Model Flashes US Recession Warning: 02-01-2016

The following article updates the diffusion index, recession slack index, aggregate recession model, and aggregate peak-trough model through January 2016. Throughout 2015, I added a number of new economic and market-based variables with very strong explanatory power to the recession model. This allowed me to cull three of the original independent variables with the weakest historical performance and most questionable cause and effect recessionary influence. The current 20-variable model has a diverse set of explanatory variables and is quite robust.

Each of the explanatory variables has predictive power individually; when combined together, the group of indicators is able to identify early recession warnings from a wide range of diverse market-based, fundamental, technical, and economic sources. After the latest additions and deletions, the total number of explanatory recession model variables is now 20. The current and historical data in this report reflect the current model configuration with all 20 variables. Continue reading

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Posted in Economic Indicators, Fundamental Analysis, Market Commentary, Market Timing, Recession Forecasting Model, Risk Management | Tagged , , , , , , , , | Leave a comment

Non-Farm Payroll (NFP) Model Forecast – January 2016

This article presents the Trader Edge aggregate neural network model forecast for the January 2016 non-farm payroll data, which is scheduled to be released tomorrow morning at 8:30 AM EST. Continue reading

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01-29-2016 AAR Strategy Update Posted

The January 29, 2016 AAR Strategy update is now available on the AAR Subscribers page.  If you are not currently a subscriber and would like to learn more about the strategy, there is a detailed description on the AAR Strategy page.

The AAR strategy is a conservative, long-only, asset allocation strategy that rotates monthly among five large asset classes: large-cap U.S. stocks, developed country stocks in Europe and Asia, emerging market stocks, U.S. Treasury Notes, and commodities. The strategy was inspired by the Ivy League portfolio and uses trend and technical filters to reduce downside risk.

If none of the five candidates pass their respective trade filters, the AAR strategy remains in cash for the month.   Stop-loss orders are used on every trade to control losses and to facilitate position sizing and risk management.

Brian Johnson

Copyright 2016 - Trading Insights, LLC - All Rights Reserved.

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Posted in Asset Allocation Rotational (AAR) Strategy, Market Commentary, Market Timing, Relative Strength, Risk Management, Strategy Development, Technical Analysis | Tagged , , , , , , | Leave a comment

Recession Model Forecast: 01-01-2016

The following article updates the diffusion index, recession slack index, aggregate recession model, and aggregate peak-trough model through December 2015. Over the past 12 months, I added a number of new economic and market-based variables with very strong explanatory power to the recession model (including one at the end of December). This allowed me to cull three of the original independent variables with the weakest historical performance and most questionable cause and effect recessionary influence. The current 20-variable model has a diverse set of explanatory variables and is quite robust.

Each of the explanatory variables has predictive power individually; when combined together, the group of indicators is able to identify early recession warnings from a wide range of diverse market-based, fundamental, technical, and economic sources. After the latest additions and deletions, the total number of explanatory recession model variables is now 20. The current and historical data in this report reflect the current model configuration with all 20 variables. Continue reading

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Posted in Economic Indicators, Fundamental Analysis, Market Commentary, Market Timing, Recession Forecasting Model, Risk Management | Tagged , , , , , , , , | 1 Comment

2015 AAR Strategy Results

The following article reports and evaluates the 2015 results of the AAR strategy. The AAR strategy is a conservative, long-only, asset allocation strategy that rotates monthly among five large asset classes: large-cap U.S. stocks, developed country stocks in Europe and Asia, emerging market stocks, U.S. Treasury Notes, and commodities. It is one of the 25+ proprietary strategies that I trade in my personal account and the only strategy that Trader Edge currently offers on a subscription basis. Continue reading

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Posted in Asset Allocation Rotational (AAR) Strategy, Market Timing, Relative Strength, Risk Management, Strategy Development, Technical Analysis | Tagged , , , , , , | Leave a comment

Earnings Season is Here

Exploiting Earnings Volatility

Exploiting Earnings Volatility

It is earnings season again, which is one of the best times to exploit earnings-related option pricing anomalies. Option traders are savvy, but Earnings volatility is a difficult concept and it affects every option in the matrix differently.When markets move, it is very difficult for market-makers to accurately apply the unique earnings volatility adjustments across the entire matrix. This creates value-added opportunities for option traders with the right tools.

Fortunately, there is a precise framework that quantifies the exact impact of earnings volatility on the value of every option. I introduced this analytical framework in my recent book, Exploiting Earnings Volatility: An Innovative New Approach to Evaluating, Optimizing, and Trading Option Strategies to Profit from Earnings Announcements.

"Exploiting Earnings Volatility also includes two Excel spreadsheets. The Basic spreadsheet employs minimal input data to estimate current and historical earnings volatility and utilizes those estimates to forecast future levels of implied volatility around earnings announcements. The Integrated spreadsheet includes a comprehensive volatility model that simultaneously integrates and quantifies every component of real-world implied volatility, including earnings volatility. This powerful tool allows the reader to identify the precise level of over or undervaluation of every option in the matrix and to accurately forecast future option prices and option strategy profits and losses before and after earnings announcements. The Integrated spreadsheet even includes an optimization tool designed to identify the option strategy with the highest level of return per unit of risk, based on the user’s specific assumptions."

After releasing Exploiting Earnings Volatility last year, I made a breakthrough in applying these tools in my own proprietary trading. Continue reading

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Posted in Earnings, Options, Recommended Reading | Tagged , , , , , , , | 2 Comments

Non-Farm Payroll (NFP) Model Forecast – December 2015

This article presents the Trader Edge aggregate neural network model forecast for the December 2015 non-farm payroll data, which is scheduled to be released tomorrow morning at 8:30 AM EST. Continue reading

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Posted in Economic Indicators, Fundamental Analysis, Market Commentary, Market Timing, NFP Forecasting Model | Tagged , , , , , , | Leave a comment

Dominos Beginning to Fall

I wrote two series of cautionary articles, one in the past few days, and the other in September 2015. Several of the earlier articles referenced China, which is again in focus due to the 7% plunge on Monday. China's manipulated market appeared to stabilize for a brief period after almost-continuous Government intervention, but their problems never went away. Here is the latest update. Continue reading

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Posted in Article Links - External, Economic Indicators, Fundamental Analysis, Market Breadth, Market Commentary, Market Timing, Risk Management | Tagged , , | Leave a comment