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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

Things you don’t see at market bottoms: Wild claims edition

July 20, 2017

Get more articles like thisBack to full articleIt is said that while bottoms are events, but tops are processes. Translated, markets bottom out when panic sets in, and therefore they can be more easily identifiable. By contrast, market tops form when a series of conditions come together, but not necessarily all at the same time.
I have stated that while I don’t believe that the stock market has made its final cyclical top, we are in the late stages of a bull market (see Risks are rising, but THE TOP is still ahead and Nearing the terminal phase of this equity bull). Nevertheless, psychology is getting a little frothy, which represent the pre-condition for a major top. This is just one post in a series of “thing you don’t see at market bottoms”. Past editions of this series include:
It

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What’s the upside target in this rally?

July 19, 2017

Get more articles like thisBack to full articleMid-week market update: As the major US equity indices reach fresh all-time highs, it is time to ponder the question of how far the current upleg is likely to carry us. While technical analysts have several techniques available at their fingertips, I rely mostly on the venerable point and figure charting system (click link for primer), which was first used in the late 19th Century, to determine upside targets.
Using the point and figure charting tool at stockcharts, I get an upside target of 2549 for the SPX with a traditional box size and 3 point reversal. 

If I vary the parameters to a 1% box size and a 3 point reversal, the upside target is 2524. The difference seems to be the width of the consolidation pattern and the site of the

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In search of the elusive inflation surge

July 17, 2017

Get more articles like thisBack to full articleUS bond yields began to settle down last week when Fed Chair Janet Yellen stated in her Congressional testimony that the neutral rate for Fed Funds is roughly the inflation rate, which is much lower than market expectations. In addition, she allowed that the Fed is likely to re-evaluate its tightening path in light of tame inflation figures.
Even Fed Governor Lael Brainard, whose Fedspeak had recently taken on a more hawkish tone lately, sounded dovish in a speech last week:

Once that [normalization] process begins, I will want to assess the inflation process closely before making a determination on further adjustments to the federal funds rate in light of the recent softness in core PCE (personal consumption expenditures) inflation…I

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Looking for froth in the wrong places

July 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

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Things you don’t see at market bottoms, Retailphoria edition

July 13, 2017

It is said that while bottoms are events, but tops are processes. Translated, markets bottom out when panic sets in, and therefore they can be more easily identifiable. By contrast, market tops form when a series of conditions come together, but not necessarily all at the same time.
I have stated that while I don’t believe that the stock market has made its final cyclical top, we are in the late stages of a bull market (see Risks are rising, but THE TOP is still ahead and Nearing the terminal phase of this equity bull). Nevertheless, psychology is getting a little frothy, which represent the pre-condition for a major top.
As a result, this is another post in an occasional series of lists of “things you don’t see at market bottoms”. This week, I focus on more signs of retail

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U-S-A! U-S-A!

July 12, 2017

Get more articles like thisBack to full articleMid-week market update: Having reviewed sector rotation last week (see More evidence of an emerging reflationary rebound), it is time to apply the same analysis to countries and regions.
First, let’s start with a primer of our analytic tool. Relative Rotation Graphs, or RRG charts, are a way of depicting the changes in leadership in different groups, such as sectors, countries or regions, or market factors. The charts are organized into four quadrants. The typical group rotation pattern occurs in a clockwise fashion. Leading groups (top right) deteriorate to weakening groups (bottom right), which then rotates to lagging groups (bottom left), which changes to improving groups (top left), and finally completes the cycle by improving to

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Are stocks being stalked by a silent Zombie Apocalypse?

July 11, 2017

Get more articles like thisBack to full articleThere was some minor buzz on the internet when Jonathan Tepper tweeted the following BIS chart and rhetorically asked if zombie firms was the cause of falling productivity during this expansion. BIS defines a “zombie” firm as a company that has been listed for 10 years or more and has an EBIT interest coverage of less than 1. As the charts show, the number of “zombie” companies have been rising steadily, while advanced economy (AE) productivity and CapEx has been muted during this expansion. 

