Short and long termed timing models offer trading guidance

I use two market timing checklists when assessing markets. The first is more of a macro intermediate termed view. Long-time readers of this blog will recognise the name “Bear-o-meter”—which is the name I’ve given to a cumulative value given to a checklist of indicators I follow. The next is a short termed system, that I covered on this blogsite about a year ago. It’s been pretty good at picking very near-termed peaks and troughs. But it’s not for the longer termed investor.  Let’s look at what both of these indicators have to say right now.

 

Intermediate termed Bear-o-meter

Bearometer 3 reading

 

The Bear-o-meter is designed to give us a probability reading of market direction over the coming 1-6 months. For those who have followed my work for the past 5 + years, you will recall the signals it gave before the 2011, 2014 and 2015 market corrections. It consists of:

  • Advance / Decline(A/D)  line slope and comparatives to S&P500 slope
  • Trailing PE
  • S&P500 relative to 200 day MA
  • S&P 500 relative to 50 day MA
  • Smart/Dumb money spread
  • Put/call spread
  • Dow INDU vs. TRAN correlation
  • Seasonality
  • # stocks over 50 day MA levels
  • VIX level
  • NYSE New High/New Low level

 

Various indicators are assigned different weightings. The grand total is tallied according to the values each indicator reads on a given day. From there, a zone of buy, neutral or sell is indicated.

Recall that this compilation of indicators is intermediate termed in nature. It also needs to be revisited regularly.

At this time, we have a “neutral” reading on my Bear-o-meter”, but that neutral reading is close to the “sell” end of the zone. I will re-tally in a week, and report on this blog if we move into sell zone. Charts of the Smart/Dumb Money (www.sentimentrader.com) and the VIX below show you why the indicator is near the bearish end of its scale. However, the MA’s and A/D line are bullish on all counts. So we have a neutral reading.

Smart dumb $

vix short

 

Short termed trading system

As noted above, I covered this trading system a year ago. Like all good systems, it is simple to understand, and thereby highly useable by most traders. The fault of most systems, even the Bear-o-meter, is their complexity. Less is more.

Below is the chart for my simple short termed timing system. It’s this simple:

 

SELL – If we get a lineup of an overbought stochastics, RSI and an upper Bollinger Band touch. They must happen simultaneously and coincidentally. 2/3 don’t count.

BUY- If we get a lineup of an oversold stochastics, RSI and a lower Bollinger Band touch. As with a sell signal, they must occur simultaneously.

S&P timing

As you can see on the chart, we have a short termed “SELL” indication from this system. The Bear-o-meter, on the other hand, is in neutral (although the lowest end of the neutral zone) territory.

Thus, my thoughts for the time being are that we may see a relatively short termed, shallow correction in the coming days. If we get a bearish reading from the Bear-o-meter compilation, we might expect a higher probability for an extended correction. That’s not the case at this point of writing.

8 Comments

  • Hello Keith,

    I don’t know when I’d get the chance so I will just do it here. Do you ever consider using options to capitalize on your TA?

    cody

    Reply
    • No–we watch vix and put/call
      but we dont trade options individually

      Reply
  • This is excellent Keith. I love the short and intermediate term perspectives – extremely useful. It seems your models are in line with what we would find seasonally – more bearish Aug-Oct. There are some that are calling for the S&P to make new all time highs to 2300 this year and maybe even 2500 next year. What are your thoughts on this? Thanks so much.

    Reply
    • Thanks Jim
      I don’t have a specific upside target for markets, other than we are still in a macro bull market, and after a very, very likely correction in the next 1-3 months I would be bullish–therefore, a big buyer on any meaningful correction (ie 10%+)
      Based on historic cycles, we should have until 2020 +/- a year for strong bull markets to continue, but plenty of volatility along the way.

      Reply
  • I like your prognostications and I like how you share your methods. You do follow seasonality so all bets are off in the summer. Who woulda thunk we would have the rally we’ve had in July – it’s a bonus. But it could all vanish in August or September.

    Reply
  • I don’t see how the sp500 will give up this new all time high in the near future. Especially after trying to to get through 2135 level for so long. Ceiling has become the floor

    Reply
  • Hi Keith, your Value trend bear-o-meter is excellent.
    Is it possible for you to update and post it permanently on your site.

    Secondly, mid last year a lot of the indicators (MACD/RSI ) were showing a divergence and one of the reasons one would consider cash holdings in anticipation…..however this divergence continued for a long period…while the price continued north. I came around this problem by monitoring 10 MA on monthly charts and exited when close was violated . This allowed staying in the market longer and not guessing when the divergence truly reflected in the price.
    keep up the good work…nadir

    Reply
    • Thanks nadir
      This is why we combine a few indicators such as those in my short and long term systems. There is a point of having “too many” indicators–so what I try to do–especially with the Bear-o-meter — is to use indicators that don’t duplicate and tend to work well for their intended time horizon.
      I dont usually post Bear-o-meter readings unless there is a material change from a zone

      Reply

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