- For a detailed model description of the system please read the original description and previous update.
- To make this model more user-friendly we will be providing signals for three different version of this model, all updated weekly.
- The models’ holdings alternate between ETF (SPY) and ETF (IEF), being proxies for investments during up- and down stock market periods, respectively.
- The iM-1wk-SuperTimer (SPY-IEF) would have produced an annualized return of 19.9% with a max drawdown of about -10%.
- Appendix 2 shows that a (50%SPY+50%VCIT)-(IEF) strategy reduces drawdowns to -6.2% but would still have achieved an annualized return of 14%.
We provide three variants of the iM-SuperTimer that are triggered by the iM-SMC, an indication of the stock market confidence level, which we calculate on a weekly cycle. (See Appendix 1 or previous update.) The iM-1wk-SuperTimer is a fast response timer whereas for the iM-1mo-SuperTimer, and iM-3mo-SuperTimer, trade only in the relevant first week of the month. The strategy was modeled in excel with weekly data, and performance includes trading costs of 0.1% of the total switch trade amounts.
1. iM-1wk-SuperTimer (SPY-IEF)
This model reconstitutes weekly and has a specified minimum 5 weeks holding period of a position. This facilitates a holding period greater than 30 days, which in many instances is the required holding period of mutual funds. All trades are assumed on the first trading day of the week.
Simulated past performance, maximum drawdown, and number of trades, as well as current holding are shown in Figure-1.
For the period 1/3/2000 to 3/18/2019 the model would have produced an annualized return of 19.9% with a max drawdown of about -10%. A buy-and-hold strategy of SPY had an annualized return of only 5.4% with a maximum drawdown of -55% over the same period.
Since the iM-SMC level is available on Sundays, trading is assumed to occur on the first trading day of the week thereafter, usually a Monday. Trading should not be delayed by more than two days as the model’s annualized return diminishes then.
|Trading Day||Annualized Return|
2. iM-1mo-SuperTimer (SPY-IEF)
This model reconstitutes monthly. All trades are assumed on the first trading day of the week in the first week of the month. This should be more convenient to follow than a model which reconstitutes every four weeks.
Simulated past performance, maximum drawdown, and number of trades, as well as current holding are shown in Figure-2.
For the period 1/3/2000 to 3/18/2019 the model would have produced an annualized return of 16.7% with a max drawdown of about -19%. A buy-and-hold strategy of SPY had an annualized return of only 5.4% with a maximum drawdown of -55% over the same period.
The return is lower than for the model reconstituted weekly, but trading effort is reduced by approximately half from that of the 1-week model. Trading can be delayed as the model’s annualized return is not too much affected by trading a few days late from the first trading day of the week.
|Trading Day||Annualized Return|
3. iM-3mo-SuperTimer (SPY-IEF)
This model reconstitutes every three month. All trades are assumed on the first trading day of the week in the first week of the month. This model may be of interest to participants in retirement savings plans and education savings plans where the number of asset allocation switches per year is limited. This model shows only 16 switch trades over the 19 year backtest period, with a maximum of two switches in a calendar year.
Simulated past performance, maximum drawdown, and number of trades, as well as current holding are shown in Figure-3.
For the period 1/3/2000 to 3/18/2019 the model would have produced an annualized return of 14.1% with a max drawdown of about -19%. A buy-and-hold strategy of SPY had an annualized return of only 5.4% with a maximum drawdown of -55% over the same period.
The return is lower than for the models reconstituted weekly and every month, but trading effort is only about one third of the 1-week model. It only produced 16 switch-trades during the 19-year backtest period.
Trading can be delayed by up to 10 days as the model’s annualized return is hardly affected by trading a few days late from the first trading day of the week.
|Trading Day||Annualized Return|
Despite this low trading frequency the model’s initial Jan-2000 investment would have grown from $5,000 to about $63,000 in 2019, for a total return of $58,000. This is an impressive performance. A buy-and-hold investment of $5,000 in SPY or IEF would have only grown to about $13,800 for a total return of $8,800 over the same period. So, following the few signals from the iM-3mo-SuperTimer one would have added more than 6-times as much to one’s savings as one would have had from holding either SPY or IEF.
The backtests suggest that the iM-SuperTimer based on the Stock Market Confidence Level Strategy could provide useful trading signals for investors and savers.
At iMarketSignals we have provided weekly updates of the iM-Stock Market Confidence Level for longer than two year now. We are currently providing updates for the weekly reconstituted iM-SuperTimer model. We will also provide weekly updates for the iM-SuperTimer models which are reconstituted monthly and every three months. Figures 1, 2, and 3 will be updated monthly.
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 these models may not be as efficient as they were in the past.
The stock market confidence level is recalculated on a weekly cycle from the stock holding percentages and importance factors of 15 models rounded to the lowest number that is divisible by 5.
|Table-1 iM-Stock Market Confidence Level iM-SMC = 50% ( 3/11/2019 )|
|Update Frequency||Calculation Platform||Backtest from||iM-Market Timer Model||Model Importance Factor||Stock Holding|
|weekly||P123||2000||Best(SPY-IEF) Market Timer Combo||0.5||25%|
|weekly||P123||2000||Composite (SPY-IEF) Timer||2.5||0%|
|weekly||P123||2000||Composite (SH-RSP) Timer||1||100%|
|weekly||P123||2000||Standard Market Timer||1||100%|
|weekly||P123||2000||3-mo Hi-Lo Index Timer||1||100%|
|weekly||P123||2000||Low Frequency Timer||0.5||100%|
|weekly||P123||2000||Market Climate Grader||1||50%|
|monthly||Excel||1965||Coppock Indicator for the S&P500||1||0%|
Historic weekly levels and holding periods can be download here: im-smc_to_3-18-2019.xlsx
iM-1wk-SuperTimer: Up-Market 50%SPY+50%VCIT / Down-Market 100%IEF
We received the following question from one of our members which we believe to be of general interest to the iM community:
Could I accomplish a max drawdown of 5% or less using the 1wk Super Timer and using for the up market condition 50% SPY, 50% VFDIX (intermediate corp Bond) and 100% IEF for down condition? And if not, is there any combination of SPY and an intermediate corp bond in the up condition that would accomplish this with the lowest standard deviation possible.
We can model the 1-wk-SuperTimer on P123 since the recent ability to upload series data into P123. Therefore we can now quickly test different allocation models easily.
- Up-market allocation: 50% SPY + 50% VCIT
VCIT is the Vanguard Intermediate-Term Corporate Bond ETF current yield= 3.3%.
- Down-market allocation: 100% IEF
We were not able to get a better drawdown than -6.2%, which is close enough to what is desired. Annualized return is still a high 14.0%. An initial investment of $5,000 would have grown to almost $70,000, with slippage of 0.1% of the trade amounts taken into account.
Risk statistics show a Standard Deviation of the monthly returns = 6.6% versus 14.4% for SPY. This would appear to be a very low risk model, according to the backtest, with a maximum exposure to equities of 50%.