While the zombie hypothesis has much intuitive appeal, especially to the permabear and doomster set, a deeper examination reveals some unanswered questions that casts doubt about this explanation for the muted productivity gains of this cycle.

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A mid-year review of 2018 recession risk

July 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

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The things you don’t see at market bottoms, bullish bandwagon edition

July 7, 2017

Get more articles like thisBack to full articleIt is said that while bottoms are events, but tops are processes. Translated, markets bottom out when panic sets in, and therefore they can be more easily identifiable. By contrast, market tops form when a series of conditions come together, but not necessarily all at the same time.
I have stated that while I don’t believe that the stock market has made its final cyclical top, we are in the late stages of a bull market (see Risks are rising, but THE TOP is still ahead and Nearing the terminal phase of this equity bull). Nevertheless, psychology is getting a little frothy, which represent the pre-condition for a major top.
As a result, this is another post in an occasional series of lists of “things you don’t see at market bottoms”. This

Read More »

More evidence of an emerging reflationary rebound

July 5, 2017

Get more articles like thisBack to full articleMid-week market update: Further to my last post (see Nearing the terminal phase of this equity bull), There are numerous signs that the market’s animal spirits are getting set for a reflationary stock market rally. First of all, the BAML Fund Manager Survey shows that a predominant majority of institutional managers believe that we are in the late cycle phase of an expansion. 

Poised for a reflationary rebound
Monday`s print of ISM blew past market expectations. Nordea Markets pointed out that an ISM reading of 57.8 has historically corresponded with a YoY SPX return of 26%, compared to a current YoY return of 14%. 

Johnny Bo Jakobsen at Nordea Markets also observed that the Citigroup Economic Surprise Index, which measures

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Nearing the terminal phase of this equity bull

July 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

Read More »

Things you don’t see at market bottoms, 29-Jun-2017

June 29, 2017

Get more articles like thisBack to full articleIt is said that while bottoms are events, but tops are processes. Translated, markets bottom out when panic sets in, and therefore they can be more easily identifiable. By contrast, market tops form when a series of conditions come together, but not necessarily all at the same time.
I have stated that while I don’t believe that the stock market has made its final cyclical top, we are in the late stages of a bull market (see Risks are rising, but THE TOP is still ahead). Nevertheless, psychology is getting a little frothy, which represent the pre-condition for a major top.
As a result, this is another post in an occasional series of lists of “things you don’t see at market bottoms”. This week, I focus on the theme of “subprime is the new

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All eyes on policy makers

June 28, 2017

Get more articles like thisBack to full articleMid-week market update: As we wait to see if the stock market can break either up or down out of this narrow trading range, this week has been a light week for major market moving economic data, However, there are a number of political and non-economic developments to keep an eye on. 

The Fed gets hawkish
Early in the week, we heard hawkish Fedspeak from a number of officials. San Francisco Fed president John Williams reiterated his “docking the boat” metaphor to emphasize that the effects of monetary policy operates with a lag, and therefore the Fed is unlikely to alter its course of rate normalization:

When you’re docking a boat in Sydney Harbour, the San Francisco Bay, or elsewhere, you don’t run it in fast towards shore and hope

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Long live the reflation trade!

June 25, 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

Read More »

Things you don’t see at market bottoms, 23-Jun-2017 edition

June 23, 2017

Get more articles like thisBack to full articleIt is said that while bottoms are events, but tops are processes. Translated, markets bottom out when panic sets in, and therefore they can be more easily identifiable. By contrast, market tops form when a series of conditions come together, but not necessarily all at the same time.
I have stated that while I don’t believe that the stock market has made its final cyclical top, we are in the late stages of a bull market (see Risks are rising, but THE TOP is still ahead). Nevertheless, psychology is getting a little frothy, which represent the pre-condition for a major top.
As a result, I am starting a one in an occasional series of lists of “things you don’t see at market bottoms”:
Argentina’s 100-year bond offering
Irrational Exuberance

