Market Timing

market timing signals

If you want to invest successfully over the next decade, you have to implement a market timing strategy. This requires you to follow a series of market timing indicators. Bear markets have the potential to crush investor returns and can shred thousands of dollars from your retirement portfolio in the process.  Market volatility and risk have grown at an exponential rate since the 1950s and since the advent of the derivatives markets and is here to stay. If you can't identify market inflection points you're in for a roller-coaster ride - it's as simple as that.  Trends break, economies shift structurally, and buy and hold is a sub-optimal strategy. You need a market timing strategy if you plan to stay invested in the market and if you plan to maximize your returns.

Fed Model

The Fed Model looks at the difference between the earnings yield on a stock market index and the 10-Year government bond yield. The Fed Model assumes that investors will be indifferent between investing in equities and bonds when the difference between the two yields is zero.

A Market Signal to Assist with Asset Allocation

For an “average risk” passive investor, SEENSCO advocates dividing their investment money between both bond and equity funds (or ETFs). Justification for increasing (decreasing) the proportion of funds allocated to equities depends on whether the equity market is under- (over-) valued on a "relative-to-bonds basis." As a general rule of thumb, it is suggested that investors divide their holdings equally 50-50 between the two asset classes when equity markets are relatively fairly valued. To answer the question of whether the market is relatively fairly valued, we use a variation of the "Fed Model."

Methodology. The Fed Model looks at the difference between the earnings yield on an index and the 10-Year government bond yield. The Fed Model assumes that investors will be indifferent between investing in equities and bonds when the difference between the two yields is zero. Each monthly report you will find recommended changes in asset allocations. This data helps identify new emerging trends that are starting to develop in the market and gives you the opportunity to adjust allocations early in their development. Overtime you will see how effective this tool is at guiding your asset allocations, and you have the ability to spot changes early.

Graham Classic Central Value Model

This is a valuation model developed by Benjamin Graham and was showcased in his classic text on value investing. It is a method of determining buying and selling points in the general market through the determination of a central value for a broad marker index.

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This is a valuation model developed by Benjamin Graham and was showcased in his classic text on value investing. It is a method of determining buying and selling points in the general market through the determination of a central value for a broad market index.

Methodology. The original Benjamin Graham central valuation model involves determining an equilibrium or fair-value estimate for the market as well as an upper and lower valuation range based on historical interest rate and fundamental data. Graham estimated the central value, or fair value, of the market by capitalizing the average earnings per share over the previous 10 years by an “equilibrium” multiplier equal to 1 divided by k-times the yield on AAA-rated corporate bonds. Graham then established lower  and upper price bounds equal to 80% and 120% of the central value estimate respectively.  In Graham’s original model k=2. That is, he capitalized earnings at 1 divided by twice the AAA-rated corporate bond yield. While that might have worked in the 40s and 50s, capitalizing at k=2 in today's fast-moving market environment does not provide satisfactory results.

 

Graham Modern Central Value Model

This updated Benjamin Graham central valuation model involves determining an equilibrium or fair-value estimate for the market by inserting a linear price line through a series of historical data and then establishing various buy/sell quadrants.

Know when the Market is Ready to Trend with this Powerful Market Timing Tool.

This is a second valuation model developed by Benjamin Graham and was showcased in his classic text on security analysis. It is a method of determining buying and selling points in the general market through the determination of a central value for a broad market index.

Methodology. This updated Benjamin Graham central valuation model involves determining an equilibrium or fair-value estimate for the market as well as an upper and lower valuation range based purely on historical stock price data. Graham estimated the central value, or fair value, of the market by inserting a linear price line through a series of historical data. He then established various quadrants above and below the linear price line that signaled moderate to high over/under-valuation.  While Graham never detailed what statistical process he followed to determine the positioning of the linear price line, we use linear regression analysis.  Using the regression line and valuation bands, investors can judge when an index is overbought or oversold. Investors might set narrow channels at one standard deviation or wide channels at 2 standard deviations. This setup is easily traded with stock prices below the lower bound as entry points and stocks above the upper bound as exit points.

 

warren buffett model

This is a valuation model utlized by Warren Buffett. On multiple occassions Buffett has explained that the percentage of total market cap relative to the Gross National Product is probably the best single measure of where valuations stand at any given moment.

moving average model

This is designed to give a read on the total amount of short-term and long-term momentum in the stock market. It can help investors see changes in the market and take action early on the upside/downside.

shiller p/e model

The Shiller P/E is a valuation measure used to assess the extent to which a broad equity index is under or over-valued. The Shiller P/E has attracted a great deal of attention given its effectiveness in signalling broad economic recessions and is alternatively considered a "cyclically adjusted P/E ratio."

