Mojena Market Timing
Reality Check


The performances in Timing Model are theoretical in the sense that the model's structure is backtested and revised annually (at the end of each year) to optimize return based on updated historical data. The revised model is then used "live" or in real time the following year.At the end of that year the model is revised once again, for use the following year.And so on. Why have an updated model each year? The stock market is evolutionary as it changes and adaptsÖ and so must the model.

We can think of the historical data as in-sample data, the data used to develop or train the models.Conversely, we can think of its live use as its application to out-of-sample data, one means by which models are validated.

This page checks reality by describing the timing model's actual, real time, or live performances, starting with its first complete year in 1990. As demonstrated, the model and standard strategy outperform buy-n-hold over 27 years with slightly greater return, much less risk by various metrics, and much greater risk-adjusted return.

 

Live Timing Model Performances

 

Inflation

T-Bills

Buy & Hold

Standard Timing Strategy

Aggressive Timing Strategy

1990

6.1%

7.5%

-3.2%

11.9%

18.1%

1991

3.1%

5.4%

30.4%

30.4%

40.8%

1992

2.9%

3.5%

7.6%

7.6%

6.5%

1993

2.7%

3.0%

10.0%

10.0%

10.5%

1994

2.7%

4.3%

1.2%

-2.0%

-13.6%

1995

2.5%

5.5%

37.5%

25.6%

20.9%

1996

3.3%

5.0%

22.9%

17.4%

16.3%

1997

1.7%

5.1%

33.3%

22.7%

19.1%

1998

1.5%

4.9%

28.6%

35.5%

56.2%

1999

2.7%

4.7%

21.0%

12.8%

3.0%

2000

3.4%

5.8%

-9.1%

-3.8%

-14.0%

2001

1.6%

3.4%

-11.9%

-4.3%

-9.4%

2002

2.4%

1.6%

-22.1%

-7.3%

-0.3%

2003

1.9%

1.0%

28.6%

18.9%

15.4%

2004

3.3%

1.4%

10.9%

10.9%

13.3%

2005

3.4%

3.2%

4.9%

4.9%

4.2%

2006

2.5%

4.7%

15.7%

15.7%

20.7%

2007

4.1%

4.4%

5.4%

5.4%

4.6%

2008

0.1%

1.5%

-37.0%

-13.0%

3.0%

2009

2.8%

0.2%

26.6%

26.6%

33.9%

2010

1.5%

0.1%

15.0%

5.9%

-3.6%

2011

3.0%

0.1%

2.1%

2.1%

-1.7%

2012

1.7%

0.1%

15.9%

15.9%

20.2%

2013

1.5%

0.1%

32.4%

27.8%

35.1%

2014

0.8%

0.0%

13.7%

9.8%

7.3%

2015

0.7%

0.1%

1.4%

-1.0%

-4.9%

2016

2.1%

0.3%

11.9

+1.7%

-9.3%

Return

 

 

 

 

 

Start

$100,000

$100,000

$100,000

$100,000

$100,000

End

191,051

211,876

1,119,767

1,312,883

1,194,637

Total Return

191%

212%

1120%

1,313%

1,195%

Annualized Return

  2.4%

  2.8%

9.4%

10.0%

9.6%

 

 

 

 

 

 

Years to Double

28.9

24.9

7.8

7.3

7.5

Risk 

 

 

 

 

 

Morningstar Risk

 

   0.0%

3.9%

1.8%

2.7%

Standard Deviation

 

 

17.6%

12.3%

17.0%

Sortino Standard Deviation

 

 

13.3%

4.4%

5.2%

Max Drawdown (Yearly)

 

 

-37.0%

-13.0%

-14.0%

Max Drawdown (Weekly)

 

 

-18.2%

-8.3%

-12.6%

Return & Risk

 

 

 

 

 

Max Return (Yearly)

 

 

37.5%

35.5%

56.2%

Max Return (Weekly)

 

 

12.0%

12.1%

18.0%

Morningstar Risk-Adjusted Return

 

  

2.4

5.6

3.5

Sharpe Ratio

 

 

0.37

0.58

0.40

Sortino Ratio

 

 

0.49

1.63

1.30

Alpha

 

 

0.00

0.028

0.031

Beta

 

 

1.00

0.622

0.604

R-Square

 

 

1.00

0.820

0.401

Buy & Hold is buying and holding the S&P 500 Index (SPX) through thick and thin, including reinvested dividends.  The modelís Standard Timing Strategy is 100% in the SPX during buy signals, including reinvested dividends, and 100% in T-Bills during sell signals.The Aggressive Timing Strategy is 150% long the SPX (dividends not received) during buy signals and 100% short the SPX (dividends not paid) during sell signals.  The model's signals (trades) are based on week closings, but returns are calculated on next-day closings when trades are implemented, to more closely approximate the use of mutual funds and conform to reporting standards.

