Mojena Market Timing

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January 1, 2017

 

Model at 50.5

 

SELL Signal on November 6, 2016

 

Strategy

Current Position

2016 Returns

Cash

Money Market (T-Bills)

+0.3%

Buy and Hold

100% S&P 500 (SPX)

+11.9%

Standard Timing

100% Money Market (T-Bills)

+1.7%

Aggressive Timing

100% short S&P 500 (SPX)

-9.3%

 

 

The timing model issues buy and sell trades (signals) based on a mathematical/statistical score that ranges within 0 and 100.  While on a buy signal a sell trade is triggered at 45 or below; during a sell signal a buy trade is issued at 62 or above. Scores inside the range 45-62 should be interpreted as “hold current position.”  The standard and aggressive strategies determine what is bought or sold when timing signals are given.  Signal date is Sunday; trades are based on next-day closing price, to conform to mutual fund mark to market rulesReturns include reinvested dividends.

Standard timing strategy… At a buy signal this strategy invests100 percent in the S&P 500 (SPX) index, until the next sell signal.  At a sell signal this strategy places the entire portfolio in a Money Market (MM) based on Treasury Bills, until the next buy signal.  This “all-or-nothing” buy-sell strategy is uncommon in practice, as most stock portfolios would be diversified across several stock classes while invested and would be reluctant to move all holdings; it’s used here to give a proper comparison to buying and holding the SPX.  In practice a portfolio would add to stock holdings (lower MM cash) when a buy trade is issued and would reduce stock holdings (raise MM cash) when implementing a sell trade.  The percentages in these changes would depend on individual preferences based on factors such as age, risk profile, net worth, tax consequences, and so on. In other words, do whatever you’re comfortable with given the information that the model has changed its signal… and to what extent you have confidence in the model. 

Aggressive timing strategy… At a buy signal this strategy leverages the SPX 150% long (1.5x), until the next sell signal.  At a sell signal this strategy places the entire stock portfolio in an inverse of the SPX (100% short or -1x), until the next buy signal.  In practice this approach would shift a portion of the stock portfolio to an ultra long fund for a buy trade and to a short fund for a sell trade.  See this CAUTION.  Please note: The aggressive strategy is very risky and should be practiced, if at all, with a small portion of the overall portfolio.

Keep in mind that any strategy that follows the model’s trades applies only to the stock portion of a portfolio.  Moreover, the model’s focus is the S&P 500, the benchmark index for performance.  Its exclusive use by the model’s portfolios is for comparative purposes, to judge the model’s performance.  Investment portfolios normally include various domestic and international combinations of stock size and investment style categories, as well as other asset classes such as bonds, real estate, precious metals, and commodities.  See a more detailed explanation of these options in the three FAQs starting with this one.

Click here for my own investments during buy and sell signals.

 

Everyone has a plan until you punch them in the face. Then they don't have a plan anymore.

Mike Tyson

Fear and greed? Just look at the masses that buy high and sell low.

What plan? Buy and hold you say?  Hah!  Lemmings over a cliff as the bear growls. Then fear trumps greed. And near the bottom it’s… sell Sell SELL.

And then… as the bull rumbles, greed overcomes fear, oh so slowly and oh so late. And near the top it’s… buy Buy BUY.

A good timing model? Controls risk. Stills panic attacks. Ditches the Valium.  Helps us stick to the plan [sorry, Mike].

Harvey CORE

S&P 500 Index record high 2272 on Dec 13, 2016; pullback low 2085 on Nov 4, 2016.  Index now -1.4% under high and +7.4% above low.

Primary uptrend first confirmed April 15 at 2081 from 1865 low on Feb 12 and reconfirmed 45 weeks following low, at 2264 on Dec 23.  Now 1 weeks without reconfirmation.

Operating strategy during sell signal for overweight stock portfolios: Sell bounces, unless cautioned otherwise based on possible upcoming buy.

The Trump Surge fizzled over the last three weeks of the year, but not before our three tracking indexes printed new all-time highs.  Momentum ruled, yet the model refused to join the rally as it hung on to its sell signal.  Its momentum indicators are very positive, but these are neutralized by other indicators, such as the behavior of lows vs highs, a negative contrarian indicator that compares the Dow Industrials and Transports, and weak contrarian sentiment (high enthusiasm, not extreme) and below-median monetary indicators.

