Investment Strategies / Mechanical Investing❤
No. of Recommendations: 20
With some of my newly found time from a forced early retirement, I have done some shallow statistical assessments of the predictive value of the timing signals I track on a weekly basis. With Google Gemini’s assistance.
I have tracked about 23 timing signal values weekly since March 2019. The signals are a mix including the (four) historical BearCatchers, several technical chart signals such as DMI, PPO, and some breadth/warning indicators, including a few of Zeelotes’ published items, using cheap paid or free data sources. The signals are intermediate term or short term.
Here are some assessments.
There is nearly zero statistical validity regression-wise in predicting the value of the S&P forward 1 or 2 month returns, in either of two metrics:
* The net total of Bullish - Bearish signals (which has oscillated between -15 most negatve and 15 most positive)
* The 1 week or 2 week change in that net total.
This should be kind of expected as we have been in a bull market for most of the duration of time since early 2019 - 70-73% of the 1 month and 2 month returns have been positive.
However, there are a few useful insights.
The highest median and average 1 month and 2 month (especially) forward returns were when the signal state was bearish to very bearish. (in the bottom 30% of dashboard values ie below -6).
Gemini: “Overall, both "1 month chg" and "FWD 2 mth chg" tend to be higher in the lowest decile (D1) of "TOTAL" values and lowest in the mid-range deciles (D6 and D7). This suggests that very low "TOTAL" values might be associated with slightly higher future changes, while middle-range "TOTAL" values might be associated with lower future changes.”
So, A neutral dashboard has indicated neutral forward short term returns can be expected.
Also, this seems to reflect the pretty quick snapbacks / v-bottoms we’ve seen from extreme lows.
Similarly, the highest percentage of positive forward 1-2 month returns (88%, 70% & 75%) was when the dashboard is bearish to very bearish (bottom 2 deciles) or very bullish (top 2 deciles) - at either end of the spectrum.
On the efficacy of using NH/NL BY ITSELF (in THIS timeframe) as a bearish indicator worthy of selling,
77% of the times that the NH/NL flipped to bearish in a given week, the S&P was up from that point both 1 and 2 months later.
Drawdowns in the last 6.5 years
I looked at the instances where the S&P was in a drawdown of more than 8%. Obviously, the 20 covid bear and the 22 interest rate bear make up most of those occurrences. Then I looked at the state of the intermediate signals 4 weeks before those drawdowns.
The most consistently bearish signals in advance of that significant drawdown were
1.) the S&P PAMA 200 (breadth) below 60% (bearish 93% of the time 4 weeks before that level of drawdown),
2.) the SMA Slope bearcatcher (bearish 81%),
3.) the market being at least 7% off its high (78%) - indicating that “beyond correction” level had a very high chance of getting worse
4.) Tie: Nasdaq bullish % breadth indicator bearish (74%), and NH/NL indicator was bearish
Those 4 together could be a decent “no, really, Get Out” indicator. Then again, there's some noise in this data (the S&P's been dominated by the big 7-10 for a long time) so who knows. I just try to play defense when things look red and preserve some capital 30 years into serious investing.
Plug - I’ve gotta say that Google’s Gemini AI tool is amazing at its ability to do analysis on Sheets. The drudgery of figuring out spreadsheet formulas, selects, selective table copies or Python scripting is gone (because it does all that as your prompts require). It provides user friendly stats 101 explanations. For the great unwashed, it’s a fit. For data scientists & mathematicians, well there’s R and Python (which Gemini uses under the covers.)
Regards,
FC
No. of Recommendations: 7
I would say that between 2019 and now, what you are measuring is just random noise in a noisy rising market.
SPY started at 250 and now is 662. With 2 sharp, short corrections and one 9 month long dip.
The two corrections, if you got out you sold near the bottom and missed out on the equally sharp recovery.
The 2022 dip, you would probably gotten smacked by the 2 whipsaws (4/2022 and 8/2022)
Timing is hard and most timing schemes take you out of the market too frequently.
[BTW, yahoo charts suck these days.]
Look at SPY 1/2006 to 1/2010. That's what Ken Fisher describes as a typical bear market, and what some here have called "rounded top". A slow decline and then a plunge. The goal of timing is to swallow the lumps of the first part of the decline and get out before the plunge.
FWIW, the GTT timing I use signaled to get out on 1/6/2008 and stayed out until 6/7/2009. (The bottom was 3/2/2009.)
"A stock market correction is a market index's significant, but temporary, decline of at least 10% but less than 20% from its recent peak. These declines are common and natural, often triggered by factors like rising inflation, negative economic data, or shifts in market sentiment, and they typically resolve without developing into a prolonged bear market"
" Corrections are relatively common in the stock market and are considered a normal part of the economic and market cycle. "
No. of Recommendations: 0
I have a subscription to ChatGPT and the things one can do as a non-coder with Python are amazing.
No. of Recommendations: 4
FC, I noticed you referred to four historical Bear Catchers. Could you specify the four you looked at?
I’m familiar with SMA slope, NH/NL, and DBE, but maybe not the fourth.
No. of Recommendations: 5
It's the 26w SMA above/below the 52w SMA, originally by tpoto. Bullish if the index is above its 26w SMA or the 26w SMA is above the 52w SMA. IIRC it emerged from the famous thread "Getting Away from the Bear" in Sept 2008. It's similar to this SMA slope post
https://yorickm.com/Message.php?pid=27035690, but the loss of the original fool boards
and datahelper archive is making history difficult to find. (The Yorick save is the best that could be done).
FC
No. of Recommendations: 2
I would say that between 2019 and now, what you are measuring is just random noise in a noisy rising market. Yeah, I agree. These were mostly implemented well after 08-09. In the '22 bear I was mostly out of equities by the end of January, and actually ended up getting back in a few months too early, got chewed up in the summer headfakes and snapbacks to the bottoms, trying not to miss the recovery. Still beat "the market" by a few percent that year, but it was a lot of (in the end) unnecessary trading. Sound and fury, and all that.
Essentially what these signals have done is turn the Vs into \--/ or whatever. It's a 4th quarter "protect" defense (not prevent); gonna give up some yards but not lose a lot.
Also, megacap tech (the S&P10?) has become like a "black hole" of money over this time.
FC
No. of Recommendations: 3
No. of Recommendations: 2
For real suction, go with the top 5!
Or the Nasdaq 100!
For extra credit, skip the #1 pick and go with #2-#6.
No. of Recommendations: 0
Do you have a Gtr link for NAS consolidators that skips the #1 pick and chooses between picks #2 to #6?
Thanks