Total Return is total percent return since 1970, including any reinvested dividends, but not including expenses or taxes. Annualized Return is the annual compound rate that would give total return (the ending amount) over the given time horizon. Each account was updated (compounded) on a weekly basis. Years to Double is the number of years it would take to double the value of the account given the annualized return.  Morningstar Risk is average under performance relative to the three-month T-Bill's annual return, a la MorningstarStandard Deviation is a statistical metric that describes variability in returns, the standard measure of risk in financial analysis. Sortino Standard Deviation is like the standard deviation, except it measures variability of losing (negative) returns, unlike standard deviation that includes all returns.This measure of variability is preferred in timing systems because their concern is risk associated with losses, not with gains. Max Drawdown is the worst paper loss, based either per year or per week. Morningstar Risk-Adjusted Return is return divided by Morningstar Risk (return per unit of risk). Sharpe Ratio is another measure of risk-adjusted return, defined as excess return divided by standard deviation, where excess return is annualized return minus T-bill return. Sortino Ratio is calculated as the Sharpe Ratio, but with the Sortino Standard Deviation. Alpha is a measure of a portfolioís excess return relative to the risk assumed by buying and holding an index, in this case the S&P 500.Beta is an alternative volatility measure for a portfolio (up and down, not just down) relative to the index.R-Square is a metric that measures the reliability of the regression fit used to calculate Alpha and Beta, where 1.0 is a perfect fit, meaning that the regression line passes through each return data point.

The timing model's standard portfolio strategy returned more than a buy-and-hold strategy since 1990Ö and with much less risk.The standard model's annualized return of 10.0% would double an investment in about 7.0 years.  Its Morningstar risk of 1.8% is less than half that of buying and holding.  It was also much less risky from drawdown and standard deviation perspectives.   On an annual basis, its maximum loss was 13% (in 2008) versus the 37% loss that same year for buying & holding.  Maximum weekly drawdowns (losses) were 8% for the standard strategy and 18% for buying and holding.

To account for real return we can subtract the inflation rate.For example, over the entire time frame from 1990 on, the annualized real return for buy and hold is about 6.9% (9.3 less 2.4%).

Over the actual life of the model (since 1990), the standard strategy versus buy and hold ends with a larger portfolio, by about $193 thousand (+19%), with less than half the risk.Its Morningstar risk-adjusted return more than doubles that of buy & hold.Using the Sharpe ratio, favored by many analysts, its risk-adjusted return exceeds buy & holdís by 57%, triple using the Sortino ratio.

The modelís intermediate to long-term perspective issued 46 trades over 27 years, or about five over three years on average. It spent 74% of the weeks in stocks (on a buy signal), very close to the 73% for primary uptrends.

The risk measures described by Alpha and Beta also favor the models.The standard strategy adds 2.8% excess return over buy-n-hold, with about 38% less volatility.The aggressive strategy improves on these metrics, although its results are less reliable looking at its much lower R-Square.

Over 27 years standard timing beat or matched buy-n-hold 59% of the years. The aggressive strategy vs buy and hold also had more losing than winning years.Yes, losing years exceeded winning years.But looking at performances in the year-by-year table above, the annual returns were asymmetric: bigger winners more than made up for smaller losers, thus giving the modelís strategies an overall edge since 1990.

The aggressive strategy can substantially boost a year's return, as it did in 1998 (+56%), but the price paid is higher risk and drawdowns.  The 14% drawdowns in 1994 and 2000 and 10% in 2016 very much hurt its performance.  Its return, Morningstar risk-adjusted return, Sharp Ratio, and Sortino Ratio under-perform the standard strategy, but edge out buy-n-hold.Versus the standard strategy, the live performance for the aggressive strategy does not justify its additional risk, so far. As stated elsewhere, the aggressive strategy, if used at all, should comprise a small part of a portfolio, no more than 15%, depending on tolerance for risk.