How Warren Buffett Times the Market

This is a valuation model utilized by Warren Buffett. On multiple occasions Buffett has explained that the percentage of total market cap relative to the Gross National Product (GNP) is probably the best single measure of where valuations stand at any given moment.

Methodology. The basic postulate of the Warren Buffett Market Timing Model is that, over the long run, stock market valuations will fluctuate between the historical mean value for the series as well as some optimized upper-bound representing k-standard deviations of the mean. A higher current valuation that breaches the upper-bound is likely to signal an overbought market and the expectation of lower future returns. On the other hand, a lower current valuation closer towards the mean value, or below the mean value, of the series is likely to signal an oversold market and higher expected returns in the future.

Not even 10 minutes a month is all it takes to time the market like Buffett. This indicator identifies market trends and momentum strength. At a glance you'll see the extent to which the market is under- or over-valued.

 

Each Month You Receive Access to the Newest Market Signal

This model (or system) is designed to give a read on the total amount of short-term and long-term momentum in the stock market. It can help investors see changes in the market and take action early on the upside/downside. The key to this system is that it requires persistent and pervasive movements in stock prices and trendlines to signal inflection points in the market and is meant to filter-out day-to-day noise and focus only on the signals.

Methodology.  One of the easiest ways to gauge the long-term direction of the market is to compare the index with its 200-day moving average. If the index is above the 200-day moving average, then the market is most likely in an uptrend. Alternatively, if it is below the 200-day moving average, then it is most likely in a downtrend. Also, the distance between the index value and the moving average indicates how strong the trend is. The greater the spread between the index and the 200-day moving average, the stronger the trend. The market is most likely consolidating or oscillating if the spread remains tight and the index criss-crosses its moving average.

Let this Indicator be Your Friend and Guide Your Portfolio to Greater Long-Term Returns

The Shiller P/E is a valuation measure used to assess the extent to which a broad equity index is under or over-valued.  The ratio was popularized by Yale University professor Robert Shiller, who won the Nobel Prize in Economics in 2013. The Shiller P/E has attracted a great deal of attention given its effectiveness in signalling broad economic recessions and is alternatively considered a "cyclically adjusted P/E ratio."

Methodology. The Shiller P/E is founded on the work of renowned investors Benjamin Graham and David Dodd in their 1934 investment guide “Security Analysis.” Graham and Dodd recommended using a multi-year 5 or 10 year average earnings per share (EPS) to compute P/E ratios to control for cyclical effects. The numerator of the Shiller P/E is the real S&P 500 or S&P/TSX price index and the denominator is the moving average of the preceding 10 years of real reported earnings. "Real" indicates that the stock index and earnings are adjusted for inflation using the consumer price index (CPI). The purpose of the 10 year moving average of real reported earnings is to control for business cycle effects on earnings. Many analysts believe that the Shiller P/E should be considered a mean reverting series.

contrarian model

Many analysts rely on contrarian investment rules to determine their market entry and exit points. Contrarian rules are founded on the premise that the majority of investors are wrong as the market approaches peaks and troughs. Contrarians try to determine when the majority of investors are either bearish or bullish and then trade in the opposite direction.

Yield Curve Model

Monitoring differences in bond yields is known as watching the yield curve, and it can be extremely useful for identifying turning points in the economy and stock market, such as the beginning of an economic expansion or bull market, or the start of a recession or bear market.

equity risk premiums

The equity risk premium represents the additional return that investors require for holding stocks compared to long-term government bonds. The importance of the equity risk premium is that most analysts incorporate an estimate of it in their valuation models and in determining their required returns.

Outperform Over Time with Long-Term Contrarian Signals

Many analysts rely on contrarian investment rules to determine their market entry and exit points. Contrarian rules are founded on the premise that the majority of investors are wrong as the market approaches peaks and troughs. Contrarians try to determine when the majority of investors are either bearish or bullish and then trade in the opposite direction.

Methodology. Contrarian investors generally believe that stock market participants are wrong at peaks and troughs. Thus, they tend to increase their positions in equities near a market trough--to take advantage of an expected market rise. At a market peak, these investors expect the market to be fully invested in equities with a low percentage in bonds--when they should be selling stocks and taking profits. Contrarian investors watch for the stock market cycle and/or the business cycle to approach one of the extremes and act contrary--gradually increasing positions in equities near bottoms and decreasing positions in equities near tops.

