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Cam Hui

Cam Hui

Cam Hui has been professionally involved in the financial markets since 1985 in a variety of roles, both as an equity portfolio manager and as a sell-side analyst. He graduated with a degree in Computer Science from the University of British Columbia in 1980 and obtained his CFA Charter in 1989. He is left & right brained modeler of quantitative investment systems. Blogs at Humble Student of the Markets.

Articles by Cam Hui

Two elections, two questions for investors

15 days ago

Get more articles like thisBack to full articleIn the past week, two key elections have been held that have important geopolitical, economic, and investment implications. First, remember this Time magazine cover? I indicated on February 6, 2017 that the cover may have marked Peak populism. 

I suggested at the time to buy France and sell Germany as a pairs trade. That trade has certainly worked out well. Now that Emmanuel Macron is destined to be the President of France, and Angela Merkel is the front runner to win another term as German Chancellor, challenges lie ahead for French-German cooperation in the eurozone. Macron has voiced his objective of greater European integration as part of his electoral platform, the question is, “How much integration is Germany willing to

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The right and wrong ways to use Rydex sentiment

17 days ago

Get more articles like thisBack to full articleRydex funds (now Guggenheim) were early pioneers in offering bull and bear funds, as well as to encouraging switching between bull and bear funds. This innovation attracted short-term traders who had previously been shunned by other mutual fund families. Consequently, Rydex fund assets became an important measure of short-term trader sentiment.
Over the years, I have seen numerous analysts using Rydex data to support their investment conclusions. Most of it has been wrong. The latest came from Dana Lyons, whose conclusion I support, but it was based on the wrong methodology. 

Measure cash flow, not assets!
Many analysts use Rydex asset levels as gauges of sentiment. That approach is problematical for a couple of reasons. As the stock

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Are the Fed and PBoC taking away the punch bowl?

18 days ago

Get more articles like thisBack to full articlePreface: Explaining our market timing modelsWe maintain several market timing models, each with differing time horizons. The “Ultimate Market Timing Model” is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade.
The Trend Model is an asset allocation model which applies trend following principles based on the inputs of global stock and commodity price. This model has a shorter time horizon and tends to turn over about 4-6 times a year. In essence, it seeks to answer the question, “Is the trend in the global economy expansion (bullish) or contraction (bearish)?”
My inner trader uses the trading component of

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What’s next for gold?

22 days ago

Get more articles like thisBack to full articleMid-week market update: My recent sector review was well received, especially when it was framed in the context of how a market cycle rotation works (see In the 3rd inning of a market cycle advance). As I don’t have much to update about the technical condition of the stock market, especially in light of the non-reaction to the FOMC meeting. The SPX remains in a tight trading range between 2380 and 2400.
Under those circumstancees, I thought that I would focus on a popular topic with a number of readers, gold. In particular, gold is important in a market cycle analytical framework. That’s because inflation hedge leadership tends to mark the terminal phase of equity bull cycle.
The gold outlook
Technically, gold prices may be nearing an

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Finding risk and opportunities from the BAML and Barron’s Big Money polls

24 days ago

Get more articles like thisBack to full articleGet more articles like thisBack to full articleYou may think that institutional money managers run in herds, but that is not necessarily true. Different managers have different mandates that color their views. As well, their geographical base can also create differences in opinions in how their view their world and markets. Barron’s published its quarterly Big Money poll of institutional …To access this content, you must be a subscriber.

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The philosophy of this site can be summarized by a variation of an

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Should you sell in May and go away?

25 days ago

Get more articles like thisBack to full articlePreface: Explaining our market timing modelsWe maintain several market timing models, each with differing time horizons. The “Ultimate Market Timing Model” is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade.
The Trend Model is an asset allocation model which applies trend following principles based on the inputs of global stock and commodity price. This model has a shorter time horizon and tends to turn over about 4-6 times a year. In essence, it seeks to answer the question, “Is the trend in the global economy expansion (bullish) or contraction (bearish)?”
My inner trader uses the trading component of

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Just overbought, or a “good overbought” signal?