Year 2008 was particularly demoralizing for buy and holders.The buy & hold 37% loss for the year far exceeded previous high losses since 1970: 22% in 2002 and 27% in 1974.Back to 1926 (the start of the S&P 500), the 2008 loss is second only to the 43% Great Depression devastation in 1931, edging out the 35% hammering in 1937.The 13% loss for the standard portfolio, while meaningful, was well below the buy & hold 37% loss. Moreover, the model's loss for the year was almost entirely due to the misfortune of buying at the end of Monday's 12% surge following the weekend's buy signal. The aggressive portfolio ended the year in green at nearly 3%.Too late for sure, but the revisedand re-optimized succeeding models incorporated the unprecedented volatility that characterized the years 2008-2011: In 2008 alone, the S&P 500 (SPX) experienced daily moves of 5% or more 17 times, a feat that took 50 prior years to match.In 2010 the 21-month bull run was interrupted by a 16% severe correction lasting 10 weeks from April into early July that year.This short, sharp correction fooled the 2010 model into a late sell signal just before the primary downtrend bottomed.The switchback buy trade followed in three weeks, but not before damage to the yearís return, a fact that did not escape the modelís subsequent revision.In 2011 the model unfortunately followed the fast, deep nearly 20% correction, but participated in the recovery into the end of the year, ending with a gain in another very turbulent year.

The hallmark of a very good timing model is to match or exceed its benchmark index over an extended time period, but with much less risk.Sounds good, but itís the rare money manager or newsletter writer that manages this feat. The modelís standard and aggressive strategies have achieved this goal in actual use.

The shortage of severe corrections during the 1990s favored buying and holding strategies over timing systems. The length of the expansion from October, 1990 to April, 1997 was without precedent in not experiencing so much as a 10% correction. In April, 1997 we finally got an 11% correction in the SPX, but it lasted all of one day! On a weekly-closing basis, the correction was 9%, a nonevent from the model's perspective.   The nearly 20% SPX declines in 1990 and 1998, the 49% SPX bear market in 2000-2002, a 52% encore decline in 2007-2008, and the Nasdaq's bear markets of 35% in 1998 and 78% in 2000-2002 all underscore the benefits of capital preservation strategies.  Note that years in which there were substantial selloffs (1990, 1998, 2000, 2001, 2002, and 2008) are the years that the model's standard strategy beat the buy and hold strategy. 

The breakdown by decades in the accompanying tables tells the story. The standard strategy under-performed buy & hold by about 1.5% annualized percentage points per year during the 1990s, ending with a portfolio amount some $6200 less, a cumulative 12% deficit.Timing strategies simply canít beat a disciplined buy & hold strategy during an exceptionally strong bull market.Adjusted for risk, the standard strategyís return exceeds buy & holdís return by 100% during the 1990s, but this does not translate into real dollars, unless risk scares off the buy & holder from practicing this tough, emotionless discipline.Research shows that real buy-and-holders donít exist: emotion short circuits the required discipline.

And then came the new millennium, a lost decade, the worst performing ten years in the S&P 500 index since its inception in the 1920s.  Surprisingly, the economically-devastating 1930s just about broke even for a buy and hold investor, a much better performance than the recent decadeís cumulative 9% loss, which works out to a 1% annualized loss, including reinvested dividends.  The index itself lost 24%, not including dividends. A passive portfolio of $10,000 based on the SPX Index at the start of 2000 would have ended with $9,075 at the end of 2009, including reinvested dividends.  Compared to the discredited buy-and-hold strategy, cash was king.  A portfolio invested in three-month treasuries (our money-market benchmark) would have ended with a value of $13,069, or about 44% more than the stock portfolio.  The standard portfolio beat buy & hold by about 75% ($15,840 v $9,075) and the aggressive version outpaced buy & hold by roughly 100%.  The aggressive portfolio more than doubles the buy-and-hold portfolio.  And keep in mind that these are actual results, not theoretical results based on back testing.

It is worth repeating: Buy and hold based on the popular benchmark S&P 500 index was down a cumulative 9% over the ten years of the past decade (24% for the index itself), a devastating performance that has served to finally discredit the buy and hold strategy.Buy and hold actually marked a negative real return of -3.5% per year over the most recent decade, after accounting for a 2.5% annualized inflation rate.That is to say, the buying power of a buy-n-hold portfolio is less at the beginning of 2010 than it was at the beginning of 2000. Cash was king for the lost decade, standard and aggressive strategies excepted.

So far this decade, the modelís strategies are underperforming buy-n-hold, a disappointing set of years.In years with rising but choppy trends, timing models tend to lag trend and give off some false sell signals.In flat, choppy years with short, random-like, unstable trends the model issued many more trades than average, as seen by the table below in 2015.The revision for 2016 toned down the number of trades, but also fell well short of the buy-n-hold return, having given a sell signal during a deteriorating market just before the Presidential election and subsequent Trump surge, unexpected events with Black Swan elements. This yearís revision, based on backtested data, stayed invested during the Trump surge (no help then:).Letís see if the current model comes back up to snuff this year. Three years to go this decade, for the model to catch up, and maybe then some.But only if the remaining three years include one or more bear markets.