It was a very disappointing year for the model, to be sure.  Its sell signal early in the year looked good for five weeks, but then it missed three weeks of gains after the market’s abrupt turnaround the week following February 14.  Its new sell signal heading into the election also appeared well-timed, as the market weakened for a multitude of reasons, including an expected Clinton win and attendant unfriendly business policies. And then… the unexpected, dramatic Trump win and subsequent market surge. 

The model is either very early or dead wrong on the primary trend and current sell signal.  We will not know for sure until the next buy signal.  We do regret the 5% SPX gain given up since the sell signal, so far, more so the Dow, less so the Nasdaq. Hanging on to a buy, however tentative, would have been the best outcome, followed by a sell at the first signs of trouble. That would be hope; instead we got regret. The year-end model revision will consider this outcome, but that’s neither here nor there for now. Still, caution is warranted as optimism might well be ahead of reality.

The Trump Black Swan is surely responsible for the rally, as investors embraced the Republican sweep with its business-friendly agenda of personal and business tax reforms, regulatory rollbacks, and fiscal stimulus.  Hope and change for many; fear and change for others.  Implementation of these policies should help the economy, especially given their absence over the past eight years, with some caveats.  To what extend will productivity growth from new capital investments replace liquidity growth from the Federal Reserve? Supporting evidence for this belief: Small business optimism index soared post-election.  Here are additional measures of economic optimism since the election.  Moreover, see this study that concludes business risk posed by regulators is up 79% from 2010.  But then what would be the effect of some proposed controversial economic policies, such as new tariffs and trade agreements? It will be an interesting, contentious, and bumpy 2017, especially when we add in geopolitical and geoeconomic uncertainties: Chinese and Russian belligerence, extent of Middle East conflicts, global terrorism, upcoming European elections, consequences of rising nationalism, viability of Italian banks, implementation of Brexit, and Chinese economic bubbles and distortions. Another Black Swan?

And what about the stock market?  We can’t deny its sterling performance since the bear-market bottom in 2009, although we can pretty much credit that to liquidity expansion from extraordinary monetary stimulus and the anticipation (but absence) of traditional economic growth.  The stock market is forward looking, but is the surge too much too soon? A honeymoon that will face implementation realities in the new year and whose economic consequences will play out over several years? Most likely, over a longer time frame of a year or more and a dollop or two of luck that avoids the bulk of a pessimistic future, a reasonable implementation of the Republican agenda should be good for both the economy and stock market. 

Markets should settle into a new investment regime over the coming months.  So… we should wait and see what the weight of the evidence tells us as we move forward.  Meanwhile, it takes patience and the discipline to stick with the plan.  Bounces either present opportunities to reduce stock positions, consistent with risk profile and while the model is on a sell signal, or tell us to sit tight if comfortable with risk exposure while we wait for the model’s continuing assessments.

Economists are often asked to predict what the economy is going to do. But economic predictions require predicting what politicians are going to do – and nothing is more unpredictable.

Thomas Sowell

▼▼▼

Looking back: The bad.

Looking back: The good.

Market themes for 2017.

Dumb 2017 predictions.

Future assembly required.

The rise of nationalism as influenced by the political economy.

Here’s wishing you a cheerful and healthy 2017, with many happy returns

 

