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• The energy sector is in a recession — the energy industry has filed negative earnings for four consecutive quarters.
• Negative earnings and Debt-to-EBITDA (earnings before interest, taxes, depreciation and amortization) ratio at historic highs, and no respite in sight.
• The US government should not let this strategic industry fail and arrange a bailout program.
• According to our analysis the energy ETFs (XLE, VDE, XOP, etc) and energy stocks remain strong sells.

• Due to inconsistencies in SPEPCY (SP500 Current Year EPS Estimate) data at the beginning of the calendar year we have amended Combo3.
• Going forward we will not replicate the signals from the P123 subscription models anymore as the P123 models can only be revised every six months. We have set up new component models for Combo3.R! which incorporate rule changes.

Followers of Best(SPY-SH), Best(SSO-TLT), Combo3 and Combo3b please read this.

• The Trailing Twelve Months Income Available to Common Stocks (TTMIACS) of the S&P500 is tightly correlated to the S&P 500.
• TTMIACS has been declining since Feb-2015 when its 10-week moving average crossed its 40-week moving average to the downside.
• Exiting the stock market according to this indicator would have avoided major losses in 2001 and 2008.
• According to this indicator, a downwards potential remains in the S&P 500 with a possible low of 1660 in the next three months.

• The Vanguard Market Neutral Fund Investor Shares (VMNFX) aims to “neutralize”, or limit the effect of stock market movement on returns.
• We calculate 26-week rolling returns for VMNFX and for benchmark SPY (the ETF tracking the S&P500), which provide a measure of over- or under performance of VMNFX relative to SPY.
• Predictive information comes from the relationship between the fund and the benchmark rolling returns. If VMNFX performs better than the stock market then one should be out of the market.
• Conversely, if VMNFX under performs SPY then it should be relatively safe to be invested in stocks.
• Our analysis generated a sell signal for the stock market on Nov-2-2015.

• Based on its historic trend, the stock market appears to be marginally overvalued.
• The historic trend suggests a probable real gain of about 20% over the next five years.
• Analysts’ long-term forecasts of stock returns made 4 years ago appear to have been unrealistically low.
• The Shiller Cyclically Adjusted Price to Earnings Ratio is relatively high (but not extremely high), and a market correction is possible.

• This rating system identifies funds which may provide better returns than a benchmark index-fund by measuring fund performance from the perspective of savers who make regular monthly contributions to funds.
• It compares the terminal value from periodic $1.00 monthly contributions to a fund with the terminal value from the same contributions to a benchmark index-fund over the same time period.
• Specifically, the system calculates 1-year and 5-year rolling terminal values from $1.00 monthly contributions to the fund and the benchmark index-fund.
• Predictive information comes from the relationship between the fund and the benchmark rolling terminal values, allowing an estimate of future fund performance relative to the benchmark index-fund.

Portfolio123 data changes can affect more recent model performance. We monitor our models to see whether there are any negative effects from data revisions.
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A reliable source for recession forecasting is the unemployment rate, which can provide signals for the beginnings and ends of recessions. The unemployment rate model (article link), updated with the October figure of 5.0%, does not signal a recession now.
Read more >

• A warning of a major stock market decline from the death cross of the Trailing Twelve Months Income Available to Common Stocks (TTMIACS) of the S&P500
• The TTMIACS of the S&P500 has historically provided a good indication of market tops.
• TTMIACS has been declining since Feb-2015 when its 10-week moving average crossed its 40-week moving average to the downside.
• Exiting the stock market according to this indicator would have avoided major losses in 2001 and 2008.

The iM-Best(SPY-IEF) MarketTimer incorporates three market timing models which provide signals which indicate the percentage of funds to allocate to stock market investment in 25% increments, from 0% to 100%, also referred to as signal strength.

Alternatively, instead of allocating a percentage of funds to stocks and bonds, one can be fully invested in stocks or bond funds according to the signal strength, as shown in the tables below.