29 days ago

Get more articles like thisBack to full articleMid-week market update: In the past two weeks, I have become progressively more bullish on stocks (see A capitulation bottom? and Buy signals everywhere), based on the belief that the risk/reward trade-off was tilted in favor of the bulls. Even as the market bottomed with sentiment at crowded short levels, the rebound had been unusually weak with little bullish follow-through. That pattern was broken this week when the stock market finally put together two consecutive up days.
In order for this rebound to turn into an uptrend, the market has to show some positive momentum, with a series of “good overbought” conditions. Such episode tend to be characterized by RSI-5 (top panel) getting overbought and staying overbought, as well as the SPX

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Will the real Q1 GDP please stand up?

April 25, 2017

Get more articles like thisBack to full articleThe US Q1 GDP report is scheduled to be released Friday morning. Current expectations call for a Q/Q growth rate of 1.1%, but there are wide disparities in nowcasts. The Atlanta Fed GDPNow nowcast of Q1 GDP growth has been declining since late February and stands at a meager 0.5%. 

By contrast, the New York Fed’s nowcast has been relatively steady, with an estimate of 2.7%. 

What’s going on? Who is right? The evolution of GDP growth in 2017 will have a large impact on Fed policy.
Seasonal Q1 weakness?
High frequency economic releases have been disappointing. The Citigroup US Economic Surprise Index (ESI) has been plunging, as a reflection of the recent weakness. However, ESI has shown a seasonal pattern of declining into mid-May

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In the 3rd inning of a market cycle advance

April 23, 2017

Get more articles like thisBack to full articlePreface: Explaining our market timing modelsWe maintain several market timing models, each with differing time horizons. The “Ultimate Market Timing Model” is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade.
The Trend Model is an asset allocation model which applies trend following principles based on the inputs of global stock and commodity price. This model has a shorter time horizon and tends to turn over about 4-6 times a year. In essence, it seeks to answer the question, “Is the trend in the global economy expansion (bullish) or contraction (bearish)?”
My inner trader uses the trading component of

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Buy signals everywhere

April 19, 2017

Get more articles like thisBack to full articleMid-week market update: One of the most reliable trading signals occur when an indicator becomes oversold and mean reverts to neutral (buy signal), or if it gets overbought and mean reverts to neutral (sell signal). We saw numerous versions of buy signals of that variety from the VIX Index this week.
Consider, for example, the VIX/VXV ratio as a measure of the VIX term structure. When this ratio rises above 1, that is an inverted term structure indicating market fear. As the chart below shows, the VIX/VXV ratio inverted last week and returned to a normal upward sloping curve on Monday. 

I went back to November 2007 and studied past instances of this buy signal. Historically, such episodes have resolved themselves bullishly. 

That’s not all! There is more good news from the VIX for the bulls.
VIX Bollinger Band reversal
I have written before about the VIX Index rising above its upper Bollinger Band (BB) as a setup for a buy signal (see A capitulation bottom?). Last week, we saw the VIX rise above its upper BB. On Monday, it mean reverted to neutral. 

Historical studies show that the odds are with the bulls when the market flashes this buy signal.

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The Art of the Deal, North Korean edition

April 17, 2017

Get more articles like thisBack to full articleCan we stop freaking out over the prospect of an imminent war over North Korean nuclear tests? After the hoopla over the North Korean announcement to expect a major event on or before their “Day of the Sun” on April 15, there was much speculation that they would conduct another nuclear test. Trump responded with the assertion that if China wouldn’t help, he would deal with North Korea by himself. The aircraft carrier USS Carl Vinson was re-routed from a planned exercise with Australia to the North Pacific.
The geopolitical tensions is fizzling out like a wet firecracker. The biggest splash was the display of some submarine launched ballistic missiles that were mounted on trucks in the annual parade. Afterwards, North Korea tried a missile test, but it blew up shortly after launch. Even Zero Hedge sounded disappointed. 

As it turns out, this account from South Korean media shows that even the re-deployment of the USS Carl Vinson was mostly for show:

Japanese analysts believe that the USS Carl Vinson’s change of course is designed to fill a strategic vacuum in US forces at the present moment.