 

Win in the Market by Trading the Yield Curve

Monitoring differences in bond yields is known as watching the yield curve, and it can be extremely useful for identifying turning points in the economy and stock market,  such as the beginning of an economic expansion or bull market, or the start of a recession or bear market.

Methodology. The yield curve conveys a lot of powerful information and is one of the best indicators available for timing changes in economic and stock market activity. A yield curve is basically a plot of the yields of various government bonds at different maturities. Research conducted by the Federal Reserve has concluded that differences between short-term and long-term yields are highly correlated with economic activity and, in particular, differences in 1-year and 10-year yields. What we like to watch are the yields on 1-year, 3-year, 5-year and 10-year bonds. Investors that time their market entry/exit points based on changes in the shape of the yield curve look for the yield curve to flatten or invert to start reducing their stock positions. Once the yield curve returns to normal (i.e. becomes positively sloped), and displays a degree of stability, investors start to increase their stock positions.

 

Get a Sense of what kind of Returns You Should be Expecting from the Market

The equity risk premium represents the additional return that investors require for holding stocks compared to long-term government bonds. The importance of the equity risk premium is that most analysts incorporate an estimate of it in their valuation models and in determining their required returns. When viewed in an American context, it reflects the investor’s expected excess return on the S&P 500 against 10-year federal government bonds.

Methodology. Estimating equity risk premiums can be a difficult task and differences in estimates frequently explain differences in market valuations. In practice, the most common method of estimating the equity risk premium is to calculate the average historical difference between the mean annual return on the S&P 500 and the mean yield on 10-year government bonds. This method is favored by analyst principally because it is grounded in hard, verifiable, data that allows them to form more objective expectations. Utilizing this method, however, does require that the analyst believe that excess returns are fairly stationary and that, on average, while excess returns may from time-to-time expand or contract, over the long-term they will revert back to the mean.

 

Save Money and Make Time!

"I find SEENSCO's market timing indicators to be a reliable and comprehensive way of actively investing in ETFs. It's also an inexpensive way of accessing insightful data that, one way or the other should be monitored. SEENSCO is also always improving and expanding its services...and their full research reports are simply outstanding.”

 

 

Adam, CFA, retired investment manager

download a sample of the moving average model now

Use this indicator to time long-term trends in the market.  We combine moving-averages, cross-over points and our oscillation indicator into one cohesive tool to help investors better identify market entry and exit points. With as little as 10 minutes of your time each month you can better understand whether the odds are in your favor to prosper in the the stock market.

We believe everyone can succeed at investing with the right strategy!

MomModel1

market timing helps boost risk-adjusteD returns. this is why.

  • Identify when market trends might break
  • Bear markets return with greater frequency
  • Buy-and-hold is suboptimal
  • There is a rising level of volatility
  • Build cash at the top and deploy at the bottom
  • Saves time assessing stock charts and screeners
  • 100% mechanical...and unemotional trading
  • Contrarian signals for when everyone is selling
  • Act defensively and preserve capital
  • Adjust your asset allocation for long-term success
  • Avoid the wrong side of the trade
  • Avoid information paralysis
  • Eliminate human biases
  • Stay focused on the long-term
  • Regain control

OUR NEWSLETTER MAKES IT EASY FOR YOU TO ENTER AND EXIT THE MARKETS AT THE MOST OPPORTUNE TIMES!

At a glance, our newsletter will summarize a series of key market timing indicators signaling upward and downward price trends based on established analytical tools. There is no need to scan hundreds of stock charts anymore, you can now assess long term trend direction quickly and effectively.  You want to focus your portfolio investments in market tracking ETFs and stay invested as long as the trend channel stay intact.

At a glance you can see whether American and Canadian market trends are in a trend transition.   You want to avoid entering the market until the emergence of a long term trend has been established and validated with a trend direction indicator.

At a glance you can instantly see whether markets are going to move into a downward trend. You want to avoid the markets at these times unless you are planning on shorting the markets.

Our newsletter highlights signals drawn from 9 key fundamentals- and momentum-based indicators and summarizes results using a balance of opinion indicator (representing the percentage of indicators signaling accumulate less the percentage of indicators signaling reduce). When the balance of opinion indicator is positive, the odds are positive that a positive trend channel is still intact.

Determine at a glance a recommended bond / equity asset allocation.

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