- Over the last 20 years this Timer provided only two exit periods for the stock market.
- By being out of the stock market during those periods one would have avoided most of the two bear markets and losses of 35% and 43%, respectively.
The Low Frequency Timer exits the stock market when all of the following three conditions exist:
- the Market Climate Score is greater than 2,
- the unemployment rate is higher than three months ago,
- the performance of the Hi-Beta stocks is lower than, or equal to Lo-Beta stocks of the S&P 500.
The Low Frequency Timer enters the stock market again when the iM-Standard Market Timer signals investments in stocks and at that time the performance of the Hi-Beta stocks must be greater than that of the Lo-Beta stocks of the S&P 500.
The models used in the Low Frequency Timer’s rules are described in:
- ETF Investing According to Market Climate.
- Profitable Market Timing with the Unemployment Rate
- Profitable Market Timing Using Performance of the Hi-Beta and Lo-Beta Stocks of the S&P 500
- iM-Standard Market Timer
Exit periods signaled
From Jan-1999 onward the model provided only two exit periods for the stock market, 2/5/2001 to 3/31/2003 and 12/24/2007 to 3/23/2009. Over those two periods SPDR ETF (SPY) lost 35.5% and 43.2%, respectively.
The iM-Low Frequency Timer was modeled on the on-line portfolio simulation platform Portfolio 123.
The performance of the model when switching between the stocks of the S&P500 and the iShares Short Treasury Bond ETF (SHV) is shown in Figure-1 below, together with the benchmark ETF (SPY). The periods when the model was in ETF (SHV) are depicted by the near horizontal sections of the performance curve and the vertical grey bars. By avoiding being in stocks during those two periods one would have had from Jan-2-1999 to Aug-31-2018 a total cumulative return of 891% versus 236% for buy-and-hold SPDR ETF (SPY).
Figure-2 shows the performance when switching to iShares 7-10 Year Treasury Bond ETF (IEF) instead of ETF (SHV). The total cumulative return would have been 1,210%, more than 5-times that for buy-and-hold ETF (SPY).
The backtests suggest that the iM-Low Frequency Timer’s signals could be a useful indicator to avoid bear markets. At iMarketSignals we will provide with the Friday weekly update if this model is invested or in cash, which may in conjunction with our other recession indicators provide advance information on possible market down-turns and, if in a recessionary period, signal a timely market entry.
The performance data shown represent past performance, which is not a guarantee of future results. Investment returns and portfolio value will fluctuate, and future signals from this model may not be as efficient as they were in the past.