Timing attempts to provide market equivalent returns over the long term, with a substantial reduction in variability of returns. The two components of the Timing program are EZ+Macro and Fear/Greed. This system trades rarely and splits its allocations between ETFs tracking the S&P 500, the intermediate-term U.S. Treasuries, and cash.

Information is as of the close on November 9, 2007.

EZ+Macro

EZ Trend is up for the U.S. stock market as approximated by the S&P 500. While the U.S. Ten-Year Treasury price is also bullish by EZ Trend, my latest backtesting hasn’t indicated that a position in bonds is warranted in this EZ+Macro configuration.

Fear/Greed

The Fear/Greed model signaled a buy for the U.S. stock market in early November. It would signal a sell only if $VIX relative to actual volatility fell to a historically low level. This is a tough model to follow, as it demands a buy and hold when fear is high and most people would like to sell.

Model Allocation

S&P 500 SPDRs (SPY) – 100%
iShares 7-10 Year Treasury Bond Fund (IEF) – 0%
Cash – 0%

Tracking

Consider this site’s initial post on the model to be a “buy” on Monday’s open, at market, for the above allocations.

Charts and Commentary

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(1) EZ Trend components

(2) Fear/Greed buy signal

(3) Congestion period during the July to September correction. A recent period of high volume in buys and sells may indicate support at this broad price level.

(4) Volume spike, with a long lower wick on the candle chart, on July 26. Lower prices were tested and the index bounced back to a large degree, then fell more on the following day with volume that was slightly lower, but still significantly above the average volume at that time. Most of the price action in the remainder of the correction stayed near that second day’s price range.

(5) Looks familiar to me. No guarantee that it will play out the same, but I’m not thinking there’s much downside here.

(6) Very low 2-day RSI is often indicative of a bounce. I’ve tested a system that would have bought on the spike below 10 (it’s below 7 now) and would sell intraday at levels of 70 or more, but it demands watching the market or setting orders daily, and large position sizes, to be worth doing, in my opinion.

Note the breadth in the following charts.

The index is near low levels in breadth that have, over the last several years, indicated being at a significant bottom. I don’t have information going back before the recent five-year bull market, so I can’t compare this to the breadth indicators of the bear in 2001-2.

Regression models show 94/100 for 20-day “potential” and 88/100 for 20-day “safety.” Twenty trading days is approximately a month. These are bullish values. I don’t include the regression model in the timing system because I specifically want the system to be “lazy” i.e. not trading very often.