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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

Peering into 2020: New decade, new paradigm

August 18, 2019

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 a trading model, which is a blend of price momentum (is the Trend Model

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Audit your trading the way pros do it

August 13, 2019

Traders are always interested in improving their techniques. Today, I would like to offer a framework for thinking about your trading, using the way fund sponsors evaluate investment managers, called the 5 Ps.
People: Who are you, and what’s your experience and training?
Performance: How have the returns been, and what kind of risk did you take to achieve those results?
Philosophy: What makes you think you have an edge?
Process: How do you implement the edge you have on the market?
Portfolio: Does your portfolio reflect what you are saying about philosophy and process?
With the preface that there are never any single right answer in investing and trading, I will focus on “philosophy” and “process”. 

Philosophy
Many neophytes have difficulty distinguishing between the idea of an

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A White Swan market

August 13, 2019

Mid-week market update: I am writing my mid-week update a day early because of the extraordinary volatility in the stock market.
My wife and I took a few days to go on a Danube river cruise. As we arrived in Vienna, we spied a white swan swimming beside our ship. The white swan seems to be an  apt metaphor for today’s market, which is a market of known risks. 

A short-term bottom ahead
The stock market has certainly been volatile. Last Wednesday, I suggested that the market was ready to bounce (see Ripe for a counter-trend rally). The market has duly rallied, and stalled out late last week, when I issued a trading sell signal. That sell signal just got negated by a looming buy signal  today as the trading model just flipped bullish.
Urban Carmel pointed out that the 20 day moving

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A correction, or a trade war meltdown?

August 11, 2019

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 a trading model, which is a blend of price momentum (is the Trend Model

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Ripe for a counter-trend rally

August 7, 2019

Mid-week market update: My trading model has turned bullish, and there are plenty of signs that the market is ripe for a relief rally. There was the CNBC Markets in Turmoil program Monday, which as SentimenTrader pointed out, tends to mark short-term bottoms. 

As well, the McClellan Oscillator (NYMO) fell to levels on Monday that are consistent with past tradable bottoms. 

The Zweig Breadth Thrust indicator also provided signs of a short-term bottom. The ZBT buy signal consists of two components. First the market has to become oversold, and then it has to rally into an overbought condition into a short period of time.  In the past, an oversold condition (vertical lines) have been a reasonably good signals that a rally is imminent. The market achieved the oversold signal on

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USDCNY at 7? It’s not you, it’s me

August 5, 2019

The market has adopted a risk-off tone today because the Chinese yuan rose above the rate of 7 to 1 to the USD. The move was positioned as retaliation for Trump`s new tariffs. In addition, China has halted all purchase of American agricultural goods. 

What did you expect? The controlled depreciation of CNY is not unexpected. The chart below of the Chinese yuan ETF shows that it had been unusually strong compared to the trade weighted dollar. Viewed in this context, the PBOC devaluation in 2015 was fully justified. Today’s fall is reflective a decision by the PBOC to stop leaning against the market winds. 

To put it differently, the broader problem isn’t CNY weakness, but USD strength.
To be sure, there is some validity to the trade retaliation thesis for CNY weakness. John

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Powell’s dilemma (and why it matters)

August 4, 2019

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 a trading model, which is a blend of price momentum (is the Trend Model

Read More »

A (deceptive) long-term buy signal

July 31, 2019

Mid-week market update: It is month-end, and the day after an FOMC meeting. Regular readers may recall that I have been monitoring the monthly MACD indicator for a long-term buy signal. Troy Bombardia recently highlighted what happens when the SPX flashes a long-term buy signal. Subsequent one-year returns have been almost all positive. 

The verdict is in, the index has flashed a long-term MACD buy signal. 

While the signal is constructive for the long-term outlook, let me temper your enthusiasm. 

Looking for confirmation
The SPX buy signal has not been confirmed by other indices. I found that the monthly MACD buy signal works slightly better when applied to the broader Wiltshire 5000 (WLSH). WLSH did not confirm the buy signal. 

As well, the buy signal was not confirmed

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A hawkish cut ahead?

July 29, 2019

As we look ahead to the July FOMC meeting this week, market expectations of additional rate cuts have moderated. The market is discounting a 100% chance of a quarter-point cut this week. It also expects an additional quarter-point cut at the September meeting, and a third rate cut by year-end. 

The better than expected Q2 GDP report just made the Fed’s job a lot more complicated. 

Signs of economic strength
Q2 GDP came in above expectations at 2.1%. What`s more, real final sales to private domestic purchasers, which is a more stable measure of GDP growth, rose 3.2%. The latest FOMC median projections of 2019 GDP growth is 2.1%. GDP growth would have to slow to 1.4% to 1.6% for the remainder of 2019 to reach 2.1%. Watch if the Fed revises 2019 growth upwards. If the economy is that

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Is this how currency wars begin?

July 28, 2019

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 a trading model, which is a blend of price momentum (is the Trend Model

Read More »

Caution: Upside potential limited

July 24, 2019

Mid-week market update: Even as the bears were all lined up to push prices down last Friday, the bulls managed to make a goal-line stand and retain control of the tape. The index is tracing out a triangle pattern and testing resistance, while exhibiting negative RSI divergences.

