Stock Market Models

[highnote]

I thought it might be interesting to hear from others about what types of models or decision making tools they use to invest in the market. If you have any thoughts please feel free to add to the discussion!

I use Martin Zweig's Momentum and Monetary Models to help with my stock market investment decisions. Here is a link to a blog I wrote about how I use it in today's market. Monday, August 5, 2019 has been one of the most difficult market days of the year for a lot of people. Hopefully, what I have written can help shed some light on the situation by giving you another way of seeing the market through the modeling of Martin Zweig.

https://monsanna.blogspot.com/2019/0...odern-era.html

Here is an excerpt from the blog:

"Zweig suggests three crucial conditions for a bear market:

1. Extreme deflation. This is not present in 2019, but the fed just cut rates. Perhaps they fear deflation because deflation is what happened during the great depression?

2. PE ratios of 18 or above. The current PE of the S&P is around 21 [and falling], which Zweig says is bearish. However, he says the exception is when profits are low (causing high PEs) because of a business downturn. This was the case in 2016 with poor earnings when this paper was written, but it may also be true in August of 2019.

3. Inverted yield curve. An inverted yield curve last occurred in early August of 2008."

Zweig wrote in his book "Winning on Wall Street":

When the yield curve is negative on a monthly basis, I consider that an extremely unfavorable condition for stocks.

Only one bear market, 1929-32, had all three extremely negative conditions, and not so coincidentally it was the worst bear market in history. Four other bear markets had two of the three conditions, and three of those bears were devastating: 1919-21, in which the Dow fell 47.6%; 1969-70, when the Dow plunged 36.1%; and 1973-74, in which the Dow collapsed 45.1%. In the other case, 1966, Dow fell a more moderate 25.2%. However, that was the beginning of a much greater long-term bear market, which took the Dow downward in real terms all the way into 1982... The average of these four bear markets showed a decline of 38.5% on the Dow, well in excess of the average of the ten bear markets that had only one of the three negative conditions and fell and average of 29.4%.

In sum, there is no guarantee that a bear market will begin when one of the three extremely bearish market conditions is first present. But the longer such a condition persists, or the more severe it becomes, or when a second or third negative condition joins the first, the odds on a bear market becomes overwhelming. On the other hand, should the major averages experience a decline of, say, 10% or more with none of these three negative conditions present, the odds of that decline's becoming a major bear market are quite small.

[FakeNameChanged]

Don't follow any specific market models, per se, but use the bullish percent of NYSE(BP$NYA) in point & figure charts to read general market direction. Also use BP for the other indexes.

For those not familiar with point & figure, it's an old charting system(possibly the oldest), and Abe Cohen was the author of bullish percent index and the advisors sentiment index. InvestorsIntelligence.com where Cohen was a founder is primarily a pay site, but if interested, stockcharts.com has great P&F charts, along with bullish percent. P&F is not for everyone, but I've found it great for determining support and resistance in comparison to other types of charts where interpretation varies(a lot).

If anyone is interested, stockcharts has decent education pages on P&F, and after that, Tom Dorsey and Jeremy DuPlessis in that order. Dorsey is basically P&F101, while DuPlessis is advanced.

[hracingplyr]

Hey guys any advice for a good brokerage company to trade with online?

Bob

[barn32]

Originally Posted by highnote

I thought it might be interesting to hear from others about what types of models or decision-making tools they use to invest in the market. "Zweig suggests three crucial conditions for a bear market:

3. Inverted yield curve. An inverted yield curve last occurred in early August of 2008."

The yield curve 3mo/10yr is currently inverted by almost 41 bps. The 2yr/5yr is inverted by 8 bps.

1. Extreme deflation. This is not present in 2019, but the fed just cut rates. Perhaps they fear deflation because deflation is what happened during the great depression?

Perhaps you would care to explain why deflation is so bad. It's something I haven't studied much. I seems like some deflation would be a good thing. Lower prices, costs etc.

[barn32]

Originally Posted by hracingplyr

Hey guys any advice for a good brokerage company to trade with online?

Bob

Interactive Brokers

[donmat]

Originally Posted by hracingplyr

Hey guys any advice for a good brokerage company to trade with online?

Bob

TD Ameritrade Thinkorswim platform

[PaceAdvantage]

If you don't like Interactive Brokers (they are pretty good...I traded there for a while), try NinjaTrader....that is where I trade currently.

[donmat]

Originally Posted by donmat

TD Ameritrade Thinkorswim platform

Actually I use Thinkorswim mainly for charting. I do trade leveraged ETF's with them. For futures I use Firetip platform - no data or platform fees.

[barn32]

Originally Posted by PaceAdvantage

If you don't like Interactive Brokers (they are pretty good...I traded there for a while), try NinjaTrader....that is where I trade currently.

Can you really open a futures account there for $400? They keep telling me that, but I find it hard to believe.

[PaceAdvantage]

I don't know...never tried...never would....lol

But if they state it, I guess they can. Of course, they will automatically liquidate your position whenever they feel like it if it starts going south...plus you won't be able to hold overnight of course...

There are plenty of restrictions on stuff like that...but I'm sure they allow it...you just won't be able to do much with it.