MARKET AND TIMING RETURNS TO 1/27/12

Slow, Fast Timing Trail Market QTD and Last 52 Weeks%

QTD Slow, Fast Timing Returns 0.7%, 1.5% vvs. Market’s 6.4%

52-Wk Slow, Fast Timing Returns -29.1%, -34.4% vs. Market’s 5.8%

Purpose of This Blog.  The new funancial and economic realities have become everybody’s main concern since the of 2007-8, and have placed huge question marks on the conventional wisdom we were fed for generations by too many self-proclaimed financial “experts”.  None of them foresaw what has been hapening recently, and none of them is offering any useful advice right now.  My own experience as investment advisor since the mid-nineties has been that the area of finances and investment is full of prejudice and superstitions, making the ground ripe for some iconoclasting.  Ironically, the present crisis can seve as a wake-up call and provides an opportunity for new thinking outside the box…
The purpose of the present blog is to provide some food for thought and to encourage each of us to think harder and try to step out o fthe box.  In particular, my own work of the last decade and a half suggests that the conventional staetments that market forecasting and timing are utterly impossible and therefore should not be attempted – those statements are highly inaccurate and most probably incorrect.
The blog is organized as follows.  Our calculations are updated daily, while this post is updated twice a week, in mid-week andd during the weekend.  It contains a brief summary of the  recent market behavior and plots of the two leading indices during the last 30 business days.  This is followed by a desciption of our timing systems and investment returns.  These are ll actual eturns obtained in real time for managed accounts.  The returns are summarized in a detailed table and 1-3 plots showing the growth of returns over diffrent periodds of time.  Following these plots are some short concluding comments and contact information.

The main text, dated June 2011, results from a major breadthrough we had during 1Q11, as will be described in detail below.  Another new feature of the extended blog is that it will shortly provide the individual market and timing returns for the most receent 12 months.  Providing this information was suggested and requested by a number of readers, to whom I am truly grateful.

PLEASE NOTE!

We are now rewriting a more complete and informative version of this blog, which will be ready some time in 4Q11, the last quarter of 2011.  You will be notified when the improved version becomes available.  This note is pplaced right after the rewritten segments and before the segments being still worked on.

Until then we suggest that you restrict your use of this blog to the initial headline, plots and comprehensive table of investment returns, and the blog portions that have already been rewritten.   The pjlots and table  are updated twice a week, and are quite current.  Should you need bigger detail of any plot or table, clicking on it will give you the desired image magnified almost to full screen.  Thanks for your interest and patience.

Market Behaviour.  The plots of the two leading indices, the S&P 500 and the Nasdaq 100, provided for the most recent 30 business days, are supplemented by trend lines and by the 30-day moving average (in red).  The tredn lines are obtained by regression analysis of the loca highs and lows in the region shown.

The market is continuing its bullish behavior, though last week its gain was somewhat smaller.  During the couple of weeks ending 1/27/12 the market continued its remarkable bullish behavior with an impressive gain of 3.0%.  The market was ouperformed by slow timing, providing a gain of 3.6%, and ouperformed fast timing, providing a gain of 1.3% only for that period.

