What's ahead for the markets?

Hi all,

Most of my timing-based ports have switched to hedge mode (IEF) in the last two weeks. I potentially see a correction similar to those last summer (2015) when my timers were already operating out of sample (see attached).

What are your market timers telling about the weeks ahead? Bullish/bearish?


Hedge is on.
http://imarketsignals.com/2016/composite-market-timing-increases-returns-and-reduces-drawdown/



Hi Georg,

looks like that your Vix timer is responsible for triggering a return into stocks after an unexpected market selloff…

Lots of my SA Ports went again to cash, since the 75MA of the market is broken once again.
My private portfolio uses the 200 MA and is still invested. Its hovering around its alltime high with 0-3% DDs since about
5 Weeks.
After the US election and latest at the decission of the FED the market could react and break up or down, so we should
have more clearness…

My macro timer went out of the market yesterday. I don’t rely too heavily on it. It takes a while for something to work OOS before I’m a believer :wink:

My Macro timer says nothing is wrong yet, but that is to avoid BIG down moves, it doesn’t dodge 15-20% “normal corrections”.

I’m curious if there are any decent VIX timers etc that are open source at the moment? It seems VIX is a mean reverting beast and there may be some value to using it as a timing source for anything heavily correlated to the S&P.

On a related note is anyone aware of a way on the screener side of the product to turn on and off the hedge by separate binary events, and not just a continual condition such as VIX is above its 200 day MA etc?

Interesting article on Bloomberg about failure of market indicators.

http://www.bloomberg.com/news/articles/2016-10-19/wall-street-sees-graveyard-of-broken-indicators-in-reform-s-wake

Larry,

there is certainly not much research behind this Bloomberg article. In contrast, if you follow recent posts by Steve Auger and Georg Vrba on the forum and their websites, there is a lot more to learn wrt market timers.

The problem is that these commentators are out of a job if the market tanks so they are always optimistic.

Here is an example:

Then he goes on to say:

With ZIRP and negative interest rate policy there are definitely bank stresses. “You can take that to the bank”. Well I guess that expression needs an overhall for 2016.

Steve

The Bloomberg article references only interest rate spreads and the VIX. In the iM Composite Market Timer we use six component models including the TED-Spread and VIX. Currently four of the six timers are out of the stock market, and the Composite is also out of the market.

A simulation (SPY-SH) from 2000-2016, with all timers having equal weight, gives good returns holding SH when four or more timers point to IEF. Max drawdown of -28% is not so great, but annualized return of 18.6% is good.

Total Return 1,656.37%
Annualized Return 18.61%
Annual Turnover 389.96%
Max Drawdown -27.84%
Overall Winners (49/66) 74.24%
Sharpe Ratio 1.05
Correlation with SPDR S&P 500 ETF Trust -0.41


iM composite timer.png

All:

This looks a lot like the calm before a sell-off storm. My guess is that it is deceiving.  The macro horizon looks pretty positive:  oil has mostly rebalanced, the dollar has roughly stabilized, corporate profits are heading up -- at least on a per share basis, monetary policy is accommodative, and inflation contained.  What's not to like?

That being said the future is largely opaque and I have limited sight.

Bill

iM-Composite Market Timer again in stock market since Nov-7.

Performance from 2009-2016 when switching from stocks to cash:
The simulation period was from March 9, 2009 (when the S&P500 reached its recent lowest level) to October 11, 2016.
The simulated performance using the iM-Composite Market Timer and switching between all the stocks of the S&P500 equally weighted and cash is shown in Figure below. The annualized return was 20.0% with a maximum drawdown of -11.4%.
Over the same period the SPDR S&P 500 ETF (SPY), produced a lower annualized return of 18.7% with a maximum drawdown of -18.6%, and S&P 500 Equal Weight ETF (RSP) showed a return of 21.9% with a maximum drawdown of -22.9%.

Despite being 38% of the time in cash the model produced a similar return as buy-and-hold SPY (or RSP) with lower risk. There were 19 periods when the model switched to cash during the simulation period.


The market is fine, third and final wave of this bull market, and also this bull market is
the beginning of a new secular bull market, here is the case:

  • ATHs
  • Low Unemployment
  • Consumer Spending at record high even with delevaraged housholds
  • Record low interest rate, steep enough yield curve
  • still, everybody is bearish (even this turns)
  • generation Y is huge, it starts to kick in
  • technology effects: IT, big data, energy, biotec
  • low oil prices
  • very constructive vol on up days
  • small caps leading (typical for early bull markets), I am super bullish on small caps!
  • earnings need to come back, but they will
  • bull market of bonds likely to stop within the next 3 Years,
    record capital shift to stocks
  • central banks are not out of ammunition until inflation is back
  • fed model just doing fine https://www.portfolio123.com/fed_model.jsp

Best Blogger on the planet at this subject: http://fat-pitch.blogspot.de/

Just my two cent :wink:

Regards

Andreas