Sunday, May 17, 2009 EST

The Economic Model (MTR-EM) was updated with data for April 2009.

All percentages are Year over Year changes (April 2009 vs. April 2008)

  • Real-Wages (gray line): + 4.48%
  • Real-Wages All Employed (green line) : -.44%
  • Employment: -4.71%
  • S&P 500 (purple line): -37% 

Interpretation: Real-Wages increased by 4.48% reflects the drop in CPI and fuel. Real-Wages for all employed workers is down -44%. This reflects the continuing drop in year over year employment which down -4.71%. The increase in real-wages is positive for the market since employed workers have more money in their pockets than last year. This is offset by the continued decrease in employment. This again is another reflection of the weight on consumer spending. Consumer spending continuing to be impacted will show up in lower corporate earnings. The MTR-EM is a mid term model and can be used as an indicator of how to investment when the Market Timing Model (MTR-TM) issues a market up or market down call.

The chart below can be customized on the Economic Model page.

Sunday, May 10, 2009 EST
This post is in response to a forum entry regarding timing the stock market using a 200 day simple moving average. 

I read the paper. This 47 page document can be summed up as follows:

When the S&P 500 closes above the 200 day simple moving average (SMA) BUY. When the S&P 500 closes below the 200 SMA sell. The author mentions that another trader uses this signal but adds one more parameter: The close should close 1% above the 200 day SMA, or 1% below the 200 SMA before taking action.

I ran a back test using AMIBroker and the results are not all that impressive.

First a chart of the S&P 500 with the SMA plotted. Overall it seems like a 200 day SMA can be used well to time the market.

Now lets take a look at the same chart in AMIBroker with BUY and SELL signals applied. It is clear around market tops and bottoms this system creates many false trades.

 

All back tested results are from January 1998 to December 2007

The results: BUY when the index closes 1% above the 200 day SMA. Sell and sell short when the index closes down 1% lower than the 200 day SMA.  127% return about 8.3% per year.

Back test but remove the 1% parameter.

Results: BUY when the index closes above the 200 day SMA and sell and sell SHORT when the index closes below the 200 day SMA. This back tested results removes the 1% parameter and performed much better returning 209% about 11.5% per year, BUT at more than double the trades.

Summary: Watching the 200 day SMA can be helpful and may beat buy and hold but it no where compares to the MTR-TM.

Friday, May 8, 2009 EST

It was announced today that the unemployment rate reached 8.9% but it appears the trend is slowing.

Looking at the chart below it still shows there is a long road ahead for people out of work. In addition wages have been falling, gas prices rising again. This will impact consumer spending and be a drag on growth.

Situation worse than early 80's?

The media tells us the employment situation is worse than 1982. When looking at employment changes year over year we have not seen this impact on employment even going back to 1950.

Year over year changes in employment is close to -4% in the 1950's it hit  -3%.

 
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