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Buy! The party is still going strongly

April 16, 2017

Get more articles like thisBack to full articlePreface: Explaining our market timing modelsWe maintain several market timing models, each with differing time horizons. The “Ultimate Market Timing Model” is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade.
The Trend Model is an asset allocation model which applies trend following principles based on the inputs of global stock and commodity price. This model has a shorter time horizon and tends to turn over about 4-6 times a year. In essence, it seeks to answer the question, “Is the trend in the global economy expansion (bullish) or contraction (bearish)?”
My inner trader uses the trading component of the Trend Model to look for changes in the direction of the main Trend Model signal. A bullish Trend Model signal that gets less bullish is a trading “sell” signal. Conversely, a bearish Trend Model signal that gets less bearish is a trading “buy” signal. The history of actual out-of-sample (not backtested) signals of the trading model are shown by the arrows in the chart below. Past trading of the trading model has shown turnover rates of about 200% per month.

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A capitulation bottom?

April 12, 2017

Get more articles like thisBack to full articleMid-week market update: In my weekend post (see Buy the dip!), I wrote that despite my tactical bullishness, “traders need to allow for a brief rally, followed by a sharp drop to a washout low before this shallow correction is over”. We are finally seeing signs of an oversold market and a short-term capitulation.
There were a number of signs of a short-term bottom. On Monday, the VIX Index closed above its upper Bollinger Band (BB), indicating an oversold condition for the market (see Three bottom spotting techniques for traders). As well, the SPX has been testing support located at its 50 day moving average (dma) in the last two days. 

An oversold setup
Just because a market is oversold doesn’t mean that it can’t go down further. Indeed, a study of past occasions where the VIX Index had risen above its upper BB indicated that it tended to continue to decline. As the results of the study below indicates, negative price momentum tends to start reversing itself after one day the VIX Index rises above its upper BB. Wednesday is day 1. 

Once VIX mean reverts and falls below its upper BB, returns have historically seen an upward bias.. 

Watch the VIX Index for the mean reversion move.
A near exacta buy signal
There are additional signs of market panic.

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Buy the dip!

April 9, 2017

Get more articles like thisBack to full articlePreface: Explaining our market timing modelsWe maintain several market timing models, each with differing time horizons. The “Ultimate Market Timing Model” is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade.
The Trend Model is an asset allocation model which applies trend following principles based on the inputs of global stock and commodity price. This model has a shorter time horizon and tends to turn over about 4-6 times a year. In essence, it seeks to answer the question, “Is the trend in the global economy expansion (bullish) or contraction (bearish)?”
My inner trader uses the trading component of the Trend Model to look for changes in the direction of the main Trend Model signal. A bullish Trend Model signal that gets less bullish is a trading “sell” signal. Conversely, a bearish Trend Model signal that gets less bearish is a trading “buy” signal. The history of actual out-of-sample (not backtested) signals of the trading model are shown by the arrows in the chart below. Past trading of the trading model has shown turnover rates of about 200% per month.

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The miracle of Europe

April 8, 2017

Get more articles like thisBack to full articleHere in Canada, we are observing the 100 year commemoration of the participation of Canadian troops in the Battle of Vimy Ridge. While the Canadian Corp achieved its objectives of capturing the ridge, it was a typical battle of the First World War that left enormous casualties for both sides. 

After the horrific human carnage of the First and Second World Wars, western Europe formed the European Coal and Steel Community (ECSC), which led to the European Economic Community (EEC). Thus the EU was born.
The political intent of the union was to bind France and Germany so tightly together that another major European conflict could not happen again. Despite the setback provided by Brexit, those political intentions have succeeded.
Lessons from the Gibraltar affair
Then we had the Gibraltar affair. For readers who hadn’t been paying attention, here is the account from Vanity Fair:

Until a week ago, 30,000 Gibraltans were quietly enjoying the best of both worlds, soaking up the Spanish sun while strolling past red phone boxes and dining out on fish and chips. Then Theresa May neglected to mention the British-ruled rock in her Article 50 letter, and the E.U. gave Spain the right to veto any Brexit deal made if it did not agree with arrangements made around the Rock. The situation descended into chaos.

