The Market Timing Model is a series of short term sentiment indicators, market value measures and economic indicators that aims to show investors whether it is a good time to buy, hold or sell stocks.
For last week’s Sentiment Model update please see here. The Market Value Model from last week is available here. Last week we presented the in-depth review of the model and it is worth reading through.
The Market Timing Model still registers a sell rating today, however, there’s a kernel of hope that the major stock market indexes might be starting to bottom out. European indexes are green and if we see any positive movements in terms of Covid-19 case numbers and any declining trends, then stocks might start to stabilise into next week.
Goldman Sachs estimates that over 2.25 million people filed for unemployment in the US this week.
Expect to see a series of terrible company earnings reports and jobless / unemployment claims in April and May 2020, so it is too early to set the trumpets blaring, if you know what I mean!
I think, today as the market averages storm higher, people are underestimating the impact that this economic recession will have.
Timing Model Performance in 2020
We released an article on 19th January 2020 that suggested there was caution ahead for stocks, based on the measures in the Market Timing Model. For most of February and March 2020 there’s been a bloodbath in stocks. We are seeing the tiniest ray of sunshine that suggests the selling pressure is slowing down, but it is a time to be cautious.
In order to effectively track the Market Timing Model and to show its predictive power we’ve created a baseline measure. For US stocks the best measure is the S&P 500 Total Return Index, which shows the total return of the S&P 500 index including dividends and income that is re-invested. The Market Timing Model is then compared against that index as a benchmark below:
The first graph shows you the total return of the S&P 500 index since 1988. We intend to use this as a benchmark that gives investors a wide view of the market and how it has performed since 1988.
The second graph shows the performance 2019-2020 YTD, including the “Sell” call on 20th January 2020. If you sold stocks on that date you can see the Market Timing Model has out-performed the S&P 500 Total Return index by 26.6% YTD.
The Market Timing Model – Sentiment Indicators
The full Market Timing Model is available as a premium service and we intend to release this to the market shortly.
At the moment the sentiment indicator is sitting at -15 as of 19th March 2020 and suggests a Strong Sell. There are thirteen indicators that look at options/derivatives activity (how traders are acting in the market), the classic VIX volatility index, stock that have reached new highs and new lows, and several other measures.
At the moment we need to see tangible improvements in these measures, and much further information released on the impact that this recession will have on corporate earnings and also the unemployment rate. As we wrote about last week, earnings and unemployment are intrinsically connected to the stock market.