The February 2020 stock market crash is already one for the record books. The weekly return on the S&P 500 index was -9.31% and it is already the fastest correction on record. The British FTSE All Share index is down -11.1%. If you think now’s the time to buy in bulk, well, unfortunately there may be worse to come.
- S&P 500 has fallen -9.31% this week, fastest fall on record
- Market Timing Model suggests we may reach an initial buying position next week
- Wait for several indicators to turn to ‘buy’ before diving in
- Average stock correction length is 54 days, with -10% return
- Average stock bear market length is 14 months, with -33% return
I intend to present a market timing model that will help investors time the bottom of this market and avoid getting into stocks too early. It is based off the work of famed market timer Martin Zweig, but designed for the 21st century where quantitative easing and government intervention has warped markets.
The key thing is: fools rush in. Don’t take this as advice to buy with everything you’ve got.
Let’s begin and explain why!
Frugal Investors – Market Timing Model
For a comprehensive introduction to the Market Timing Model, please refer here for an overview of our prediction that stocks were overvalued on 19th January 2020, and also here for the 200 day moving average model.
The Market Timing Model is a collection of sentiment and economic indicators that aims – like a “scorecard” – to quantify various factors about what is happening in the stock market and the economy. It’s a carefully constructed version of what hedge funds, investment houses, and banks use to follow the market.
The goal of this tool is to help me, and you, pick moments of “maximum negative pessimism” in the market and to invest at those moments. In addition it helps you spot moments of “maximum positive optimism” and trim exposure.
I will provide an overview to the model and then step through each part of it section by section:
The Market Timing Model Sentiment Indicator sits at a score of -7.
The selling pressure continued today (28th February) and it is no surprise that the model still recommends that we sell. Right now I have friends and family messaging me: “[Frugalist Investor] what do you think? Is it time to buy?” The answer is, it’s complicated. Don’t look at movements in price to tell you whether to buy stocks.
What you want to wait for is the slight recovery in these indicators that suggests we’ve truly hit the bottom. I intend to quantify that below. Essentially we are not there yet: several indicators are still showing sell/red, because they have to turn around and recover before triggering a buy/green.