YTD with dividends

Since switch signal, no dividends

Date

Model

Signal

SPX

Cash

Buy&Hold

Standard

Aggressive

DJI    

SPX  

Nasdaq   

1-Jan

50.5

Sell

2239

+0.3%

+11.9%

+1.7%

-9.3%

+8.4%

+5.2%

+4.2%

25-Dec

53.1

Sell

2264

+0.3%

+13.1%

+1.7%

-10.3%

+9.4%

+6.4%

+5.7%

18-Dec

50.9

Sell

2258

+0.3%

+12.8%

+1.7%

-10.1%

+8.9%

+6.1%

+5.2%

11-Dec

48.6

Sell

2260

+0.3%

+12.8%

+1.7%

-10.2%

+8.4%

+6.2%

+5.4%

4-Dec

31.1

Sell

2192

+0.3%

+9.4%

+1.7%

-7.3%

+5.2%

+3.0%

+1.7%

27-Nov

41.3

Sell

2213

+0.3%

+10.4%

+1.6%

-8.2%

+5.1%

+4.0%

+4.5%

20-Nov

28.9

Sell

2182

+0.3%

+8.8%

+1.6%

-6.8%

+3.5%

+2.5%

+3.0%

13-Nov

49.3

Sell

2164

+0.3%

+7.9%

+1.6%

-6.1%

+3.4%

+1.7%

+1.4%

6-Nov

35.4

Sell

2085

+0.3%

+3.9%

-0.5%

-7.4%

0.0%

0.0%

0.0%

30-Oct

60.2

Buy

2126

+0.2%

+5.9%

+1.5%

-4.6%

+6.4%

+6.2%

+10.2%

23-Oct

65.1

Buy

2141

+0.2%

+6.6%

+2.1%

-3.6%

+6.3%

+7.0%

+11.7%

16-Oct

62.7

Buy

2133

+0.2%

+6.2%

+1.7%

-4.2%

+6.2%

+6.6%

+10.7%

9-Oct

72.3

Buy

2154

+0.2%

+7.2%

+2.7%

-2.8%

+6.8%

+7.6%

+12.4%

2-Oct

81.7

Buy

2168

+0.2%

+7.8%

+3.3%

-1.8%

+7.2%

+8.3%

+12.8%

25-Sep

86.1

Buy

2165

+0.2%

+7.6%

+3.1%

-2.0%

+7.0%

+8.1%

+12.7%

18-Sep

76.1

Buy

2139

+0.2%

+6.3%

+1.8%

-3.7%

+6.1%

+6.9%

+11.4%

11-Sep

70.2

Buy

2128

+0.2%

+5.7%

+1.3%

-4.5%

+5.9%

+6.3%

+8.9%

4-Sep

88.5

Buy

2180

+0.2%

+8.2%

+3.7%

-0.9%

+8.3%

+8.9%

+11.5%

28-Aug

87.2

Buy

2169

+0.2%

+7.7%

+3.1%

-1.7%

+7.7%

+8.4%

+10.8%

21-Aug

91.7

Buy

2184

+0.2%

+8.3%

+3.8%

-0.7%

+8.7%

+9.1%

+11.3%

14-Aug

91.0

Buy

2184

+0.2%

+8.3%

+3.8%

-0.7%

+8.8%

+9.1%

+11.1%

7-Aug

87.7

Buy

2183

+0.2%

+8.2%

+3.7%

-0.7%

+8.6%

+9.0%

+10.9%

31-Jul

89.5

Buy

2174

+0.2%

+7.7%

+3.2%

-1.4%

+8.0%

+8.6%

+9.6%

24-Jul

89.1

Buy

2175

+0.2%

+7.7%

+3.2%

-1.3%

+8.8%

+8.7%

+8.3%

17-Jul

86.5

Buy

2162

+0.2%

+7.0%

+2.5%

-2.2%

+8.4%

+8.0%

+6.8%

10-Jul

80.5

Buy

2130

+0.1%

+5.4%

+1.0%

-4.3%

+6.3%

+6.4%

+5.3%

3-Jul

76.2

Buy

2103

+0.1%

+4.0%

-0.3%

-6.1%

+5.1%

+5.1%

+3.3%

26-Jun

65.9

Buy

2037

+0.1%

+0.8%

-3.5%

-10.5%

+1.9%

+1.8%

-0.0%

19-Jun

77.4

Buy

2071

+0.1%

+2.4%

-1.9%

-8.2%

+3.5%

+3.5%

+2.0%

12-Jun

84.5

Buy

2096

+0.1%

+3.6%

-0.8%

-6.5%

+4.6%

+4.7%

+4.0%

5-Jun

85.2

Buy

2099

+0.1%

+3.7%

-0.7%

-6.3%

+4.3%

+4.9%

+5.0%

29-May

84.1

Buy

2099

+0.1%

+3.6%

-0.7%

-6.3%

+4.7%

+4.9%

+4.8%

22-May

78.8

Buy

2052

+0.1%

+1.3%

-3.0%

-9.4%

+2.5%

+2.5%

+1.3%

15-May

80.0

Buy

2047

+0.1%

+1.0%

-3.3%

-9.8%

+2.7%

+2.2%

+0.2%

8-May

83.4

Buy

2057

+0.1%

+1.4%

-2.8%

-9.1%

+3.9%

+2.8%

+0.6%

1-May

83.9

Buy

2065

+0.1%

+1.8%

-2.5%

-8.6%

+4.1%

+3.2%

+1.4%

24-Apr

87.0

Buy

2092

+0.1%

+3.0%

-1.3%

-6.8%

+5.4%

+4.5%

+4.2%

17-Apr