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A market breadth model that works

June 21, 2017

Get more articles like thisBack to full articleMid-week market update: Technical analysts monitor market breadth, as the theory goes, to see the underlying tone of the market. If the major market averages are rising, but breadth indicators are not confirming the advance, this can be described as the generals leading the charge, but the troops are not following. Such negative divergences are signs of technical weakness that may be a precursor to future market weakness.
That’s the theory.
I have been highly skeptical of breadth indicators as a technical analysis tool because breadth divergences can take a long time for the market to resolve, if at all. The chart below shows the SPX, the “generals”, along with several indicators of how the “troops” are behaving, namely the mid-cap and

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Goldman’s “The death of value” and what being contrarian means

June 19, 2017

Get more articles like thisBack to full articleRecently, Ben Snider at Goldman Sachs published a report entitled “The Death of Value”, which suggested that the value style is likely to face further short-term headwinds. Specifically, Snider referred to the Fama-French value factor, which had seen an unbelievable run from 1940 to 2010 (charts via Value Walk). 

Goldman Sachs went on to postulate that the value style is unlikely to perform well because of macro headwinds. This style has historically underperformed as economic growth decelerates. However, the investment implications are not quite as clear-cut as that, based on my analysis of how investors implement value investing. 

Naive or pure value?
Consider how you might implement a value strategy. Imagine if you ranked all

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Risks are rising, but THE TOP is still ahead

June 18, 2017

Preface: 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

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More surprises from the Fed?

June 15, 2017

Get more articles like thisBack to full articleIn my last post, I suggested that the odds favored a hawkish rate hike (see A dovish or hawkish rate hike?) and I turned out to be correct. However, some of the market reaction was puzzling, as much of the policy direction had already been well telegraphed.
As an example, the Fed released an addendum to the Policy Normalization Principles and Plans, which should not have been a surprise to the market:

The Committee intends to gradually reduce the Federal Reserve’s securities holdings by decreasing its reinvestment of the principal payments it receives from securities held in the System Open Market Account. Specifically, such payments will be reinvested only to the extent that they exceed gradually rising caps.
For payments of principal

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A dovish or hawkish rate hike?

June 13, 2017

Get more articles like thisBack to full articleMid-week market update: I am writing my mid-week market update one day early. FOMC announcement days can be volatile and it’s virtually impossible to make many comments about the technical condition of the market as directional reversals are common the next day. Mark Hulbert suggested to wait 30 minutes after the FOMC announcement, and then bet on the opposite direction of the reaction. For what it’s worth, Historical studies from Jeff Hirsch of Almanac Trader indicated that FOMC announcement days has shown a bullish bias and the day after a bearish one. 

The Fed has signaled that a June rate hike is a virtual certainty. The only question for the market is the tone of the accompanying statement. Will it be a dovish or hawkish rate

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The risk to growth and growth stocks

June 12, 2017

Get more articles like thisBack to full articleEd Yardeni may have top-ticked large cap growth stocks last week by postulating that a melt-up may be underway, led by the FAANG names. As the chart below shows, FAANG as a percentage of SPX market cap has been rising steadily for the last few years and now account for 11.9% of SPX market cap. 

Despite the air pocket that these stocks hit on Friday, the relative market performance of the NASDAQ 100 still looks like a blip in an uptrend. 

The relative performance of the Russell 1000 Growth Index compared to the Russell 1000 Value shows a higher degree of technical damage, but the relative uptrend of growth over value stocks also remains intact. 

Looking into the remainder of 2017, however, there is a potential threat to

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A Fed preview: What happens in 2018?

June 11, 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

Read More »

A possible volatility spike ahead

June 7, 2017

Get more articles like thisBack to full articleMid-week market update: So far, the stock market seems to be following Jeff Hirsch’s seasonal map of June. The market was strong in the first couple of days, and it has mostly been flat this week. If history is any guide, it should start to weaken late this week. 

