It was another good week for US equities with markets up a little over 4% from last week’s close:
However, as can be seen from the above screenshot, we are still within the downtrend channel defined by the lower highs and lower lows within the 1 (white) and 2 (aqua) Standard Deviation (SD) boundary lines. The first test will come when we see whether we close outside of the 1 SD channel – presently at ~4000 (psychologically significant round number). Even if we do close outside of this channel we need to move outside of the 2 SD channel and close above the prior high (C) at ~ 4325 to feel confident that we may be in a new uptrend. Even with a strong seasonal (Santa Claus) rally into the end of the year it seems unlikely that we will get to these levels. To the downside, the 3200 level (a ~35% pullback/draw-down from the January highs) still remains a possibility (based on technical support/resistance levels from 2020 and technical Fibonacci levels) although the 3600 level remains a potentially strong support area before we might confirm a continuation of the current down-trend. It may still be a little early to back up the sleigh.
Despite the strong performance of US equities, this was overshadowed by strong performance in the real estate sectors:
Other equity markets were mixed with Emerging Markets being the poorest performing asset class over the past week.
At present the Rutherford Portfolio is still holding 100% in Cash – and has obviously lost a little ground relative to the benchmark AOR fund this week:
If we check the rankings and recommendations from the BHS model:
we see the same picture that we saw last week with a recommendation to buy US equities (VTI) – that would (with hindsight) have worked out ok. However, since I have chosen to move to a rotations system, let’s take a look at the rotation graphs:
where we see a positive rotation in most asset classes but no strong rotation into the desirable top right quadrant. Gold and Commodities are seen to be rotating out of this quadrant.
Checking the recommendations from the current algorithm:
we still have no Buy recommendations since the 13 EMA is below the 49 EMA for all ETFs. VEA is the strongest contender with a Score of 9 – and is rotating in the right direction (above rotation graph).
Although I don’t want to miss a good opportunity to get back into the market I am going to wait for more confirmation that we may be in a new (longer term) uptrend. I am therefore going to stay in Cash for at least another week.
Ken Dorge says
David a, learning about all models. Is there a primer on the mechanics of the elements in this model so i an learn how each element of the SS and graphs work?
At the present time the rotation model algorithm is not available within the Kipling workbook – only the BHS, LRPC, HA and DM models/algorithms are available. The rotation model uses a slightly different methodology to calculate momentum (using the r-squared of the linear regression fit as an alternative to volatility as a “volatility” correction). It also measures momentum based on the ratio of asset price to a benchmark fund rather than direct momentum measurement. This means a different workbook (that also includes the rotation graphs) and, although I have a “draft” copy that I can use for my own purposes (because I know how to make any necessary adjustments), it is too messy to offer to iTA Wealth members and would need significant effort to clean up so that it would be useful.
To this point I have not felt that it is worth this level of effort since back-tests have not produced results that are any better than the systems already available in the current Kipling workbook despite the fact that I (intuitively) feel that the rotation graphs provide information that should be useful – I just haven’t been able to come up with a good algorithm for building this data into the model. I did write a brief description here: https://itawealth.com/using-rotation-data-in-an-investment-strategy-model/
Beyond this there have been a few series of posts on the other models (LRPC etc) that are available within the available Kipling workbook. Let me know if you have not seen these and I will provide links to copies of the files in my Dropbox account.
Thanks for your interest and let me know if you want more information.