Technical & Economic Models

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I. Stock Market Scout (MMS)

MTR Market Scout (MMS) is a timing model based on a group of technical and economic indicators. Click Here to read more

II. MTR-TM Timing Model (original timing model)

The MTR-TM is our original timing model.  This model is was based on the 4% timing model (based on the (Valueline Arithmetic Index) discussed by Martin Zweig in his book "Winning on Wall Street."  We used that base model and applied some additional criteria to reduce whip-saws.  The MTR-TM is a buy or sell model with no hold signals. This model is also a momentum model and this can cause some late signals and still have some whip-saws as the original model.   These issues lead us to develop Stock Market Scout.

This model was taken offline and replaced by Stock Market Scout.


III. MTR Economic Model (MTR-EM)

The MTR-EM was designed to help investors peer into the future and set expectations for the market 3 to 6 months in advance. This is done by using changes in real-wages for all non-managerial workers in the U.S. Real-wages is what people actually make after factoring in inflation. If wages continue to rise, even if inflation is going up, consumers will spend and this supports rising stock prices. This economic model was derived from the analysis done by Joseph H. Ellis in his book Ahead of the Curve. 

Here is the trick, if unemployment rises but real-wages continue to rise then consumers will spend and rising unemployment has a less (or no) impact on stock prices. Unemployment changes is a lagging indicator and investors have to be careful when allowing unemployment numbers to influence investment decisions. 

Review the MTR-EM chart below from late 2007. You will notice that real-wages (green line) spiked down (and employment was dropping).  These were red flags to investors to get out of the market or prepare to short the market as a whole. Look for a 2% to 4% change in the (green line) and the market will soon follow. 

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IV. ISM Producers Manufacturers Index (PMI)

Purchasing Managers Index (PMI) is a very important sentiment reading, not only for manufacturing, but also the economy as a whole. Although U.S. manufacturing is not the huge component of total gross domestic product (GDP) that it once was, this industry is still where recessions tend to begin and end. For this reason, the PMI is very closely watched, setting the tone for the upcoming month and other indicator releases.

The magic number for the PMI is 50. A reading of 50 or higher generally indicates that the industry is expanding. If manufacturing is expanding, the general economy should be doing likewise.

Another useful figure to remember is 42. An index level higher than 42%, over time, is considered the benchmark for economic (GDP) expansion. The different levels between 42 and 50 speak to the strength of that expansion. If the number falls below 42%, recession could be just around the corner.

As with many other indicators, the rate of change from month to month is vital. A reading of 51 (expanding manufacturing industry) coming after a month with a reading of 56 would not be seen favorably by the markets, especially if the economy had been showing solid growth previously.

PMI Index

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