What’s worse?
A. Watching the value of your portfolio decline as you wait for the BCC to output a signal to sell everything and go to cash; or
B. Watching the market from the sidelines, while you wait for a signal from the BCC indicating it’s safe to get back in.
What’s worse?
A. Watching the value of your portfolio decline as you wait for the BCC to output a signal to sell everything and go to cash; or
B. Watching the market from the sidelines, while you wait for a signal from the BCC indicating it’s safe to get back in.
Both are equally bad. To benefit from market timing you have to get both signals right, or at least somewhat right. It seldom works out that way.
Elan
It only has to work out seldom. As long as the gains outpace the losses. That of course would depend on how good the timing system is. Nobody anywhere expects it to be right always. Even buy & hold has extended periods of losses/recovery times. So even there you’re no right all the time and eat the losses.
It only has to work out seldom. As long as the gains outpace the losses. That of course would depend on how good the timing system is. Nobody anywhere expects it to be right always. Even buy & hold has extended periods of losses/recovery times. So even there you’re no right all the time and eat the losses.
True. Backtests done by people here have shown that most timing systems reduce volatility at the cost of reducing return. You avoid some of the psychological pain of drawdowns, but you suffer the equal pain of missing out on gains. The problem is that volatility isn’t risk, although it’s very easy to mix up the two. Risk is a matter of permanent loss, not of inevitable drawdowns.
I sold everything in February 2020 when the signals turned bearish and it looked like we might be headed for a long economic disaster. It felt good for about a month, and then I missed out on very substantial gains during the quick market rebound. This year I held fast and maxed out my positions during the downturn. This July I had the largest one month gain since at least 2001.
Market timing has never worked for me.
Elan
Backtests done by people here have shown that most timing systems reduce volatility at the cost of reducing return.
You avoid some of the psychological pain of drawdowns, but you suffer the equal pain of missing out on gains.
Backtests are forever inspiring when new, then forever disappointing when older.
For whatever it’s worth, I recently did an update of my tongue-in-cheek timing system.
A system intended to mock timing systems.
The discussion was about the “presidential cycle”, a supposed four year cycle of good and bad returns.
My stance was that it’s all pretty much noise, since markets are so global an frankly the US president isn’t that important.
Even with random numbers you’ll find some sort of a variation during some segment of the cycle, if you’re allowed to test every possible phase.
So, I proposed a far improved system, based on a seven year cycle.
The really annoying thing is, it has worked better out of sample than a lot of my NOT joking timing systems.
Post from 2009:
https://discussion.fool.com/what-do-you-think-of-the-proposition…
I did do a very slight retuning in 2013, leaving the signal in a different state 9% of the time compared to the original post.
Ignoring that mild data contamination, post discovery results since the post 12.1 years ago:
SPY CAGR during months it was bearish: -3.36%
SPY CAGR during months it was bullish: 18.38%
4.18 times your money assuming zero return while out of the market.
Buy and hold: 3.70 times your money.
Most recently it went bearish last August 31 and will remain so for a total of 22 months.
Jim
The BCC never signaled to get out in 2020. The lowest value for the BCC in 2020 was 4 for a month, from March 16 through April 16. So if you were following the BCC during 2020, you should have been in the market for the entire year.
What’s worse?
Being all in or all out and being wrong. Remember, the market goes up most of the time
Market timing has never worked for me.
ditto
The BCC never signaled to get out in 2020. The lowest value for the BCC in 2020 was 4 for a month, from March 16 through April 16. So if you were following the BCC during 2020, you should have been in the market for the entire year.
BCC is one timing system which itself is a composite of three timing systems. So one of those three systems didn’t fail in 2020 because it didn’t trigger. As a counter example, how has the 5/25/2022 sell signal worked for you so far?
Elan
I don’t view the BCC non-signal in 2020 as a failure, but rather a success. If someone followed the BCC in 2020, they stayed in the market through 2020 and benefited from the strong uptrend that started in late March or early April of that year. The downdraft was not sustained enough to go flat.