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Is the gold/platinum ratio flashing a buy signal for stocks?

April 5, 2017

Get more articles like thisBack to full articleMark Hulbert recently highlighted an equity buy signal from an obscure indicator, the gold/platinum ratio. The signal is based on a research paper by Darien Huang, an academic at Cornell. 

The rationale behind the indicator goes something like this. Both gold and platinum are precious metals, which have defensive characteristics during equity bear markets. But platinum has more cyclical characteristics because of its use in the auto industry. A high gold/platinum ratio (as it is today) is indicative of fear in the market, and therefore stocks should be bought. Conversely, a low platinum/gold ratio signals complacency, which is a sell signal.
The way to approach cyclical indicators like these is to decide whether an investor should bet with them (momentum indicator), or against them when readings are extreme (contrarian indicator). The chart below shows the platinum/gold ratio (in red) and stock prices (in grey). The bottom panel shows the rolling one-year correlation between the ratio and stock prices. 

Based on this chart, I can make a couple of observations. At first glance, this seems to be a reasonably good contrarian indicator at extremes.

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How a China crash might unfold

April 3, 2017

Get more articles like thisBack to full articleAs Donald Trump prepares to meet Xi Jingping this week, I am reminded of the long-term challenges that face China, namely its growing debt. There have been many analysts warning of the credit buildup, here is this chart from BCA Research is one of many examples. 

While I am not calling for an imminent crash in China, here is a template of how a collapse might occur.
The case of Huishan Dairy
Investors may be familiar with the story of Huishan Dairy (6863.HK), a vertically integrated dairy company listed in Hong Kong. The shares cratered 85% on March 24 and USD 4 billion in market evaporated in a single day. 

Here is the Bloomberg account of the sorry saga:

A muddled tale of corporate woe has since emerged involving a missing company treasurer, a leverage-happy chairman and serious doubts about the company’s future.
Who went missing?The executive director who managed Huishan’s treasury and cash operations. The company said on March 28 that its last contact with the director, Ge Kun, was a March 21 letter to Chairman Yang Kai explaining that work stress — heightened by Block’s critical report — had taken a toll on her health and that she didn’t want to be contacted.
So not a good day for the chairman?It got worse, according to Huishan’s account. That same day, Yang realized Huishan had been late on some bank payments.

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Monetary Armageddon ahead?

April 2, 2017

Get more articles like thisBack to full articlePreface: Explaining our market timing modelsWe maintain several market timing models, each with differing time horizons. The “Ultimate Market Timing Model” is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade.
The Trend Model is an asset allocation model which applies trend following principles based on the inputs of global stock and commodity price. This model has a shorter time horizon and tends to turn over about 4-6 times a year. In essence, it seeks to answer the question, “Is the trend in the global economy expansion (bullish) or contraction (bearish)?”
My inner trader uses the trading component of the Trend Model to look for changes in the direction of the main Trend Model signal. A bullish Trend Model signal that gets less bullish is a trading “sell” signal. Conversely, a bearish Trend Model signal that gets less bearish is a trading “buy” signal. The history of actual out-of-sample (not backtested) signals of the trading model are shown by the arrows in the chart below. Past trading of the trading model has shown turnover rates of about 200% per month.

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Is the correction over?

March 29, 2017

Get more articles like thisBack to full articleMid-week market update: On Monday, the major market averages successfully tested their 50 day moving averages (dma) and bounced. Does this mean that the correction is over?
Not so fast. There are several indications that the market still has unresolved business on the downside for Monday’s test to be a durable bottom. First of all the SPX remains in a short-term downtrend, and the breach of that downtrend line is the first test of this rally. 

Unfinished business
The first clue of unfinished business comes from the CNN Money Fear and Greed Index. The Fear and Greed Index has not fallen to levels where it bottomed in the past three years. While every bottom is different, these readings suggest that the market needs a final flush, or panic, before calling an intermediate term bottom. 