In addition, other cautionary signs can be found elsewhere. While I would not necessarily discount an upside breakout to further fresh highs, current conditions argue for limited upside potential.

USD strength warning
One of the warnings come from the inverse head and shoulders breakout of the USD Index, and conversely, the head and shoulders breakdown of the EURUSD exchange rate.

The upside break in the USD is significant for two reasons. John Butters at FactSet pointed out that the best earnings growth

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Will stock prices surge on a Fed rate cut?

July 21, 2019

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 a trading model, which is a blend of price momentum (is the Trend Model

Read More »

A market on a knife edge

July 17, 2019

Mid-week market update: Regular readers know that I have been tactically cautious on stocks in the last two weeks, but I don’t want to give the impression that I am wildly bearish. In fact, the SPX is on the verge of a long-term buy signal, marked by the positive monthly MACD reading. Should the index close at or close to current levels by month-end, it will have flashed a buy signal that has shown to be highly effective for intermediate and long term investors. 

Before anyone becomes wildly bullish here, some caution may be warranted. 

Waiting for confirmation
First of all, I would warn that the monthly MACD buy signal has not been confirmed by a number of other indices. The broader Wilshire 5000 has not flashed a buy signal yet, though it is very close. 

Global stocks have

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Questions for Judy Shelton and gold standard supporters

July 16, 2019

President Trump has nominated Judy Shelton as one of the candidates for the open seats on the Federal Reserve’s Board of Governors. While Shelton is a controversial nominee, she is less problematical than the previous two, Herman Cain and Stephen Moore.
While I certainly understand the reasoning behind a gold-backed currency, which is a way to control inflation, I have some difficult questions for Shelton and other supporters of a gold standard. 

A gold standard supporter
There is no denying that Shelton is a supporter of a gold standard. She wrote a WSJ op-ed in 1998 calling for the establishment of a gold standard. Bretton Woods wasn’t good enough.

The best way to do that is to adopt a global gold standard. The Bretton Woods system was a gold exchange standard, not a gold

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The path to a European Renaissance

July 14, 2019

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 a trading model, which is a blend of price momentum (is the Trend Model

Read More »

Stay cautious

July 10, 2019

Mid-week market update: I highlighted a tactical trading sell signal from the VIX Index on the weekend. The VIX had fallen below its lower Bollinger Band,, indicating an overbought market, and mean reverted above the band last Friday. 

As a reminder, the historical study of such episodes since 1990 show negative returns bottom out roughly a week after the signal, which would be this coming Friday. 

I stand by my trading call for a tactical defensive posture. 

Bearish warnings
Other measures of sentiment show a wide range of disagreement. On one hand, the latest Investors Intelligence sentiment shows that optimism is building. Bullishness as risen past past the 2019 peak, and readings are similar to levels last seen in October 2019. 

On the other hand, the TD-Ameritrade

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The limits of central bank powers

July 8, 2019

With interest rates at or close to the zero lower bound, here are a couple of examples of limits to the power of central bankers.
The Federal Reserve: Will it still cut rates after the strong jobs report?
The European Central Bank: What are the limits and price of monetary stimulus?

Will the Fed cut rates?
Let us begin with the Fed. After the blow-out Jobs Report, the bond market reacted violently and there were murmurs as to whether the Fed will still cut rates. Let me lay the first concern to rest. Historically, the Fed has telegraphed its interest rate decisions. With the market expectations of at least a quarter-point cut at the next FOMC on July 30-31, the Fed is unlikely to surprise the market.

I would also note that Fed officials had cited US and global weakness, as well as

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Europe: An ugly duckling about to be a swan?

July 7, 2019

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 a trading model, which is a blend of price momentum (is the Trend Model

Read More »

New highs are bullish, but…

July 3, 2019

Mid-week market update: It is said that there is nothing more bullish a stock or an index can do other than to make new highs. Both the DJIA and the SPX made fresh all-time highs today. While that may appear to be bullish, there are plenty of warning signs beneath the surface that this advance may not be entirely sustainable.
One of the missing ingredients in this rally is momentum. The SPX is exhibiting a negative 5-day RSI divergence, indicating flagging momentum even as the index made new highs. In addition, the VIX Index fell below its lower Bollinger Band, indicating an extremely overbought condition. 

Other divergences
Another warning sign can be seen in the risk appetite in the credit markets. Even as stock prices made new highs, the relative price performance of high yield

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Will the Fed cut after the trade détente?

July 2, 2019

The results out of the Trump-Xi summit were slightly better than market expectations. Not only do we have a trade truce, a suspension of escalation, but Trump promised that American companies can sell to Huawei.
Now that we have achieved a detente of sorts, the CME’s Fedwatch Tool shows the market is still discounting a 100% likelihood of a quarter-point rate cut at the July FOMC meeting, and a 21.4% chance of a half-point cut. 