Strongly cyclical markets are tailor-made for a good timing system to decisively beat buy and hold, as seen in the second table at right and by the previous secular bear market that spanned 1966-82, as the Dow flirted with 1000 for 16 bruising years. The model's genetic heritage easily gives it a decisive edge over the theoretical buy and holders during prolonged declines; over extended increases, as in the 1980s and 1990s and since the bear-market bottom in 2009, the model either slightly trails or slightlyleads buy and hold, depending on the time period, but with considerably less risk.And keep in mind that buying and holding is an idealized strategy.Research clearly shows that investors in the aggregate under-perform buy and hold because of ďtimingĒ decisions based on fear and greed: they tend to sell near bottoms (fear) and buy near tops (greed).Buying and holding requires a very disciplined, unemotional strategy that few investors can follow.A good timing model helps calm emotions that harm performance, thereby increasing the odds that discipline will prevail.

The timing model has been live since the middle of 1989, out-performing buy and holders through last year, with much less risk. The 1990s ushered in an era of historically low downside volatility, except for the brief near-bear markets in 1990 and 1998. It's nearly impossible for a timing model, indeed for anyone as the records show, to beat buy and hold in markets that exhibit very little cyclical behavior and no punishing downturns.  The model's advantage clearly became apparent during the 2000-2002, 2007-2008 bear markets and the lost decade 2000-2009. 

And, to be honest, the live implementation of a backtested system rarely performs better than its optimized version Since 1990, the annually-revised live models under-performed the current theoretical (backtested) model by 5.5 percentage points per year (10.0% vs 15.5%), a metric called shrinkage. The modelís strategies are under-performing buy and hold so far in the current decade (2010-2016), a time span without a bear market.The decade is more than half over, so weíll see once we have severe corrections and the next bear market.The question is: Does its use improve my investment performance... and soothe my nerves? For me the answer is yes, on both counts.

Remember that the modelís portfolios are either in or out of stocks completely, to properly compare their performances to buying and holding the S&P 500, the most common benchmark index against which returns are measured. As cited often in these pages, portfolio investments should be diversified not only across stock classes but also across other assets such as bonds, commodities, real estate, and money markets. The percentages in each class are typically a function of expectations and risk profile, the latter determined by an investorís propensity for risk, age, and other circumstances. A simple and generalized often-cited allocation for a mid-life investor is 60% stocks and 40% bonds. Younger investors might allocate more to stocks and older investors near or in retirement might allocate less.Buy and sell trades would affect only the stock portion of a portfolio, 60% or whatever is appropriate for your circumstances.So, at a sell signal part or all of the stock portion (whatever youíre comfortable with) is moved to a money market; at a buy signal the desired percentage is back into stocks.See the FAQs page for more on portfolio diversification and alternative standard and aggressive investments.

Inattention to the difference between financial models and reality can bankrupt you.

Harvey CORE

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

Thomas Sowell

 

Live Market Timing Phases

 

 

 

 

 

Note:
The model's signals use week-end (usually Friday) closings but the reported live performances are based on next-day (usually Monday) trading, to more closely approximate the reality of mutual fund trading and better conform to performance reporting standards.

Each signal date in the table is a Sunday.  Each index is a next-day closing.  These are actual (not backtestedl) results. See download page for Excel workbook that includes time series of S&P 500 and model histories.

See TimerTrac for a commercial service that monitors our live signals and performance since mid-2002.

 

 

 

 

 

 

NOTE

Half the 24 sell signals lasted more than 11 weeks, the least 1 week, the most 53 weeks.

Half the 23 buy signals lasted more than 8 weeks, the least 1 week, the most 245 weeks.

Based on the S&P 500Ö

Sell signals have a losing percentage of 67% (those that gave up or regretted gains) but returns are asymmetric (26.4% max loss avoidance v max 15.5% regret).

Buy signals have a losing percentage of 52% with asymmetric returns (54.8% max gain v 9.4% max loss).

Overall, sell signals just about broke even at an average 0.5%, with half below 2.4%; buy signals averaged 10.0% gains, with half better than a 0.6% loss.

Turbulent twin bear markets from 2000-2002 whipsawed live models at the time into 12 trades; more stable current (2016) model would have given just 4 trades and...

Ö returns of -3.5%, +3.4%, and +1.6% for 2000-2002 and -2.3% for 2008.(Compare to year-by-year table at the top of the page.)

Still, the live models over 2000-2002 and 2008 easily preserved capital over buying and holding.(See year-by-year table at the top of the page.)

