Blog Archives

The iM-FlipSaver Models (Revised)

In order to simplify retirement investment we are replacing our iM-Vanguard/TIAA-CREF Systems (updated monthly) with three iM-FlipSaver Models (updated weekly).

Prudent investors have assets allocated to both bonds and stocks. This conservative strategy is found in the Vanguard LifeStrategy Funds that invest statically in bonds and stocks and also in Life-Cycle/Target-Date Retirement Funds.

Instead of a static bond/stock ratio, these models change allocation in accordance with stock market conditions; e.g. during up-market periods the models hold more stocks than bonds, and during down-market periods the allocation “flips” to holding less stocks than bonds. This should improve performance and reduce drawdowns.

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Countdown To The 34th S&P 500 Death Cross; Update 12/6/2018

  • The 34th occurrence (since 1950) of the 50-day moving average of the S&P 500 crossing its 200-day moving average to the downside is imminent.
  • With the S&P 500 closing at 2,700.07 on 12/4/2018 the Death Cross is expected, with high probability, on Friday December 7.
  • Will the arrest of Huawei’s chief financial officer drive the S&P 500 below 2602 today for an earlier Death Cross?
  • The looming Death Cross could indicate the potential for a major selloff.

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Countdown To The 34th S&P 500 Death Cross; Update 11/29/2018

  • The 34th occurrence (since 1950) of the 50-day moving average of the S&P 500 crossing its 200-day moving average to the downside is imminent.
  • The Death Cross is inevitable, and will occur early December.
  • The looming Death Cross could indicate the potential for a major selloff.

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Can we avoid the 34th S&P 500 Death Cross?

  • The 34th occurrence (since 1950) of the 50-day moving average of the S&P 500 crossing its 200-day moving average to the downside is imminent.
  • Only a 7.9% upturn in the S&P 500 can avoid the “Death Cross”

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The iM-Low Frequency Timer

  • 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.

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Timing the Market with Google Trends Search Volume Data

  • Past research suggests that the relative change in the volume of Google searches for financial terms such as “debt” or “stocks” can be used to anticipate stock market trends.
  • In this analysis the search term “debt” was used to obtain monthly search volume data from Google Trends.
  • The analysis shows, that a decrease in search volume typically preceded price increases of the S&P 500 index, and vice versa.
  • Switching between ETF (SPY) and ETF (IEF) based on monthly search volume data from 2005 to 2018, would have made a profit of 634% versus 220% for buy-and-hold SPY.

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Out-Performing the US Market With the iM-Country Rotation System

  • The iM-Country Rotation System periodically selects one country ETF from six countries, USA, Canada, Japan, Australia, Germany and Sweden, based on the performance of their respective currency ETFs.
  • Backtests from 2009 to 2018 (the bull market period) show that each foreign country ETF under-performed the US stock market over the full backtest period.
  • However, when periodically selecting ETFs using a ranking system based on the performance of the countries’ respective currency ETFs, the model significantly out-performed the US stock market.
  • Over the period 3/9/2009-7/21/2018 the system showed a simulated annualized return of 29.4% versus 18.7% for the SPDR S&P 500 ETF Trust (SPY), with similar maximum draw-downs of about -19%.

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Better Returns From Seasonal Investing In The S&P 500 (1950-2018)

  • From 1950 to 2018 the S&P 500 performed best from November to April, and significantly worse from May to October during most years.
  • From 1950-2018 the real annualized return for the S&P 500 was 6.71%. Had one only invested from November to April each year the return would have been 6.60%, almost the same.
  • Investing in a money-market fund from May to October each year and the remaining time in the S&P 500 would have provided a higher real annualized return of 7.17%.
  • For the 32 year period of rising interest rates (1950-1982) the real return of the S&P 500 was only 5.40%, much less than for following 36 years of falling interest rates.

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The iM Seasonal ETF Switching Strategy

  • This strategy exploits the anomaly that Cyclical Sectors and Small Caps perform best from November to April, and Defensive Sectors do better from May to October during most years.
  • In this analysis only one ETF is periodically selected by a simple ranking system from the cyclical and defensive groups, respectively, and held for six months.
  • Out of the 37 six-month periods, 36 periods showed gains ranging from 0.1% to 28.1%, while only one six-month period produced a loss of -9.3%.
  • For the approximately 18.5 year period from end of Oct-1999 to May-2018 the backtest showed an annualized return of 19.8% with a maximum drawdown of -30%.
  • For an “inverted” switching strategy, when cyclicals ETFs are used for the May-October period and defensive ETFs during November-April period, the annualized return was 3.2% and maximum drawdown was -60%.

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Improvement Update to the iM-Best12(USMV)-Trader: Trading the Stocks of the iShares Minimum Volatility ETF – USMV

  • The iM-Best12(USMV)-Trader periodically invests in the 12 highest ranked stocks of USMV which currently holds 208 large-cap stocks.
  • This strategy, postulated in 2014, has produced from the end of Jun-2014 to end of Feb-2018 an annualized return of 16.1% versus 11.9% for USMV, and 11.5% for SPY.
  • We have now changed the trading rules and ranking system which we believe will provide improved returns with low turnover in the future.

In this 2014 article we showed that better returns than those from the ETF could be obtained by applying a ranking system to the stock holding of USMV (the universe), and investing periodically only in the 12 highest ranked stocks, bought and sold according to certain rules.
Read more >

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With reference to Section 202(a)(11)(D) of the Investment Advisers Act: We are Engineers and not Investment Advisers, read more ...
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