The Secular Market Cycle
A secular bull market is a period in which stock prices rise at an above-average rate for an extended period (think 5 years or longer) and suffer only relatively short intervening declines. A secular bear market is an extended period of flat or declining stock prices. Secular bull or bear markets typically consist of multiple cyclical bull and bear markets.
The Cyclical Market Cycle
We define a cyclical bull market as a 30% rise in the DJIA after approximately 2 months or a 15% rise after approximately 6. A cyclical bear market requires a 30% drop in the DJIA after 2 months or a 15% decline after 5 months.
Primary Market Models Explained
Leading Indicators Model: A group of indicators that have historically shown tendencies to lead the market at major turning points.
Intermediate-Term Market Model: A composite model-of-models focused on trend and momentum indicators which has been designed to provide identify intermediate-term trading opportunities. The model includes multiple independent indicators covering price trends, volume, breadth, momentum, historical cycles, sentiment, and mean reversion.
Risk/Reward Model: A model-of-models designed to provide an overall view of the state of the risk/reward environment. The model includes tape, monetary, and sentiment indicators as well as multiple big-picture market model readings.
Desert Island Model: If I was stranded on a desert island with access to only one market model to manage money with this would be the model. The model is a comprehensive model-of-models comprised of trend, momentum, mean reversion, economic, monetary, sentiment, and factor-based indicators/models.
Global Risk Model: A series of indicators designed to gauge the relative risk tolerance of the global investment environment.
Fundamental Factors Model: A model-of-models designed to provide a reading on the "macro state" of the environment. The model is comprised of indicators/models in the areas of monetary conditions, the economy, corporate earnings, inflation, and stock market valuation.
Trend Models Explained
Short-Term Trend Model: A series of indicator designed to identify the status of the stock market’s short-term (0-3 weeks) trend. The model compares the current price of S&P 500 relative to 5-day customized smoothing (weighted and moved forward 3 periods), the relationship of the 5-day to the 10-day, and the relationship of 10-day to 39-day.
Short- and Intermediate-Term Channel Breakout Systems: The short-term and intermediate-term Channel Breakout Systems are modified versions of the Donchian Channel indicator. According to Wikipedia, "The Donchian channel is an indicator used in market trading developed by Richard Donchian. It is formed by taking the highest high and the lowest low of the last n periods. The area between the high and the low is the channel for the period chosen."
Intermediate-Term Trend Model: A model designed to identify the status of the stock market’s intermediate-term (3 weeks to 6 months) price trend. The model compares the current weekly price of S&P 500 relative to relative to customized 10-week smoothing (weighted and moved forward 3 periods), the relationship of the 10-week to the 30-week, and the relationship of 30-week to 55-week.
Long-Term Trend Model: An indicator designed to identify the status of the stock market’s longer-term (>6 months) trend. The indicator compares the 50-day smoothing of the S&P 500 relative to its 200-day smoothing. When the 50-day is above 200-day, the indicator is positive and vice versa.
Cycle Composite Projections: The cycle composite combines the 1-year Seasonal, 4-year Presidential, and 10-year Decennial cycles. The indicator reading shown uses the cycle projection for the upcoming week.
Short- and Intermediate-Term Trading Mode Models: These indicators attempt to identify whether the current market action represents a "trending" or "mean reverting" environment.
Momentum Models Explained
Short-Term Trend-and-Breadth Model: A model combining short-term trend and breadth indicators.
Intermediate-Term Breadth Model: The indicator is designed to determine the technical health of the market’s sub-industry groups (GICS categorizes the market into 11 sectors, 20 industries, and 157 sub-industry groups).
Short- and Long-Term Volume Relationship Models: These models review the relationship between "supply" and "demand" volume over the short- and intermediate-term time frames.
Intermediate-Term Price Thrust Model: This indicator measures the 3-day rate of change of the Value Line Composite relative to the standard deviation of the 30-day average.
Intermediate-Term Volume Thrust Model: This indicator plots the ratio of the 10-day total of NASDAQ daily advancing volume to the 10-day total of daily declining volume.
Breadth Thrust Model: The indicator plots the ratio of the 10-day total of the number of stocks rising on the NASDAQ daily to the 10-day total of the number of stocks declining.
Early Warning Models
Short-Term Overbought/sold Indicator: This indicator is the current reading of the 14,1,3 stochastic oscillator. When the oscillator is above 80 and the %K is above the %D, the indicator gives an overbought reading. Conversely, when the oscillator is below 20 and %K is below its %D, the indicator is oversold.
Intermediate-Term Overbought/sold Indicator: This indicator is a 40-day RSI reading. When above 57.5, the indicator is considered overbought and when below 45 it is oversold.
Mean Reversion Model: This is a diffusion model consisting of five indicators that can produce buy and sell signals based on overbought/sold conditions.
VIX Indicator: This indicator looks at the current reading of the VIX relative to a series of Donchian Channel bands. When the indicator reaches an extreme reading in either direction, it is an indication that a market trend could reverse in the near-term.
Short-Term Sentiment Indicator: This is a model-of-models composed of multiple sentiment indicators designed to indicate when market sentiment has reached an extreme from a short-term perspective.
Intermediate-Term Sentiment Indicator: This is a model-of-models composed of multiple sentiment indicators designed to indicate when market sentiment has reached an extreme from a intermediate-term perspective.
Long-Term Sentiment Indicator: This is a model-of-models composed of multiple independent sentiment indicators designed to indicate when market sentiment has reached an extreme from a long-term perspective.
Fundamental Models Explained
Monetary Composite: The Monetary Composite is a combination of models designed to indicate the state of interest rates and Fed policy.
Economic Composite: During the middle of bull and bear markets, understanding the overall health of the economy and how it impacts the stock market is one of the few truly logical aspects of the stock market. The economic composite is a series of three models designed to indicate the current state of the economy.
Earnings Composite: A series of four models designed to indicate the overall health of corporate earnings.
Inflation Model: The Inflation model is designed to identify cyclical changes in the rate of inflation.
Valuation Composite: The Valuation composite consists of five valuation indicators/models.