Our Timing Systems.  We us two independent timing systems, referred to as slow and fast.  The slow system is based on conventional trend analysis, and its main ingredient is a modified MACD (Moving Average Convergence-Divergence) approach, determining and extending the trend of the most recent 30 business days.
The fast timing system is our original contribution.  It uses volume data of the most recent 15 days and provides daily forecasts – one day at a time.  It is fairly reliable for the upcoming 1-2 dys.  For both systems we update our calculations daily.  In the slow system trades are typically carried out 2-3 times a month, while in the fast system trades are performed almost every day.
The trades leading to our investment returns are carried out within the Rydex funds, providing a large variety of pairs of index funds, direct and inverse.  Changes in the direct funds are in phase with market changes, while for inverse funds they are out of phase – in fact opposed to them.  You can find a lot more about the Rydex funds in www.rydexfunds.com.
Investment Returns.  The table below compares the market and our investment returns.  All returns reported are our real time returns obtained in managed accounts.  On occasions people have stated that some of our results are “too good to be true”.  To remove any doubt we provide, upon request, fund financial statements for the timing system and period of interest.  If interested, you can drop us a note, and you will get the appropriae statement by return email.
The table is organized in two groups.  The upper half provides returns for completed periods, and the returns are provided with two decimal figures.  The lower half describes ongoing periods changing every day, and the returns are provided with one decimal figure.
As to the returns, 2007 was a decent year in the market, and both of our timing systems have outperformed the market.  As to 2008, both our timing systems have underperformed the market, with slow timing doing so quite substantially.  As to 2009, the first qurter provided gains in a declining market, especially the slow timing system.  A detailed discussion of the 1Q09 returns is provided below.
How do we assess the performance of any timing, money management, or investment system?  For this we propose to use the total and average annualized returns over the period considered.  These values are compared in the table for the 14-quarter period 12/31/06-6/30/10.
The effect of adding the most recent quarter, 1Q10, on the annualized returns is quite interesting.  The annualized returnss of the market and of slow and fast timing since “inception” at 12/31/06 have changed as follows during the quarter just finished: the market annualized return has improved from -2.8% to -1.0%, fast timing has improved from -11.1% to -8.8%, while slow timing annualized return has worsened from -21.0% to -22.2%.
For the sum total of the last 12 quarters our systems have not performed adequately.  We obviously need a few high-performance quarters before the annualized returns become positive and start growing.  Keep in mind that the annualized return is a fictitious constant rate of return that would provide the same total return for the total period considered.
The last plots compare our QTD and YTD timing returns with the market return, which is the mean of the S&P 500 and Nasdaq 100 returns.  The data are displayed for everyFriday , and the straight-line segments are provided to guide the eye.  There is some ambiguity for mid-week data d for intial or final dates which are not Fridays, but in each case the returns displayed are teh exact returns for the dtes tabulated.
Summing it all up, it seems that if you find all that interesting, you may have no choice but log in from time to time and check how we are faring.  Let me remind you that the blog is updated twice a week, so whenever you log in -the information you get is never more than 3 days old, usually more current
Updated Annualized Retuns, Including 2Q10.  Last quarter we expeienced losses in the market and bot timing returns.  As a consequence we had declines in the market and timing aannualreturns, as follows: the market annualized return declined from -1.0% to -4.5%, that of fast timing from -8.8% to -12.9%, and that of slow timing from -22.2% to -24.5%.ssible.  The sustainability of such returns is still an open question, and is certainly our main topic of attention.  We may well need the balance of 2009 and most of 2010 to answer this question decisively.  I hope I raised your curiosity to join me in this journey.
More importantly, I am trying to convice you to learn more and become as finacially savvy as you possibly can.  This days, more than ever, real knowledge is power, and with more limited  resources we definitely need all the power we can get…

References on Market Timing.  There is bast literature on market timing.  Most of it is negative and critical, resulting from the fact that most market timers have not been doing a very good job.  This creates great opportunity for those of us who thrive in opposition.
If you want to get a flavor, I will recommend only three references.  My favorite bood is: John K. Sosnowy, Lasting Wealth Is A Matter of Timing, 21st Century Publishers (1997).  It is a highly readable and comprehensive overwiew of the firld.
Secondly, if you want a more recent review of developments in the field, you can go the Market Timing entry in www.wikepedia.org.  It tries to present objectively different points of view, it is often updated, and your own contribution is welcome if you have one and willing to share it.
Finally, I hope that you enjoy what you find in this blog, and that you will return and visit with us occasionally.  I am trying to make this blog clear, focused, and simple to read.  I hope you will find in less than 1,500 words everything you you always wanted to know about market timing, but were  afraid to ask…
Many Happy Returns,
Nathan Jacobi, Ph.D.
Registered Investment Advisor
n.jacobi@shrago.net
(from USA)
(from Israel) 02-940-9695