Market volatility has exploded recently and prices have declined precipitously. Here are links to 14 cautionary Trader Edge articles that were published during the past few months. These articles will give you some insight into the current economic and market environments and the risks ahead. Continue reading
When forecasting recessions and market reversals, sometimes it helps to think outside the box. Everyone knows about technical indicators and economic data. Some traders follow market breadth and sentiment, but here is one that you may not follow. Continue reading
Tomi Gilmore's recent MarketWatch article ("Bearish divergence is warning investors not to buy the dip in the stock market") reminded me how effective divergences can be in identifying market reversals - well before they occur. Bearish divergences occur when an indicator makes lower highs and lower lows, while price is making higher highs and higher lows. In this situation, something has to give, and it is usually price. Conversely, Bullish divergences occur when an indicator makes higher highs and higher lows, while price is making lower highs and lower lows, indicating that prices will soon rebound.
When applied to the S&P 500 index (SPX) weekly data, the Relative Strength Index (RSI) has been making lower lows and lower highs since 2014, while the SPX has been making higher highs and higher lows - until free-falling in late August. Continue reading
This article presents the Trader Edge aggregate neural network model forecast for the August 2015 non-farm payroll data, which is scheduled to be released tomorrow morning at 8:30 AM EDT. Continue reading
In Sue Chang's MarketWatch article last week titled "China's economy may be in worse shape than people think," the author quotes analyst David Straszheim at Evercore ISI: “Our proprietary Synthetic Growth Index (SGI) fell 1.1% month-on-month in July, and was also down 1.1% year-on-year.” Chang reports that "the SGI is a weighted average of seven components including railway freight, airline passengers, and electricity consumption," which allows Evercore ISI to calculate a measure of China's GDP that is independent of the unreliable and self-serving Government GDP fantasy figures. Continue reading
Volatility has increased significantly in the last few weeks and traders are now in panic mode. The best way to avoid panic is to use a simple, systematic, back-tested strategy that has proven to to be successful over decades. In June of 2012 I wrote an article titled "Take the First Step Toward an Investment Process."
In that article, I used the S&P 500 index (SPX) and the NASDAQ 100 index (NDX) to demonstrate that a "17-month moving average strategy outperformed the buy-and-hold approach for periods beginning in 1950, 1960, 1970, 1980, 1990, and 2000. For each of those periods, the maximum drawdown for the 17-month moving average strategy was dramatically lower than the corresponding maximum drawdown for the buy-and-hold approach." In other words, it had higher returns AND less risk. Continue reading
The August 31, 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
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More Evidence of Negative GDP Growth in China
In this morning's MarketWatch article titled "China exports fall for second month in a row," Grace Zhy, Mark Magnier, and Rose Yu report that year-over-year exports and imports in China fell by 5.5% and 13.8% in August and by 8.3% and 8.1% in July. In other words, China's exports and imports have both declined significantly over the past year. This is consistent with negative GDP growth in China, which was independently confirmed by analyst David Straszheim at Evercore ISI (see China's Economic Growth is Actually Negative"). Continue reading →