As well, other measures of short-term market breadth are not behaving well. This chart of Twitter breadth from Trade Followers shows that bullish breadth remains in a downtrend. Where is the positive divergence? Market bottoms normally don’t look like this. 

My internal metrics of risk appetite have improved, but they remain in downtrends. 

Finally, on a very short-term basis, this measure of market breadth from Index Indicators nearing overbought territory.

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A passive index fund built to outperform?

March 28, 2017

Get more articles like thisBack to full articleA long time reader sent me this Seeking Alpha article entitled “Monish Pabrai Has Created An Index Fund Built To Outperform”, which described a “passive index fund” built using the following three investment themes deployed in three portfolio buckets:
Share buybacks: Companies that are buying back their own shares
Selected value manager holdings: The holdings of 22 selected value managers, based on their 13F filings
Spin-offs: Companies that were recently spun off from their parent
It’s difficult to have a detailed opinion on the pros and cons of this fund. That’s because the article only described what this “index fund” would hold, it did not describe the portfolio construction method, or how much of each stock it would hold. So it`s impossible to understand the risk profile of the fund, the size of its factor exposures, as well as its sector and industry exposures.
All the marketing hype aside, this investing approach is really a re-packaged form of factor investing, otherwise known as “smart beta”. Therefore investors who buy into such a vehicle should expect similar kinds of results as “smart beta”, though in a multi-factor format.
1980’s technology
The approach outlined in the “index fund” is nothing new.

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Could “animal spirits” rescue the Trump rally?

March 26, 2017

Get more articles like thisBack to full articlePreface: Explaining our market timing modelsWe maintain several market timing models, each with differing time horizons. The “Ultimate Market Timing Model” is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade.
The Trend Model is an asset allocation model which applies trend following principles based on the inputs of global stock and commodity price. This model has a shorter time horizon and tends to turn over about 4-6 times a year. In essence, it seeks to answer the question, “Is the trend in the global economy expansion (bullish) or contraction (bearish)?”
My inner trader uses the trading component of the Trend Model to look for changes in the direction of the main Trend Model signal. A bullish Trend Model signal that gets less bullish is a trading “sell” signal. Conversely, a bearish Trend Model signal that gets less bearish is a trading “buy” signal. The history of actual out-of-sample (not backtested) signals of the trading model are shown by the arrows in the chart below. Past trading of the trading model has shown turnover rates of about 200% per month.

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Three bottom spotting techniques for traders

March 22, 2017

Get more articles like thisBack to full articleMid-week market update: Regular readers will know that I have been tactically cautious on the market for several weeks, but can the blogosphere please stop now with details of how many days it has been without a 1% decline? 

The market fell -1.2% on Tuesday with no obvious catalyst. Despite today’s weak rally attempt, Urban Carmel pointed out that the market normally sees downside follow-through after 1% declines after calm periods. 

Within that context, I offer the following three approaches to spotting a possible market bottom, with no preconceived notions about either the length or depth of the correction.
The Zweig Breadth Thrust oversold setup
The Zweig Breadth Thrust (ZBT) was originally conceived by Marty Zweig as a momentum buy signal for markets rocketing upwards (via Steven Achelis at Metastock):

A “Breadth Thrust” occurs when, during a 10-day period, the Breadth Thrust indicator rises from below 40% to above 61.5%. A “Thrust” indicates that the stock market has rapidly changed from an oversold condition to one of strength, but has not yet become overbought.
According to Dr. Zweig, there have only been fourteen Breadth Thrusts since 1945. The average gain following these fourteen Thrusts was 24.6% in an average time-frame of eleven months. Dr.

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China’s revival and what it means

March 20, 2017

Get more articles like thisBack to full articleI was reviewing RRG charts on the weekend (click here for a primer on RRG charting) using different dimensions to slice and dice the market. When I analyzed the regional and country leadership, I was surprised to see that the dominant leadership were all China related (note that these ETFs are all denominated in USD, which accounts for currency effects). 

