20080902 Timer Commentary

There are many timing systems that incorporate some use of a moving average (MA). A simple timing system using a 50-day and 200-day MA and focusing on the points where the lines cross produces the Golden Cross when the 50-day line crosses up through the 200-day. The opposite cross, where the 50-day passes down through the 200-day, is called the Death Cross. Market lore suggests Golden is good and Death is bad for future returns, although the effectiveness of the system is mixed.

As a point of interest, the 50-day MA just passed downwards through the 1000-day MA around the end of July for the S&P. We might call this the Death Star Cross in jest – it is not really practical to make use of this circumstance.

The 1000-day MA is also close to starting its own downtrend. The last time this happened was in 2002, when the market rolled over for another leg down.

These two anecdotal bits of information are perhaps most useful to counter the idea, sometimes stated with so much confidence, that the market is finished going down just because it has gone down so much already.

It is important not to become too attached to any one view of the market during these times.

As a point of transparency, we reviewed all the backtesting data and found some historical data has been adjusted (corrected?). This has caused a drop in the Climber and Strider models’ backtested performance. The performance between the Climber and Mountaineer models is now closer. The long-term performance of the long-only models is so close that we now solely recommend the Orienteer for long-only strategies as it has less volatility than the Strider model. This change in data will be reflected in the Public Homepage graphic as soon as we can get it there.

Although the inputs were updated, there were no changes to the logic of the models, so no new revisions will appear in the history because of this data correction.

Current model positions: all long.