Evidence is building that of a volatility spike ahead. As volatility is inversely correlated with stock prices, rising vol therefore implies a stock market pullback. The chart below of the ratio 9-day VIX (VXST) to 1-month VIX (VIX) shows that anxiety is rising, but levels are nowhere near where past corrections have bottomed in the past. 

Indeed, there are a number of binary events coming up. Thursday will see the ECB meeting, the UK election, and the Comey testimony

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Peak smart beta?

June 5, 2017

Get more articles like thisBack to full articleA recent comment by Michael Mauboussin of Credit Suisse that nailed the dilemma of active managers, namely that using traditional approaches to alpha generation is akin to mining lower and lower grade ore:

Exhibit 1 shows that the standard deviation of excess returns has trended lower for U.S. large capitalization mutual funds over the past five decades. The exhibit shows the five-year, rolling standard deviation of excess returns for all funds that existed at that time. This also fits with the story of declining variance in skill along with steady variance in luck. These analyses introduce the possibility that the aggregate amount of available alpha—a measure of risk-adjusted excess returns—has been shrinking over time as investors have

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Thrust and bust, or lower for longer?

June 4, 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

Read More »

Possible market turbulence ahead

May 31, 2017

Get more articles like thisBack to full articleMid-week market update: Rob Hanna at Quantifiable Edges highlighted a historical study of what happens if the market pulls back after a persistent move to new highs, where yesterday (Tuesday) was day 0. If history is any guide, stock prices should grind higher over the next 10 days. 

Today was day 1 of that trading setup, and the market did not cooperate. The market’s failure to rise despite statistical tailwinds is a sign that it faces some near-term turbulence.
Let me explain.
Breadth divergences
A number of tactically bearish factors are becoming evident for the US equity market. The first is the appearance of a number of negative breadth divergences. As the chart below shows, the SPX has been rallying despite downtrends in net

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Thinking Straight 101

May 30, 2017

Get more articles like thisBack to full articleGood afternoon, class. Welcome to another session of “Thinking Straight 101”. Your assignment today is to choose one of the topics below and write an essay for next week’s class:
North Korea: George Friedman at Geopolitical Futures recently warned, “All the signs are there: The U.S. is telling North Korea, in no uncertain terms, that war is approaching.” Discuss the probability of war.
Small cap technology buy signal: Marketwatch recently highlighted Jonathan Krinsky’s bullish outlook for small cap Technology stocks. Disentangle the source of potential alpha in the buy signal.
China: While there has been much angst over China’s crackdown on the shadow banking system, there is a school of thought that, no matter what happens, Beijing can

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When does the market top out?

May 28, 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

Read More »

The market`s hurdles to sustainable new highs

May 24, 2017

Get more articles like thisBack to full articleMid-week market update: So far, my recent VIX based buy signal has worked out according to plan (see A market top checklist). I emailed subscribers the buy signal from the trading system on Friday, which was triggered when the VIX Index rises above its upper Bollinger Band and then mean reverts below. 

If history is any guide, stock prices should continue to grind upwards for the next couple of weeks. 

As the market tests resistance at all-time highs, further strength would imply a sustainable advance to further highs. However, an analysis of market breadth and sector leadership indicates the equity market faces a number of technical headwinds.
A case of bad breadth
First, consider the leadership of the market. If we were to

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(Chinese) blood in the streets?

May 22, 2017

Get more articles like thisBack to full articleThe worries about China ebbs and flows. The latest BAML Fund Manager Survey shows that China fears are at flood levels again. 

Indeed, developments such as the inverted Chinese yield curve is creating a sense of peak anxiety. 

I recently highlighted analysis indicating that China fears are overblown (see Are the Fed and PBoC taking away the punch bowl?). Bloomberg Asian economist Tom Orlik observed that, despite the crackdown on credit, there are no signs of an imminent downturn: “Credit is down but land sales and profits are up – businesses and local governments still have funds to work with.” 

Investors should relax! The slowdown was policy induced, and policy can (and will) be reversed should the economy shudder,

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