Note the modelís frequent live trades in 2000 (bottom table) and in parts of 2001-2003 during those volatile markets.There were many short, either losing or regret trades, yet the modelís subsequent live cumulative returns since the 2000 high through 2015 are 174% for the standard strategy and 208% for the aggressive strategy, versus 81% for the buy-and-hold strategy.

 

Sells & Buys: Winners & Losers

Mean

16

0.5%

9.0%

5.2%

 

 

Mean

45

10.0%

24.5%

3.3%

 

 

Median

11

2.4%

5.8%

4.8%

 

 

Median

8

-0.6%

24.3%

2.2%

 

 

Min

1

-26.4%

2.0%

0.2%

Signals >>

24

Min

1

-9.4%

1.8%

0.6%

Signals >>

23

Max

53

15.5%

26.4%

15.5%

8

16

Max

245

54.8%

54.8%

9.4%

11

12

 

 

 

 

 

33%

67%

 

 

 

 

 

48%

52%

SELL

Weeks

Overall %

Win %

Regret %

Wins

Regrets

BUY

Weeks

Overall %

Win %

Lose %

Wins

Losses

 

Timing Model Signal Phases

Dates

Signal

Positions

DJI

S&P 500

Nasdaq

Comment

10/29/89
09/30/90

48 weeks

Sell

Cash/Short

2603-2516
-3%

335-315
-6%

451-355
-21%

Stood aside during 13% S&P 500 rally from February to July, but avoided 20% bear-market decline into October. Overall, dodged 6% loss in S&P 500 and stiff 21% pummeling in Nasdaq.

09/30/90
04/03/94

183 weeks

Buy

Stocks

2516-3593
+43%

315-439
+39%

355-727
+105%

Missed bear-market bottom by 15 S&P 500 points (on next-day closing basis) and two weeks. Rode primary bull market for about 3 1/2 years. Nasdaq was rocket over this period.

04/03/94
04/09/95

53 weeks

Sell

Cash/Short

3593-4198
+17%

439-507
+15%

727-821
+10%

Poor sell signal. Up in air for nine months as markets traded within narrow ranges, but missed powerful rally that took averages to new highs in first quarter, 1995. Back to drawing board. Model substantially revised July, 1995, based on data through end 1994. New model would have given timely and LIVE buy signal in mid January, 1995.

04/09/95
07/14/96

66 weeks

Buy

Stocks

4198-5350
+27%

507-630
+24%

821-1060
+29%

Good buy signal, with solid gains each index. In hindsight, this buy phase should have continued.

07/14/96
08/04/96

3 weeks

Sell

Cash/Short

5350-5674
+6%

630-660
+5%

1060-1121
+6%

Unsuccessful switch-back trade, lasting only three weeks and giving up gains of 5-6% in indexes. Looked good for two weeks, but strong rally in third week flipped signal back to buy. Current model's technical indicators very sensitive to market's volatility.

08/04/96
04/06/97

35 weeks

Buy

Stocks

5674-6556
+15%

660-762
+15%

1121-1251
+12%

Profitable, with okay gains all indexes. Ideally, this buy phase should have been continuation of preceding buy phase.

04/06/97
05/04/97

4 weeks

Sell

Cash/Short

6556-7214
+10%

762-830
+9%

1251-1339
+7%

Another short sell signal with gains regretted. The 9% lost opportunity gain in the SPX is higher than previous 5% worst case for this version of model. Stunning last week accounts for just about all gains, a lesson not lost in next revision of model.

05/04/97
08/02/98

65 weeks

Buy

Stocks

7214-8787
+22%

830-1112
+34%

1339-1851
+38%

Fifteen-month phase yields good gains all around, although Dow significantly lags Nasdaq.  In hindsight, this buy phase should have been extension of preceding buy phase.

08/02/98
10/18/98

11 weeks

Sell

Cash/Short

8787-8466
-4%

1112-1062
-4%

1851-1649
-11%

Eleven-week sell signal modestly successful as 4 to 11% losses are avoided, while nestled in safety of money market during very volatile period that included bear market in Nasdaq.

10/18/98
07/25/99

40 weeks

Buy

Stocks

8466-10861
+28%

1062-1348
+27%

1649-2619
+59%

Nine-month buy signal very profitable, especially Nasdaq gain.

07/25/99
01/23/00

26 weeks

Sell

Cash/Short

10861-11008
+1%

1348-1402
+4%

2619-4096
+56%

Did a good job of identifying summer's 12% thirteen-week decline in its early stages, but overlooked subsequent 18% eleven-week reversal to the upside ending December 31. Gave up small gains in the Dow and S&P over its 26-week sell signal, but missed the Nasdaq blow out.