From a global and inter-market perspective, this is bullish for the global reflation trade.
Strength from “Greater China”
Indeed, the stock markets of China and of her major trading partners, which I will call “Greater China”, have all been performing well. All are holding above their 50 day moving averages (dma) and several have rallied to new highs. 

What about re-balancing the economy? Macro level data suggests that rebalancing from investment to household consumption is under way. 

For a “real time” market based assessment, this chart of “new consumer China” vs. “old financial and infrastructure” China pairs trades also shows the ascendancy of the New China. 

What doom and gloom?
There have been a number of negative stories written about China recently, from myself included. But the data seems to be turning around. I had highlighted tanking China Economic Surprise Index (ESI), which measures whether macro reports are beating or missing expectations.

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Rate hikes ≠ The Apocalypse

March 19, 2017

Get more articles like thisBack to full articlePreface: Explaining our market timing modelsWe maintain several market timing models, each with differing time horizons. The “Ultimate Market Timing Model” is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade.
The Trend Model is an asset allocation model which applies trend following principles based on the inputs of global stock and commodity price. This model has a shorter time horizon and tends to turn over about 4-6 times a year. In essence, it seeks to answer the question, “Is the trend in the global economy expansion (bullish) or contraction (bearish)?”
My inner trader uses the trading component of the Trend Model to look for changes in the direction of the main Trend Model signal. A bullish Trend Model signal that gets less bullish is a trading “sell” signal. Conversely, a bearish Trend Model signal that gets less bearish is a trading “buy” signal. The history of actual out-of-sample (not backtested) signals of the trading model are shown by the arrows in the chart below. Past trading of the trading model has shown turnover rates of about 200% per month.

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Sell St. Patrick’s Day?

March 17, 2017

Get more articles like thisBack to full articleI hope that you are enjoying the stock market rally this week. My inner trader covered his short positions last week and stepped aside to await a better short re-entry point. St. Patrick’s Day may be it.
Ryan Detrick pointed out that St. Patrick’s Day is one of the most positive days of the year, though as of the time of this writing, the market has been flat. 

As well, Rob Hanna at Quantifiable Edges highlighted March option expiry week (OpEx) is one of the most consistently bullish OpEx weeks of the year. As I will show later, OpEx+1 week tends to mean revert and see market weakness. 

The latest readings from Index Indicators show that the market is rolling over after flashing a short-term overbought reading. 

In addition, a number of broad based indices had violated their uptrends, which is setting up the market up for a period of correction or consolidation. 

Risk appetite, as measured by the junk bond market, is flashing a minor negative divergence. 

When I put these conditions together with my own study of OpEx week, it adds up to a tactical sell signal on the stock market.
OpEx study
While I am indebted to Rob Hanna for his studies of OpEx week, I decided to go further and see how the market behaved during OpEx week and afterwards.

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3 steps and a stumble: The bull and bear cases

March 15, 2017

Get more articles like thisBack to full articleMid-week market update: It was no surprise that the Fed raised rates, as they had spent the last month widely telegraphing their intentions. This morning’s release of February CPI tells the story. Headline CPI is near a 5-year high. Though core CPI (ex-food and energy) edged down, the latest reading of 2.2% is above the Fed’s 2% targeted inflation rate. 

The big surprise was the dot plot, which the market anticipated would edge upwards. Instead it remained mostly unchanged for 2017, though rate expectations were nudged up for next year. 

Since this is the third rate hike for the Federal Reserve, the key question for equity investors is whether they should be concerned about the traders’ adage of “three steps and a stumble” (via MTA):

Similar to Zweig’s Fed policy indicator and in line with the desire to measure when the Federal Reserve is tightening credit, Edson Gould, a legendary technical analyst from the 1930s through the 1970s, developed a simple rule about Federal Reserve policy that has an excellent record of foretelling a stock market decline.

