Monday, October 8, 2012

Simple Market Timing Models

On my last post I suggested market timing implies that investors should dump their investments when they get a “sell” signal from some seasonal or black box strategy and then buy them back when a “buy” signal is generated. Caveat: No timing model works all the time. No market timing model should ever be used by investors to jump in and out of the stock market. A prudent investor should never sell a good investment based on any timing model but rather to maybe tone down the risk on a sell signal and than take on a little more risk when a buy signal is generated. Risk in the portfolio could be too much sector concentration or too much leverage or too little diversification.

Over the next few weeks I will illustrate some simple market timing models that I use with some degree of success.
This simple timing model is 30 week price channel with the upper band being the highest moving high over the past 30-weeks and the lower band is the lowest moving low over the past 30-weeks, This model assumes that a bull market is technically a series of higher highs and higher lows with the rising peaks and troughs usually about twenty six weeks or less apart. In other words a bull needs to make a series of new highs every six months and a bear market will usually do the opposite and make a series of new lows every six months.

Today’s chart displays a 30-week price channel on the S&P500 – the model runs from March 1990 to date and has generated 6 signals to date with the last being a “buy” on March 16, 2012 @1404 on the index.. It bats 100% on the long trades and 67% on the sell trades. A very simple tool, I have used it for years so enjoy.


Piazzi said...


is that intra-week violation that triggers or weekly closes?

On an aside 75-week SMA of S&P has been a great demarker of Bulls and bears for a long time

Interesting that your channels (looks like Donchian) is half of that length -- is that a coincidence?

Piazzi said...

I just checked the same setup on Gold

there has not been a sell signal since 2008 - vow! said...

Hello Piazzi

I only use the week-end for signals - never intra-week

Bill C

Anonymous said...


Interesting. Can you please explain what constitutes a 'violation'?

I am having trouble seeing it on the chart.