01/23/00
01/30/00

1 week

Buy

Stocks

11008-10941
-2%

1402-1394
-1%

4096-3940
-1%

One-week switchback shows small losses.

01/30/00
06/04/00

18 weeks

Sell

Cash/Short

10941-10815
-1%

1394-1468
+5%

3940-3822
-3%

Eighteen week sell signal okay for Dow and Nasdaq, but foregone gain for SPX.

06/04/00
06/25/00

3 weeks

Buy

Stocks

10815-10543
-3%

1468-1455
-1%

3822-3912
+2%

Small losses in big caps, small gain in techs, in volatile markets.

06/25/00
07/09/00

2 weeks

Sell

Cash/Short

10543-10647
+1%

1455-1476
+1%

3912-3980
+2%

Another short trade gives up small gains as model reacts to tape changes while looking to be on right side of any sustained move.

07/09/00
07/30/00

3 weeks

Buy

Stocks

10647-10522
-1%

1476-1430
-3%

3980-3767
-5%

Three-week trade yields moderate losses as model gets whipsawed by trading-range behavior.

07/30/00
08/20/00

3 weeks

Sell

Cash/Short

10522-11080
+5%

1430-1499
+5%

3767-3953
+5%

Model once again on wrong side of three-week trade, as momentum falters in continued trading range.   Market reminiscent of 1994 market, but this model more sensitive than earlier version, reacting to head fakes, while likely ensuring early detection of persistent market direction.

08/20/00
09/24/00

5 weeks

Buy

Stocks

11080-10808
-2%

1499-1439
-4%

3953-3741
-5%

Continued trading range promotes another losing trade.

09/24/00
05/20/01

34 weeks

Sell

Cash/Short

10808-11338
+5%

1439-1313
-9%

3741-2306
-38%

Sell signal lasted eight months, during which S&P lost 9%.  Bear market confirmed during this trade, at 28% below high.  Nasdaq plunged 38% during trade.  Its bear-market low stands at 68% below high.  Dow was star here, actually rising 5%, recovering from near-bear market low of almost 20%.

05/20/01
06/17/01

4 weeks

Buy

Stocks

11338-10645
-6%

1313-1208
-8%

2306-1989
-14%

Poor buy signal, with significant losses all around. Strong counter-trends, lasting just weeks, give model grief, until clearer intermediate to long-term trends emerge.

06/17/01
12/09/01

25 weeks

Sell

Cash/Short

10645-9921
-7%

1208-1140
-6%

1989-1992
+0%

Six-month sell signal moderately successful, although subsequent buy signal missed bottom of ten-week tradable rally from bear-market lows of Dow 8236 (-30% from high), SPX 966 (-37%), and Nasdaq 1423 (-72%) following 9/11.

12/09/01

02/10/02

9 weeks

Buy

Stocks

9921-9885

-1%

1140-1112

-2%

1992-1847

-7%

Two-month buy signal incurs small SPX loss, continuing pattern of losing short-lived buy trades dating back to beginning of bear market in early 2000.

02/10/02
12/01/02

42 weeks

Sell

Cash/Short

9885-8863
-10%

1112-935
-16%

1847-1485
-20%

Ten-months sell signal avoids substantial losses in SPX and Nasdaq, less so in Dow.During this signal the indexes hit multi-year lows in October, 2002, from peaks in Q1, 2000: 11723 to 7286 (-38%) for Dow; 1527 to 777 (-49%) for SPX; 5049 to 1114 (-78%) for Nasdaq.

12/01/02
01/26/03

8 weeks

Buy

Stocks

8863-7990
-10%

935-847
-9%

1485-1325
-11%

Badly-timed two-month signal; 90% of damage in last two weeks, as geopolitical and earnings worries tank market.

01/26/03
04/27/03

13 weeks

Sell

Cash/Short

7990-8472
+6%

847-915
+8%

1325-1462
+10%

Three-month sell signal gives up gains all indexes, mostly over last two weeks.Trading-range-bound market since last December catches model on wrong side of last two trades.

04/27/03
01/06/08

245 weeks

Buy

Stocks

8472-12827
+51%

915-1416
+55%

1462-2499
+71%

Record-long four and one-half year buy signal shows solid gains.

01/06/08
04/20/08

15 weeks

Sell

Cash/Short

12827-12825
0%

1416-1388
-2%

2499-2408
-4%

Fifteen-week sell signal is a wash for the Dow and slightly successful for the SPX and Nasdaq.

04/20/08
06/08/08

7 weeks

Buy

Stocks

12825-12280
-4%

1388-1362
-2%

2408-2459
+2%

Ten-week buy signal shaves 2% from our benchmark index and splits results on the Dow and Nasdaq.Spike in oil prices and poor jobs report tank recovering market and trip new sell signal as recession fears grow.Increased volatility associated with more frequent switch signals.

