analysis.   Looking for confirmation When I see a surprising result, I look for confirmation....

How to buy “smart” Value

Value investing has taken it on the chin in the last decade, as the style has badly lagged the market. Callum Thomas documented how value discount has grown over the last decade. The discount has fallen to levels last seen at the height of the NASDAQ Bubble, when internet related stocks came crashing to earth,...

There is no magic black box to profits

Mid-week market update: Since my publication detailing the Zweig Breadth Thrust buy signal (see A rare "what's my credit card limit" buy signal), I have been inundated with questions about the possible twists and turns of the market after such a signal. I discussed this issue extensively in 2015 (see The Zweig Breadth Thrust as...

Say goodbye to the nostalgia of Trump’s 1950’s America

Last week, Donald Trump tweeted his dissatisfaction with General Motors' decision to close four US plants.   I feel his pain. Indeed, wage growth in Old Economy industries have been stagnant for quite some time.   The WSJ wrote an editorial in response: President Trump believes he can command markets like King Canute thought he could...

How fat tails could mean fat profits

The CBOE Short-Term Volatility Index (VXST) measures volatility over a 9-days. In effect, it's the 9-day VIX, which measures 1-month volatility.   VXST closed at 21.17 last week. indicating that the market expects an annualized volatility of 21.17% over the next 9-days. When I translate that to a weekly volatility by taking the 52nd root...

American confidence with Chinese characteristics?

Ed Yardeni recently highlighted the surge in small business confidence, earnings and employment plans as part of a scenario of what could go right.   Beneath the surface, there were a number of contradictions that were evocative of official Chinese economic statistics. A confidence bifurcation The first problem is how consumer and business confidence is...

How far can stock prices fall in a bear market?

One of the most frequently asked questions from last week's post (see Major market top ahead: My inner investor turns cautious) was my downside objective for stock prices. While technical analysis could highlight a possible trigger for a bear phase, it is less reliable for quantifying downside risk. Assuming the trigger for a bear market is...

What you may not know about the Smart Money Index

This is one in an occasional series of articles highlighting hidden investing factors. For the previous article in the series, please see What you may not know about small cap stocks. There has been some buzz in social media about the following chart that correlates the Fed's balance sheet with the Smart Money Index (SMI)....

What you may not know about small cap stocks

This is one in an occasional series of articles highlighting the hidden investing factor exposures, starting with small cap stocks. Small caps have been on an absolute tear lately, both on an absolute basis and relative to large caps.     Does that mean you should jump on the small cap momentum train? Momentum is...

Offbeat Thursday and Friday forecasts

Brett Steenberger recently warned that traders about trading on noise, which is advice to which I wholeheartedly agree: In other words, before we can determine whether or not we have an edge (in systematic or discretionary trading), we need to establish knowledge. A theory explains how and why something occurs. Testing of historical data can...

Why you shouldn’t get wedded to any market indicator

Over the years, I have had a number of discussions with traders who have religiously embraced specific trading systems and investment disciplines. This is a cautionary tale of how systems fail. Charlie Bilello won the NAAIM Wagner Award for his work on the lumber/gold ratio: Lumber’s sensitivity to housing, a key source of domestic economic...

The post-FANG market beaters hiding in plain sight

Mid-week market update: It is encouraging that the stock market held up well in the face of bad news on global trade. Global markets adopted a risk-off tone on the news of Chinese trade retaliation, but the SPX managed to hold a key support level and rally through a downtrend line.     Looking over...