Is this for real? Will the Fed disappoint the markets? 

Why the Fed should cut
Let’s consider the factors that argue for and against a cut. The main reasons for a cut is the weakness of the US and global economy. In addition, the trade war is not over, and the Osaka meeting only achieved a truce while tensions remain high. This creates a high level of

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A framework for a Sino-American relationship

June 30, 2019

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 a trading model, which is a blend of price momentum (is the Trend Model

Read More »

What’s up with gold?

June 26, 2019

Mid-week market update: Gold staged an upside breakout from a multi-year base, which got a lot of technicians excited. The point and figure chart upside targets range from about 1630 to the mid-1700s, depending on how the parameters are set. 

Before you pile in and buy, let me educate you on the causes of this move, so that you can make a reasoned decision. Think of this as the case of a dog and his tail. Gold is the tail, and it is wagging very rapidly. Figure out why before taking action. 

What inflation?
Gold bugs have pointed to gold as an inflation hedge, but this chart showing gold prices and inflationary expectations disprove that theory. Even as gold prices rose, inflationary expectations have been falling. 

Don’t buy gold if you are using it as an inflation hedge.

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Caution: Market is mis-pricing trade talks risk

June 22, 2019

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 a trading model, which is a blend of price momentum (is the Trend Model

Read More »

Monetary Policy Catch-22

June 19, 2019

Mid-week market update: As I expected, the Fed unveiled a dovish hold at its June FOMC meeting, as predicted by Tim Duy:

The Fed is likely to turn more dovish this week and open up the possibility of a rate cut. I think they still need more data to justify a rate cut. Another jobs report alone the lines of the May report would go a long way toward supporting that cut in July.
Out with “patience”, and in with “act as appropriate to sustain the expansion”* as the new mantra of monetary policy. The greenback feel, and the bond market reacted with a bull steepening. Interest rates fell across the board, but the yield curve steepened. 

However, this sets up a difficult Catch-22 for Fed monetary policy makers.
* Colloquial translation: “An ounce of prevention is worth a pound of

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Fun with quant: MS Business Conditions edition

June 17, 2019

Marketwatch recently reported that Morgan Stanley’s Business Conditions Index had deteriorated to levels last seen during the 2007-08 financial crisis. Wow! Is this an alarming signal, or contrarian? 

In reality, it was a lesson for data analysts in quantitative analysis. 

Looking for confirmation
When I see a surprising result, I look for confirmation. To be sure, CEO confidence has fallen off a cliff. 

On the other hand, NFIB small business optimism has been on fire. 

What’s the real story here? Is there a severe bifurcation between big business (CEO) and small business (NFIB) confidence? Wouldn’t the Morgan Stanley index be more reflective of the big business rather than the small business outlook?
I was able to obtain some of the details behind the Morgan Stanley

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What happens if the Fed cuts rates?

June 16, 2019

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 a trading model, which is a blend of price momentum (is the Trend Model

Read More »

A dead cat bounce, or something more?

June 12, 2019

Mid-week market update: I wrote last week that the market gods were favoring the equity bulls, The relief rally would likely last about another week (see How far can this rally run?), but the market is likely to remain range-bound until the trade tensions are resolved.

In conclusion, until these trade tensions are resolved, expect the market to remain range-bound and move in reaction to the latest headlines. This suggests that traders should adopt a position of “buy the dips” and “sell the rips”. If history is any guide, I expect the current rally to peter out some time next week, with the most probable peak occurring about mid-week.
The market has rallied substantially since last Wednesday. It is now mid-week, and the market appears to be stalling at resistance. Is this simply a test

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How to buy “smart” Value

June 10, 2019

Value investing has taken it on the chin in the last decade, as the style has badly lagged the market. Callum Thomas documented how value discount has grown over the last decade. The discount has fallen to levels last seen at the height of the NASDAQ Bubble, when internet related stocks came crashing to earth, and value stocks outperformed.

Is this the time to buy Value? Here are a couple of suggestions of how to participate in the value style in a way that performed well despite the style headwinds of the last 10 years.

Give it to Warren
One way is to just give your money to Warren Buffett. While Buffett’s investing style is not value investing in the classic sense, the shares of Berkshire Hathaway has performed roughly in line with the market over the last 10 years. That’s quite

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Trump vs. the Fed

June 9, 2019

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 a trading model, which is a blend of price momentum (is the Trend Model

Read More »

How far can this rally run?

June 5, 2019

Mid-week market update: I had been making the point for the past week that this market is oversold and ripe for a relief rally, and the rally finally occurred. From a technical perspective, the market rallied through a downtrend line, which is a sign that the bulls have seized control of the tape. However, the bulls shouldn’t overstay their welcome. Until the trade tension overhang is lifted, this market is likely to remain volatile and range-bound. One characteristic of this uncertainty are the numerous gaps that can be found on the hourly chart. 

Nevertheless, how long can this rally last, and how far can it run? I considered a number of historical studies to arrive at some estimates, and here is what I found. 

The CBI buy signal
I highlighted analysis from Rob Hanna at

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