06/08/08
10/12/08

18 weeks

 

Sell

Cash/Short

12280-9388
-24%

1362-1003
-26%

2459-1844
-25%

Four-month signal avoids significant losses all indexes, as market enters bear market and slow-motion crash prior to surge on Oct 13.

10/12/08
07/04/10

90 weeks

Buy

Stocks

9388-9744
+4%

1003-1028
+2%

1844-2094
+14%

Twenty-one month buy signal yields unimpressive results as market sinks 16% from recovery high over 10 weeks.Buy signal given over weekend with S&P 500 at 899.As bad luck would have it,12% rally on following Monday marked end of day purchase at 1003, thus reducing this buy signalís return by that very same 12 percentage points (2% v prospective 14%).Those of us buying S&P 500 ETFs earlier in the day fared better than 2%. With reinvested dividends, the respective returns were 10, 8, and 16%.

07/04/10
07/25/10

3 weeks

Sell

Cash/Short

9744-10525
+8%

1028-1115
+8%

2094-2296
+10%

A 20-month bull run was interrupted by a severe correction lasting 10 weeks from April into early July.This short, sharp correction fooled the model into a late sell signal just before the primary downtrend bottomed.The switchback buy signal followed in three weeks, but not before the year-to-date damage was done, a fact that will not escape the modelís revision for 2011. See fast sell signals in 1996, 1997, and 2000 for subsequent historical results.

07/25/10
08/18/13

160 weeks

Buy

Stocks

10525-15011
+43%

1115-1646
+48%

2296-3589
+56%

Three-year buy signal shows solid gains all around.Tack on another 11% for SPX reinvested dividends.

08/18/13
09/22/13

5 weeks

Sell

Cash/Short

15011-15401
+3%

1646-1702
+3%

3589-3765
+5%

Five-week sell signal regrets (gives up) gains of 3 to 5%, depending on the index. Dow and SPX mark new all-time highs after nearly 5% pullback. Market volatility was enhanced by the Syrian conflict, budget and debt ceiling political wrangling, and the Fedís intentions on tapering their easy-money purchasing program.To be continuedÖ

09/22/13
12/14/14

64 weeks

Buy

Stocks

15401-17181
+12%

1702-1990
+17%

3765-4605
+22%

Nice gains over 15 months. The switch to a sell was triggered just one week after all-time highs for the Dow and SPX.

12/14/14
02/22/15

10 weeks

Sell

Cash/Short

17181-18117
+5%

1990-2110
+6%

4605-4961
+8%

Ten-week signal looked good end of December and all of January.S&P 500 broke out to new high in February over three-week rally. Model gives up on sell signal and regrets gain of +6% for our benchmark index.

02/22/15
03/15/15

3 weeks

Buy

Stocks

18117-17977
-1%

2110-2081
-1%

4961-4930
-1%

Market and model looking for sustained breakout trend and not finding it.Model reflects marketís volatility as short 3-week buy signal shows small losses.

03/15/15
03/22/15

1 week

Sell

Cash/Short

17977-18116
+1%

2081-2104
+1%

4930-5011
+2%

Volatility continues as market pops for the week.Two of the modelís significant technical indicators switch to buy, along with help from momentum and monetary indicators.The Fed again bats for the market, hitting a homerun with dovish announcement. A one week sell to buy switch trade is a first for this yearís model and for the live results in this table.The modelís recent short signals are a reflection of market confusion, as both the market and model look for a sustained trend one way or the other.

03/22/15
03/29/15

1 week

Buy

Stocks

18116-17976
-1%

2104-2086
-1%

5011-4947
-1%

Technicals whipsaw model as market turbulence continues in losing week. Sequence of short signals with small losses frustrating, last in sequence typically settling as noteworthy winning trade. See sequence ending 09/24/00 in this table and others that follow short signals 4 weeks or less.

03/29/15
04/12/15

2 weeks

Sell

Cash/Short

17976-17977
+0%

2086-2092
+0%

4947-4988
+1%

Short signal gives up fractional regrets as recent pattern of whipsaws continues based on currently dominant trend-following indicators. Sequence of short signals with small regrets exasperating, yet patience should pay off when the market and model settle into more sustainable trend.See sequence in preceding comment.

