Market Timing
I've gotten several questions about my Retrospect post. I'll try to answer them here.
Here is the chart that I used. It is one of the charts that Henry Ford at Pitbull Investor taught me about during our one-on-one tutoring session. This chart covers the year 2004 (used for example). I've shared it before, but basically it looks at the percentage of stocks above their 200 day moving average on the NY stock exchange.
When the blue histogram peaks above the red it is a sign that the market is healthy and you should be fully invested. It's just the opposite when the blue is under the red (these are just simple 20 and 50 day moving averages).
I went back through my data and compiled percentage gains and losses during the blue periods since the beginning of 2003. I did not do any compounding so the results are better than I posted. I used week to week data meaning that I took data from the Friday of each week.
Another interesting market timing site that Matt at Crush the Market told me about is Mojena Market Timing. I haven't really looked over the site too much but the concept looks interesting. It's a much longer-term timing model and there is a ton of free information on the site. Check it out.
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7 comments:
Scott,
How do you get the colors and fill that you have on that chart? What settings are you using at stockcharts?
Thanks
I think you have to buy a subscription to StockCharts (I did) to change Moving Average lines into a histogram.
In a side ways market you would get totally chewed up.
Scott, I just stumbled across your site for the first time, and it’s great! I appreciate all the information, and the candor. You may have the answer to this question somewhere in the blog, but I didn’t run across it. I’m interested in beginning to invest via AAII Zweig’s screen and was wondering, have you compared the results of rebalancing this screen weekly versus monthly? I know AAII rebalances monthly for the results they have posted, but would weekly post better or worse returns? Either way they are short term gains in a non-retirement account, so that’s a wash as far as taxes go. I haven’t figured out the whole ‘backtesting’ thing, but I thought maybe you’ve run this one. Thanks again for this interesting blog!
Dan
Dan,
Rebalancing weekly creates better returns but you have to have an account large enough to handle the commission costs. My results come from holding only the top 5 relative strength stocks in the Zweig screen. AAII's monthly results come from holding every stock in the screen.
Since 2003 (using backtested data from Keelix) the average compounded yearly growth rate for a weekly rebalance is 78%. For a monthly rebalance the CGR is 37% which is pretty close to what you'd get on a monthly rebalance of the entire Zweig screen over the same period(41%).
Hi Scott,
I hate to be so dense, but are the returns you show for rebalancing weekly (78%) using only the top 5 RS stock or all the stocks in the Zweig screen.
Thanks
andy
Andy, just the top 5 RS.
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