84.2

Buy

2081

+0.1%

+2.5%

-1.8%

-7.5%

+4.8%

+3.9%

+4.9%

10-Apr

77.0

Buy

2048

+0.1%

+0.8%

-3.4%

-9.7%

+2.9%

+2.3%

+3.0%

3-Apr

65.8

Buy

2073

+0.1%

+2.0%

-2.3%

-8.1%

+4.2%

+3.5%

+4.4%

27-Mar

55.4

Buy

2036

+0.1%

+0.1%

-4.1%

-10.5%

+2.6%

+1.7%

+1.4%

20-Mar

52.0

Buy

2050

+0.1%

+0.8%

-3.5%

-9.6%

+3.1%

+2.4%

+1.9%

13-Mar

53.2

Buy

2022

+0.1%

-0.6%

-4.8%

-11.4%

+0.8%

+1.0%

+0.9%

6-Mar

62.9

Buy

2000

+0.0%

-1.8%

-5.8%

-12.6%

0.0%

0.0%

0.0%

28-Feb

39.3

Sell

1948

+0.0%

-4.3%

-5.8%

-10.2%

+1.5%

+1.3%

-1.0%

21-Feb

35.0

Sell

1918

+0.0%

-5.9%

-5.8%

-8.8%

-0.0%

-0.3%

-2.9%

14-Feb

21.2

Sell

1865

+0.0%

-8.5%

-5.8%

-6.1%

-2.6%

-3.1%

-6.5%

7-Feb

25.9

Sell

1880

+0.0%

-7.8%

-5.8%

-6.9%

-1.2%

-2.3%

-5.9%

31-Jan

54.7

Sell

1940

+0.0%

-4.9%

-5.8%

-9.7%

+0.4%

+0.9%

-0.5%

24-Jan

41.7

Sell

1907

+0.0%

-6.6%

-5.8%

-8.1%

-1.9%

-0.9%

-1.0%

17-Jan

27.7

Sell

1880

+0.0%

-7.9%

-5.8%

-6.8%

-2.5%

-2.3%

-3.2%

10-Jan

18.0

Sell

1922

+0.0%

-5.9%

-5.8%

-8.9%

0.0%

0.0%

0.0%

3-Jan

49.0

Buy

2044

+0.1%

+1.4%

-1.0%

-4.9%

-0.6%

-0.6%

-0.7%

 

NOTE

The TimerTrac link at left is a free report provided by an independent company that tracks the performance of market timers. Note that the report does not account for dividends and their reinvestment, as we do, and as would be the case for reported returns in the media, thus showing lower returns for both buy-and-hold and the standard strategy during buy signals than those seen under the live performance table in our Reality Check page.  The difference over long time horizons can be significant, as reinvested dividends make up about 30% to 50% of total S&P 500 returns, depending on the chosen time period. 

 

Distribution
Copyright © 2016 Richard Mojena. All rights reserved. All materials contained on this site are protected by United States copyright law and may not be reproduced, distributed, transmitted, displayed, published or broadcast without the prior written permission of Richard Mojena at mojena.com. You may not alter or remove any graphics, copyright or other notice from copies of the content.  You may download or print one machine readable copy and one print copy per page from this site for your personal, noncommercial use only.

 

Disclaimer

Specific and personalized investment advice is not intended by this communication. Its contents are for the public record as a free public service. Information is based on the analysis of past data and assessments by the models. Future performance may not reflect past performance. Profitable trades are not guaranteed. No system or methodology ensures stock market profits. No guarantee is made regarding the reliability or accuracy of data. In other words, use this stuff at your own risk!

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