You know how the 5/25/2022 signal has worked so far this year. Prior to the BCC signal, the low was on 5/19/2022. Immediately after the BCC signal, the market went up, and then made an even lower low in mid June. Thereafter, bounced around a bit and started the current strong uptrend mid-July. Temco nailed the bottom when he posted the signal from Twitter on July 20, 2022.
C.) Not reading or understanding the intent, timeframe, best usage of the BCs and what they do and do not protect from.
The BCs are a combination of medium to slow-acting indicators. Using them monolithically as a BCC combined “in” or “out” absolutist indicator is and has always been a “understand what you’re getting”, “own it” proposition.
Try the FAQ on the right.
FC
Mungofitch gave us these links a while back:
https://stockcharts.com/h-sc/ui?s=$NAHL&p=D&yr=0&…
https://stockcharts.com/h-sc/ui?s=$SPX&p=W&yr=1&…
Pretty simple: blue line under red = bearish.
The one for the Nasdaq goes bearish in mid-July 2021. It goes up and down for a while before staying under 0 since. The timing matches pretty well what happened to “growth” stocks.
For the SPX, it goes under in Jan 2022 and I think that again it’s a pretty good warning signal.
I checked for 2020: the Nasdaq one is telling us to get out at the end of February. Not bad. And I think Mungofitch told us that is major bottom detector made some noise on March 23 and that was spot on. But if we wait for the blue line to go back above 0, we would come back in the market at the end of April. We miss some of the fun but not that much. We miss most of the pain, though.
I hope I understand these graphics correctly. Anyway, another gem from our favorite Monégasque.
Mungofitch gave us these links a while back:
https://stockcharts.com/h-sc/ui?s=$NAHL&p=D&yr=0&…
https://stockcharts.com/h-sc/ui?s=$SPX&p=W&yr=1&…
Pretty simple: blue line under red = bearish.
Note, the second one has not held up well out of sample.
It’s still quite good if you’re late in a rally, and trying to pick a moment to go to cash to lock in profits.
A market wide trailing stop loss, if you like.
It was long all the time from July 2020 to January this year, so it worked to lock in the bulk of the gains from that particular rally.
(so would many other approaches, anything considering a chart rather than valuation)
Any of its three sell signals this year would have been pretty good: January, mid Feb, or early April.
But overall, post publication that market has done better on average in its bearish moments than during its bullish moments.
It is not suited to a long/cash trading system which is the way it was backtested.
It doesn’t do what it was supposed to do: identify stretches you could be out of the market without really hurting long run returns.
FWIW, this is the daily version of the same thing
https://stockcharts.com/h-sc/ui?s=$SPX&p=D&yr=1&…
Jim
Interesting that Jim noticed a seven year cycle. I just read “Mystery of the Shemitah” a couple of weeks ago. Whether or not you believe in anything he has to say, he does point out that a lot of market crashes happen during the “Shemitah year”, which happens every seven years. So I pulled out the annual stock market data going back to 1928 and checked it out. While there were periods where it did not work (e.g., 2015), all in all, staying out of the market during the Shemitah year did, in fact, increase CAGR 0.5+%. Furthermore, staying out of the market for both the Shemitah and the following year increased it by CAGR 1+%.
With the monthly data available in my DB, only back to 2003, I did some data mining and found that, for my trading strategies, I could limit it to a window from September, at the start of the Shemitah, through February after the Shemitah completes. Thus, out of every seven years, I’d be out of the market for 18 months.
Other timing mechanisms appear to work better for my trading strategies, but it’s still intriguing to find something so regular. Even if it’s all in-sample, it still fits the data over a reasonable span of time - but then there have only been ~13 seven-year periods since 1928, so it could all just be coincidence.
FYI: The most recent Shemitah started 9/7/2021 and ends 9/25/2022. Using my data-mined approach, I would have gotten out 9/2021 and wouldn’t get back in until 3/2023. (Funny thing, I would be significantly better off, at this point in the year, had I followed that, instead of following my current timing strategy!)
-Jim