The iM Standard Market Timer

The iM Standard Market Timer endeavors to signal periods when it may be advantageous to exit the market or hedge one’s portfolio of stocks. For the simulation it was assumed that during the hedging periods the model holds the ProShares Short S&P500 (SH), and when not invested in SH the model switches to cash.

The model was backtested on the web-based portfolio simulation platform Portfolio 123 from Jan-2-2000 onward, as this was the first full year when the algorithm had access to all the indicators it uses:

  • Daily closing price of SPY,
  • CBOE Volatility Index (VIX ),
  • S&P500 Estimated Earnings Current Year, and
  • S&P500 Risk Premium –the difference between the Current Estimated Earnings Yield of the S&P500 and the Treasury 10-yr Note Yield.

With the model optimized to keep the number of trades reasonably low, it still provided an average annualized return of about 6.7% from Jan-2000 to the middle of Mar-2016.

Figure-1 shows the performance when only invested in SH during the hedging periods and otherwise in Cash. There were 9 realized trades, all of them winners. Currently (Mar-13) the model holds SH, also showing a positive return. Annualized return would have been higher than the 3.9% return for buy-and-hold SPY.

width="640"/(click to enlarge)

The prices for transactions were taken to be “Next Close” after a signal was generated, and slippage of 0.1% of the transaction amount plus commission of 1.0 cents/share was assumed for the simulation.

The table below shows all the trades from this model.

Following the Model

The (SH-Cash) Standard Timer can be followed live at iMarketSignals (Gold membership required), where it will be updated weekly to signal start and end of hedging periods.

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Disclaimer

One should be aware that all results for this system are from a simulation and not from actual trading.

All results are presented for informational and educational purposes only and shall not be construed as advice to invest in any assets. Out-of-sample performance may be much different. Backtesting results should be interpreted in light of differences between simulated performance and actual trading, and an understanding that past performance is no guarantee of future results. We can make no claims about future performance of this model, which may include significant potential for losses. All investors should make investment choices based upon their own analysis of the asset, its expected returns and risks, or consult a financial adviser. The designer of this model is not a registered investment adviser.

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14 comments on “The iM Standard Market Timer
  1. TDCARLSON says:

    That is great. Question: what do the results look like if you enter SPY instead of cash?

    Tom C

  2. gasman says:

    George,
    Is this model affected by problems in February with SPEPSCY?

    • geovrba says:

      We have hopefully addressed this by setting up custom series for SPEPSCY and SPEPSCNY which is now also in the model. The custom series uses the EPS for each stock in the S&P500 to calculates the weekly values for the S&P500. (SPEPSCNY is a blend of the SP500 estimate CurrY EPS & NextY EPS).

  3. nmtdoc says:

    Georg and Anton,
    This is a question that needs to be addressed. Considering the thread you referred me to on P123, what are we to do going forward with models that have data which is subject to estimated data/data revisions? I got the impression from your responses in that thread that you were no longer going to use estimated data. Is that true, and if so, are you planning to overhaul these models?
    Thanks

  4. osumcnutt says:

    Have there been any signals since 11/2/15?
    Above chart ends with that signal and report on main page just shows Hedge is ON.
    Curious if there have been any changes between now and November.
    Thanks

  5. mets1 says:

    George,
    Looks like the first real trade just ended moving back into cash….What was the recorded loss of the trade ?
    I am surprised that your “sector rotation model” still remains short when so many options are performing so well ?
    XLE @ 19%
    XLB @ 11%
    XLK @ 13%
    XLU @ 16%

    • geovrba says:

      The iM-Standard Timer signaled hedging from 11/2/2015 to 10/10/2016.
      Over this period returns were:
      SPY +5.0%
      SH -6.7%
      IEF +6.4%

      If one had sold 50% of SPY and bought 50% SH (hedge ratio 100%) then over this period one would have had a loss of 0.85%.

      If one had sold 50% of SPY and bought 50% IEF then over this period one would have had a gain of 5.7%.

      The Standard Timer is not intended to be an investment model on its own.

  6. TDCARLSON says:

    Hi. Can you provide a history of signals since the last one shown in 2015? I don’t see it on the main page.

    Thanks.

    Tom C

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