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To BAT or not to BAT? Trump’s tax reform dilemma

March 13, 2017

Get more articles like thisBack to full articleAs the market awaits the FOMC decision and statement this week, there are a number of other critical market moving events to watch for. The Trump White House is expected to release its “skinny budget” this week, which may contain some broad outlines of the tax reform package. In addition, Angela Merkel’s White House visit Tuesday could bring important news on the trade front.
Donald Trump came into office promising a series of tax cuts and offshore cash repatriation incentives for Wall Street. But tax cuts have to be offset with either revenue increases or spending cuts. Trump adviser Gary Cohn recently stated on CNBC that the White House is aiming for to be revenue-neutral over a 10-year period. As this chart from Morgan Stanley shows, this level of fiscal stimulus is highly unusual at this point of the economic expansion. 

The main strategy for paying for the many of the proposed tax cuts is the imposition of a Border Adjustment Tax (BAT), which will penalize imports while encouraging exports. The BAT proposal, however, is likely to run into a number of major objections from America’s largest trading partners.
Those objections have come from Canada, which is America’s biggest customer, and from Germany, the sixth largest (chart via CNN Money).

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A toppy market, but not THE TOP

March 12, 2017

Get more articles like thisBack to full articlePreface: Explaining our market timing modelsWe maintain several market timing models, each with differing time horizons. The “Ultimate Market Timing Model” is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade.
The Trend Model is an asset allocation model which applies trend following principles based on the inputs of global stock and commodity price. This model has a shorter time horizon and tends to turn over about 4-6 times a year. In essence, it seeks to answer the question, “Is the trend in the global economy expansion (bullish) or contraction (bearish)?”
My inner trader uses the trading component of the Trend Model to look for changes in the direction of the main Trend Model signal. A bullish Trend Model signal that gets less bullish is a trading “sell” signal. Conversely, a bearish Trend Model signal that gets less bearish is a trading “buy” signal. The history of actual out-of-sample (not backtested) signals of the trading model are shown by the arrows in the chart below. Past trading of the trading model has shown turnover rates of about 200% per month.

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A sentimental warning for bulls and bears

March 8, 2017

Get more articles like thisBack to full articleMid-week market update: Recently, there have been numerous data points indicating excessive bullishness from different segments of the market:
Retail investors are all-in
Institutional investor bullish sentiment is off the charts
Cash is at a two-decade low in global investor portfolios
RIA sentiment are at bullish extremes
Hedge funds are in a crowded long in equities
These giddy sentiment readings are comforting to the bear camp (chart via Business Insider) and it will be difficult for stock prices to advance under such conditions. When everyone is bullish, who is left to buy? 

However, I would warn the bears that they should not go overboard and short the market with both hands. In the past, euphoric sentiment has not a good indicator for pinpointing market tops.
Too much bullishness
In the past few days, I have been surprised at the number of reports of excessively bullish sentiment. The latest readings from TD Ameritrade Investor Movement Index shows that retail investor bullishness at an all-time high (annotations in red are mine). 

The Yale School of Management survey of investor confidence, which has been surveying investors for close to two decades, shows that both individual and institutional investor confidence have been surging. In particular, institutional confidence have risen to an all-time high.

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A track record update

March 6, 2017

Get more articles like thisBack to full articleI have had a number of subscribers ask me to extend the chart of my longer term calls, which had only gone back two years. The chart below shows the highlights of my posts back to 2013, which are intended for investors with a 6-24 month time horizon. I haven’t been always right. On occasion, I was early, late, or simply mistaken. 

Here are the links to the past posts shown in the above chart. 

A correction, not a bear June 2013A buy signal from the option market September 2013Are stocks tumbling too far too fast? January 2014Global growth scare = Trend Model downgrade July 2014Onwards and upwards August 20143 reasons to get more cautious on stocks September 2014Getting close to a bottom, but not yet October 2014Why I am bearish (and what would change my mind) May 2015Relax, have a glass of wine August 2015Why this is not the start of a bear market September 2015The reason why the bulls should be cautious about a January hangover December 2015Buy! Blood is in the Streets January 2016Super Tuesday special: How President Trump could spark a market blow-off March 2016How the S+P 500 can get to 2200 and beyond June 2016 

In addition, these are the buy and sell calls of the trading model, which are designed for traders with a 1-2 week time horizon. Again, I haven’t been always right.

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