Two weeks ago my first “Sensitive Issues Scoring” model based on relative positioning of and among nine economically sensitive ETFs issued a first warning for equities.
Last week, a fuller, more robust version driven by fifteen intermarket sector, style and country ETFs weighted for importance joined the party with its own warning signal as trading heads into the summer season.
In-sample weekly S&P 500 (SPY) market performance separation between the three Bullish, Warning and Bearish states for the seventy-four-month period between February 2006 and April 2012 follows:
“Separation” is bull- minus bear-state summary statistics. Now, with historic volatility continuing to fall, I’m not overly concerned about these warnings just yet (see below). However, they definitely have me on guard for potential deterioration, and I’m holding hedges until this current state warning passes.
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