10-30-2015 AAR Strategy Update Posted

Posted on October 30, 2015 by

The October 30, 2015 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 2015 - Trading Insights, LLC - All Rights Reserved.

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

Recession Model Forecast: 10-01-2015

Posted on October 14, 2015 by

The following article updates the diffusion index, recession slack index, aggregate recession model, and aggregate peak-trough model through September 2015. In January 2015, I created a new explanatory variable for a market-based indicator; I added two new explanatory variables in April and June 2015, and one more in September 2015. After adding a number of new economic and market-based variables recently with very strong explanatory power, I decided to cull three of the original independent variables with the weakest historical performance and most questionable cause and effect recessionary influence. The resulting 19-variable model has a very diverse set of explanatory variables and is very 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 19. The current and historical data in this report reflect the current model configuration with all 19 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 – September 2015

Posted on October 1, 2015 by

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

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Posted in Economic Indicators, Fundamental Analysis, Market Commentary, Market Timing, NFP Forecasting Model, Risk Management | Tagged , , , , , , | 2 Comments

09-30-2015 AAR Strategy Update Posted

Posted on September 30, 2015 by

The September 30, 2015 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 2015 - Trading Insights, LLC - All Rights Reserved.

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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

Overvalued Equities Suggest 58.9% Decline

Posted on September 25, 2015 by

There is a big difference between correlation and causation. When I research data relationships, I always look for plausible, underlying cause and effect relationships. One such relationship is between valuation and future returns, particularly before recessions.

Doug Short's recent article on Advisor Perspectives titled "Equity Valuations, Recessions and Stock Market Declines," demonstrated the relationship between equity valuations and subsequent market declines. As we would expect, greater overvaluations at the end of expansions lead to larger declines in price during ensuing recessions. As of the end of August 2015, the degree of US equity overvaluation was second only to the level preceding the 2001 recession. It was even greater than the level of overvaluation that preceded the 1929-1933 depression. Continue reading →

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Posted in Article Links - External, Economic Indicators, Fundamental Analysis, Market Commentary, Market Timing, Recession Forecasting Model, Uncategorized | Tagged , , , | 3 Comments

Recession Risk Jumps: 09-01-2015

Posted on September 15, 2015 by

Over the past few months, I have written numerous articles about the increasing downside risk in the equity market. After the bottom fell out of the stock market last month, I have been particularly interested in examining the recession model results through August. Here they are.

The following article updates the diffusion index, recession slack index, aggregate recession model, and aggregate peak-trough model through August 2015. In January 2015, I created a new explanatory variable for a market-based indicator and I added another new explanatory variable in April 2015, and another in June 2015.

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. The total number of explanatory recession model variables is now 21. The current and historical data in this report reflect the current model configuration with all 21 variables.

In July 2014, two new explanatory variables were added to the Trader Edge Recession Models and one explanatory variable was replaced. The swapped variables measured similar economic data, but the new series had more predictive power and was more forward-looking. For more information on the changes in July 2014, please see "Two New Improvements to Trader Edge Recession Models." Continue reading →

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

Widening Junk Bond Spreads: Bull Market in Peril

Posted on September 9, 2015 by

In yesterday's MarketWatch article titled "Junk Bond Market: Danger Ahead," Brett Arends reported that

"Since the start of June the yield on the benchmark junk bond index, the Barclays High-Yield Index, has spiked alarmingly as prices have fallen. In practical terms investors are demanding much higher interest rates to compensate for the risk of lending money to companies with a lot of debt."

Why is this important? Because junk bond spreads have historically been a leading economic indicator, which is not good news for stocks.  Continue reading →

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Posted in Article Links - External, Economic Indicators, Market Commentary, Market Timing, Risk Management | Tagged , , | 2 Comments

China’s Equity Futures Volume Drops 99 Percent

Posted on September 8, 2015 by

In this morning's Bloomberg.com article titled "China Just Killed the World's Biggest Stock-Index Futures Market,"  reported that

"Volumes in the country’s CSI 300 Index and CSI 500 Index futures sank to record lows on Tuesday after falling 99 percent from their June highs. Ranked by the World Federation of Exchanges as the most active market for index futures as recently as July, liquidity in China has dried up as authorities raised margin requirements, tightened position limits and started a police probe into bearish wagers."

Continue reading →

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