Simple detector 'Minor Bottom'

Looking at a chart, the S&P500 was at ~2500 and ~2600 on those occasions, now it’s ~4100,
that seems like a bad thing, especially if there’s a possibility we’re heading into a period of higher inflation and higher interest rates?

I have given up trying to figure out whether the signal makes sense or will be a good one.
I created the signal and now I just post what it says.
We now know what happened after previous signals, so you can decide for yourself what to do about the current one.

But again, this is just the short term bottom signal.
Valuation doesn’t matter if you’re only looking out a month or so–you can see a bounce at any market level, for a while.
It’s a good, but not great, signal.
It’s merely saying that things have been positive for a month more often than not in the past starting in similar situations.

Conversely, the companion major bottom signal has proven pretty valuable so far. Including some times it seemed crazy.
One we all doubted was in 2016.
This thread from 2016-01-20:
https://discussion.fool.com/my-quotmajor-bottom-detectorquot-tri…
The signal seemed “obviously” wrong, as I and others commented.
Annualized return to 6 months later: 39.6%
Annualized return to 12 months later: 24.3%
Annualized return to 18 months later: 23.5%/year
Annualized return to 24 months later: 25.4%/year

There is a rule for those of us who have tried to do market timing:
"Zeelotes’ First Law of Market Timing:
There is no such thing as a great buy signal that doesn’t seem insane at the time."

But we’re not in that situation today. Yet.

Jim

24 Likes

I have given up trying to figure out whether the signal makes sense or will be a good one.
I created the signal and now I just post what it says…

Along those lines, it appears pretty certain that all variants of my short term bottom detector signals will trigger in their respective strongest way again today.
Third market day in a row.
In effect, they predict good returns in the next month.

But that the more useful major bottom detector will remain silent again today.
Getting closer, though.

Jim

13 Likes

all variants of my short term bottom detector signals will trigger in their respective strongest way again today… In effect, they predict good returns in the next month

Will you act (today) on your signal?

Will you act (today) on your signal?

Not directly.

I did close some shortish term shorts on something I think might bounce, but not a huge position.
(turning a covered call position back into a long stock position)
The signal was not the direct reason for the move, I was taking profits.
But I suppose it coloured my gut feel about whether I think the stock might bounce.

Jim

6 Likes

I’m guessing your bottom indicators triggered again today.

How far away is the major bottom?

I’m guessing your bottom indicators triggered again today.

I’d be interested to hear what Mungo has to say. My minor bottom indicator did not go off yesterday (May 9th).

I’d be interested to hear what Mungo has to say. My minor bottom indicator did not go off yesterday (May 9th).

All my variations of the short term bottom indicator triggered for the last 3 days running (May 5,6,9), all of them giving their strongest (but still short term) bullish signal.
They think the next month will be positive. Average index result +3.28% after a month. YMMV.
So far it looks like each of them will offer another signal today, but a weaker version.

No peeps at all from the major bottom detector.
It’s getting a bit closer, though: another six trading days like today would wake it up.
Or fewer, but worse, days.

Jim

15 Likes

Thanks again for sharing your indicators Jim. Has your major bottom indicator flashed for multiple days in a row like your minor bottom indicators?

Has your major bottom indicator flashed for multiple days in a row like your minor bottom indicators?

In the past, sure.
A ton of signals during the late 2008 slide, making them useless.

But as mentioned, it is silent for now.
Multiple days of silence in a row

Jim

8 Likes

I think many might be curious as I am whether the short term bottom detectors fired again today.

Can you enlighten an amateur what exactly the definition of a “bottom” is if they fire and the next day again and again and again… ?

That it gets down after they fire? If I am not mistaken the S&P now is 8% and the Nasdaq 12% lower than the 1st day they fired.

3 Likes

Jim has said their imperfect (which they’d have to be by definition …). All you can expect following these is the positive return stated, but they can’t guarantee you profits each time they fire, this time they fire, the next time. It’s using math to make educated guesses about entries and exits, and you can bet Jim’s in the same boat you are. It happens.

2 Likes

If I recall correctly, the strategy is to buy on the first day it stops triggering after a sequence of triggers. Obviously, it would be very unreasonable to expect it to be perfect but it does seem better than random chance. This decline seems to be going against some other short term bottom detectors too so it seems a bit anomalous that way. Perhaps the fed tightening and regular hawkish comments is the cause?

1 Like

I always loved statistics and probability theory so I understand that “it’s not perfect”, just expressed my frustration that I sold my puts too soon (on Monday, missing out especially on ARKK puts 20-25% more up to now).

Just found this interesting combination of 7 indicators (CNN, probably not new for most of you) that says the trend will continue:

https://edition.cnn.com/markets/fear-and-greed

3 Likes

Am I hearing the bear yawn today? Any peep from the major bottom signal?