• This model is similar to Combo3, but replaces Best(SSO-TLT) with BESTOGA3 which invests periodically in three of the so called “Vice” stocks of the S&P500.
• It combines equal weighted the two ETF models, Best(SPY-SH) and Best1(Select SPDR), with BESTOGA3.
• We demonstrate that this combination would have produced high annualized returns of about 28% with low drawdowns of about -12%. Also over any one year period it showed a minimum return of 10.9%.
• Additionally, due to the very high liquidity of its component ETFs and stocks, this combo can support a large dollar portfolio value.
• It has five positions, holding two ETFs, one from each ETF component model, and the three stocks from BESTOGA3.

• Holding continuously the so called “Vice” stocks of the S&P500 would have been very profitable; it would have provided an average annualized return of about 20% from Jan-2000 to Oct-2015.
• The iM-BESTOGA-3, named after the first few letters of: beer, spirits, tobacco, and gambling, holds three stocks from the GICS sub-industries: Distillers & Vintners, Brewers, Tobacco, and Casinos & Gaming.
• Backtesting the model from Jan-2000 to Oct-2015 produced a simulated annualized return of about 24.3% with a maximum drawdown of only -18%, and low annual turnover of about 130%.

• At the end of August 2015 the 50-day moving average of the S&P500 crossed its 200-day moving average to the downside – the 33rd occurrence of a “Death Cross” since 1950.
• The performance of the S&P500 was investigated for periods ranging from one year before to two years after a Death Cross.
• During the last 65 years there were ten recessions. A Death Cross preceded six recessions and occurred early in four recessions.
• After a Death Cross the probability of S&P500 being lower than for any other point in time increases for periods from one- to eighteen months.

• The Market Climate Grader divides the environment for investment returns into four market climate zones.
• For better returns one should adjust asset allocation according to market climate. As an example, three models were analyzed to highlight the better performance when investing according to market climate.
• Performance for three models which use ETFs with varying risk characteristics are shown. Interestingly, risk measurements for the models are very similar, better than for the benchmarks and component ETFs.
• The simulated performance for all models is much higher than for buy-and-hold of the S&P500 or for the Vanguard LifeStrategy Moderate Growth Fund which holds 60% stocks and 40% bonds.

A reliable source for recession forecasting is the unemployment rate, which can provide signals for the beginnings and ends of recessions. The unemployment rate model (article link), updated with the August figure of 5.1%, does not signal a recession now.
Read more >

• The market environment for investment returns is divided into four climate zones.
• Market climate zones were determined by combining fundamental and technical indicators.
• A performance analysis of SPY shows that the probability of stock market gains is highest for climate Zone-1 and lowest for Zone-4.

• This daily indicator is calculated as the ratio of the number of S&P500 stocks that have reached new 3-month-highs minus those that have reached new 3-month-lows, divided 500.
• Exiting and entering the stock market according the indicator’s signals would have avoided major drawdowns of the market during the backtest period from Jan-2000 to Aug-2015.
• Switching according to the signals between stock ETFs and the Intermediate Treasury Bond ETF IEF would have produced much higher returns and lower drawdowns than buy-and-hold of the stock ETFs.

A reliable source for recession forecasting is the unemployment rate, which can provide signals for the beginnings and ends of recessions. The unemployment rate model (article link), updated with the July figure of 5.3%, does not signal a recession now.
Read more >

• This model can hold 2 to 8 stocks, at variable weightings, selected by a ranking system from a minimum volatility stock universe of the S&P500.
• The model has 8 equally weighted slots; a very high ranked stock could occupy a maximum of 4 slots, that is a nominal 50% weighting of the model’s total assets.
• When adverse stock market conditions exist, the model reduces stock holdings by 50% and invests the proceeds in the -2x leveraged ProShares UltraShort S&P500 ETF (SDS).
• The backtest produced a simulated average annual return of about 42% from Jan-2000 to end of June-2015 with a maximum draw-down of minus 19%.