04/12/15
06/07/15

8 weeks

Buy

Stocks

17977-17767
-1%

2092-2079
-1%

4988-5022
+1%

Eight week buy signal sheds small losses in two of three tracking indexes.Losing streak continues for this yearís short buy signals.Turbulence and market confusion continue, with Dow now negative year-to-date.Persistent 2040-2131 less than 5% top to bottom sideways trading channel responsible for frequent switch signals, as modelís sensitized momentum and trend indicators look for the winning side of a longer-term trend.See frequent trades in 2000-2003.Many short, either losing or regret trades, yet the modelís subsequent live cumulative returns since the 2000 high through 2014 were 177% for the standard strategy and 224% for the aggressive strategy, versus 78% for the buy-and-hold strategy.

06/07/15
10/11/15

18 weeks

Sell

Cash/Short

17767-17132
-4%

2079-2017
-3%

5022-4839
-4%

Eighteen-week signal mildly successful over volatile period.On a week-ending basis, the market hit a low of -8%, -12% based on daily closings.Week-ending market gain of 4% over the past two weeks (7% in 9 trading days) cut into losses during this trade, convincing the model to issue a new buy signal.Primary downtrend confirmed during this time at a 1921 end-of-week low, with jury still out on whether a new primary uptrend is in place.A closing week at 2075 or above going forward from this October 11 date would confirm a new primary uptrend, justifying the buy signal just issued.

10/11/15

11/15/15

5 weeks

Buy

Stocks

17132-17483

+2%

2017-2053

+2%

4839-4985

+3%

Five-week trade shows minor gains as the model sniffed out a primary uptrend that jumped about +12% over 9 weeks.Recent short primary trends during intermediate to long flat trends (we've had a one-year trendless market) give the model headaches, primarily because its trend following and oscillating indicators flip around.That's the disadvantage.The potential advantage is the reasonably early identification of a more sustained up or down trend.The new sell signal says that the model believes we have re-entered a primary downtrend.

11/15/15

12/27/15

6 weeks

Sell

Cash/Short

17483-17528

+0%

2053-2057

+0%

4985-5041

+1%

Six-week signal regrets minor gains.Remarkably, this is the 9th switch signal this year for a model that averages just 1.4 trades per year, never more than 6 switches (1978) in any of the previous 45 years, 4 during an unstable 2007, and no more than 3 during several other volatile years.Itís a schizophrenic market, a market where hardly anyone is making money. This yearís model is either out of its mind (like the market) or looking to catch early a sustained change in market directionÖ or both.

12/27/15

01/10/16

2 weeks

Buy

Stocks

17528-16399

-6%

2057-1924

-6%

5041-4638

-8%

No way to spin this.The model got caught on the wrong side of a devastating week for the stock market, worst year-opening week ever for the Dow and S&P 500:

Dow -6.2%, SPX -6.0%, Nasdaq -7.3%.

The result is a two-week switchback trade.The 2015 model was overly sensitive to this marketís persistent trendless, random, and unstable behavior.The next signal will reflect a more stable revised model for 2016.

01/10/16

03/06/16

8 weeks

Sell

Cash/Short

16399-17074

+4%

1924-2002

+4%

4638-4708

+2%

Looked good for 5 weeks as the SPX dipped -9%.Subsequent 3 week sharp rally flipped model to buy with posted 4% regret.The current model is more stable with 1/3 less trades than previous, so weíll see how it works out in upcoming trades.

03/06/16

11/06/16

35 weeks

Buy

Stocks

17074-18224

+7%

2002-2128

+6%

4708-5166

+10%

Modestly successful signal during turbulent year characterized by bizarre, unpopular, and close presidential campaign, dicey US and global economics, SPX daily losing streak not seen since the beginning of the 1980 bear, and angst over Fed change in rate policy.Current model exhibits greater stability during actual use than model in 2015.

11/06/16

01/08/17

9 weeks

Sell

Cash/Short

18224-19887

+9%

2128-2269

+7%

5166-5532

+7%

The sell signasl was issued just before the presidential election as the market weakened and the modelís technical, monetary, and sentiment indicators turned south. The stunning election result and subsequent surge in upside momentum Trumped the model.By the end of the year the modelís technicals improved, but not enough to overcome its negative indicators. The model then gave a buy signal one week into the new year.Is optimism ahead of realistic expectations? The new year will be telling.To be sure, the modelís revision for 2017 will take into account its disappointing performance in 2016.

 

01/08/17

?

? weeks

Buy

Stocks

19887-?

?%

2269-?

?%

5532-?

?%

Current signal.

 

 

Success is not final, failure is not fatal: it is the courage to continue that counts.

Winston Churchill

Note:
See download page for pdf files and Excel workbook that include live time series of the S&P 500, timing model scores, buy/sell bands, switch signals, T-Bills, and dividend yields from 1990 forward.

Last revised 20 Feb 2017


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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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