1 Like

What’s the WORST historic outcome from the major bottom indicator, looking at 6 months and 12 months after it triggered?

3 Likes

I use a different data source, but my data shows 72 signal dates (46 since 1955).
The last major signal (NHNL<-33.33%) was 20200324. No major bottom signal on Friday, but it was close so some other data sources may have signaled.

The worse 6 months were -42% following the 19311218 signal.
The worse 12 months were -45% following the 19301217 signal.

From 1955 to now, the worse 6 months were -16% following the 20081007 signal.
From 1955 to now, the worse 12 months were -12% following the 19730522 signal.

Expecting one bad day to predict 12 months forward seems like asking a lot.

— my data —

since            1mFR  2mFR  3mFR  6mFR  12mFR
1929   average    4%    5%    8%    8%    22%
1929    median    4%    5%    8%   13%    25%
1929    st dev    8%   11%   18%   22%    29%
1929     min     -14%  -24%  -24%  **-42%  -45%**
1929     max     23%   41%   98%   60%   137%
 
since            1mFR  2mFR  3mFR  6mFR  12mFR
1955   average    3%    6%    7%   15%    33%
1955    median    3%    6%    8%   16%    32%
1955    st dev    8%   10%   12%   16%    18%
1955     min     -12%  -12%  -13%  **-16%  -12%**
1955     max     22%   35%   38%   48%    69%
 
         Date    1mFR  2mFR  3mFR  6mFR  12mFR
       19301217   3%   15%   20%   -10%  **-45%**
       19311218   4%    6%   -2%   **-42%** -11%
       19730522   0%    4%   -2%   -1%   **-12%**
       20081007  -4%   -11%  -8%   **-16%**   9%
 
         Date    1mFR  2mFR  3mFR  6mFR  12mFR
       20200310  -4%    2%   12%   17%    38%
       20200312  12%   16%   22%   36%    62%
       20200313   5%    4%   13%   25%    49%
       20200317  11%   14%   24%   36%    60%
       20200319  17%   21%   30%   41%    65%
       20200324  14%   21%   28%   37%    61%

These 6 days between 20200310 and 20200324 look similar to those in this post that showed a
Major bottom signal on 7 days between 20200309 and 20200319 (newer version of signal).
https://discussion.fool.com/simple-bottom-detector-performance-3…

15 Likes

If I am not mistaken end of next week the 99-day signal (probably) fires, in contradiction to the also longer term and probably firing “major bottom” one.

What do the esteemed board members make out of that?

1 Like

Only 21 of the 72 major bottom signals happened when BCC was not 0. And these sometimes were in clusters (like the 6 days in 2020), and so there were only 10 independent signals with BCC not 0. This is not enough independent data points to make strong conclusions. And there are implementation questions that affect which average to consider. Would you invest 6 separate times in an event like 2020, or somehow dedup the signals and only invest once?

The average forward returns were lower when BCC was 0, but positive on average. Does size matter, or is the trend change more important? Maybe win rate in a better metric. Again, the answer depends on how the bottom signal is used.

— data —

major bottom signal when BCC is not 0:

   Date from      Date to  number
  19291030      19291114     3
  19461010                   1
  19470520                   1
  19571022                   1
  19730522                   1
  19871020      19871027     3
  19900824                   1
  19980901                   1
  20181221      20181226     3
  20200310      20200324     6
                 total       21

Returns after a major bottom signal, when BCC=0 and when BCC>0:

BCC           1mFR  2mFR  3mFR  6mFR  12mFR
 0   average   3%    3%    5%    3%    20%
 0   median    2%    4%    4%   -1%    23%
 0   st dev    8%   12%   19%   22%    30%
 0     min    -14%  -24%  -24%  -42%  -45%
 0     max    22%   41%   98%   60%   137%
 
BCC           1mFR  2mFR  3mFR  6mFR  12mFR
>0   average   7%   10%   14%   20%    28%
>0   median    5%   11%   13%   20%    34%
>0   st dev    8%    8%   11%   13%    26%
>0     min    -7%   -7%   -5%   -1%   -22%
>0     max    23%   22%   32%   41%    65%
11 Likes

There were 16 independent major bottom signals when BCC was 0, with 51 total signals:

   Date from      Date to  number
  19301111      19301217     3
  19310922      19311006     4
  19311215      19311218     2
  19320601                   1
  19370913      19371020     8
  19380328      19380330     2
  19400522                   1
  19620528      19620626     5
  19660830                   1
  19690729                   1
  19700515      19700527     5
  19740916                   1
  20081007      20081121     13
  20090303      20090306     2
  20111004                   1
  20160114                   1
                 total       51
8 Likes