The model score today has remained steady at -84, the same as yesterday. This means that the market is not improving with price or deteriorating with lower prices. In other words, the spreads are all still firmly stuck in a negative pattern. As we warned, large up moves are likely to move the score initially very little. What will move the score and eventually give a BUY signal is sideways spread action which allows the moving averages to catch up and eventually a breath thrust that will take spread prices through them. That is probably still weeks away. But could be underway at the moment. Still to early to tell.
Better timing opportunities and/or prices certainly lie ahead.
Owners of AFL, AVGO, DE, PYPL, ICE & RMD should check to see if these securities are still needed in their portfolio, as the picture is rapidly deteriorating in those names.
We are still in full Risk Off, invested in TLT.
I would still advise extreme caution and lightening up of individual names which are underperforming the market into rallies.
We have updated the performance for 2018 and this will be the subject of a separate blog post soon.
Hi Nick and thanks!
I have now studied your site quite well through during two last weeks.
I am still a bit confused about daily (or weekly) final score and its sign.
What kind of situation it reflects on the market when it’s negative (or positive)? Does negative always mean that money is flowing from risk-on assets to risk-off assets? So if score goes from -80 to -60 does it mean that money is still flowing to risk-off but not so fast?
E.g in 2009 score was highly negative long time before it went postive althoug stock values had already improved long time.
It is not a flow indicator, it is a spread indicator. It reflects what the asset spreads (and many others) are saying on a day to day basis. As they turn negative, the score drops, as they turn positive, the score increases. For a buy or a sell signal to occur, the moving averages of the score have to cross. That is in the lower portion of the chart and the box with the scores. Since it is a trendfollowing model, it naturally takes a while to shift and give signals. But that also helps you ignore many short term oscillations. You don’t want to be adjusting your allocations every day for marginal reasons. It will NOT get you in at a bottom or get you out at a top. I have stated that many times. But it will give you the meat of any significant move in assets. As it is doing now. If still unclear, please revert.
Thanks for your super fast reply!
Okey, I already thought that I got it but I was still talking about flows.
Is this correct conclusion:
Daily score does not only reflect spread changes during that particular day but it also includes spreads’ moving average components inside it so it does not change as fast as spreads are changing?
E.g December 24. score was -94 and SPY/TLT was 1.96. Dec. 26. score was -81 and SPY/TLT was 2.06. Spreads changed positively but score stayed highly negative but still improved.
Thanks again of your site! I have learnt quite a lot from it in this short period of time.
No, the Daily Score fully reflects the spread changes. It just takes a lot of positive and improving scores to change the direction of the moving averages and generate a signal against the current trend. So: if the daily scores start improving now, it will take many days of improvement to actually change the current negative trend and sound the all clear for risk on into equities.