Each week we run our behavioral measures. Based on the behavioral model, India is the largest exposure with Malaysia and South Africa tied for the second largest exposure and South Korea the third. High yield corporate debt still looks attractive based on what we have seen in our models. We are concerned about India, Malaysia, and high yield corporate debt become over valued as the measures are heading toward unprecedented bullish territory which is a contrarian indicator. However, at the moment we do not see any reason to sell.
We also run a third agent-based measure which has predictive power for short-term movements. This week will we believe will indicate where the market is heading the next several weeks. Our indicator for the US hit 0.86. Last two times the measure hit 0.86 the market fell dramatically the next week. However, before those two periods the US market went up to 0.94 right before the flash crash. Stay tuned for the right time to sell India and high yield corporate bonds. We are still involved in that trade and whether our agent-based measure is correct about the next several weeks.
Sunday, September 26, 2010
Sunday, September 19, 2010
Market Update 9.29.10
As we look over at BFIA's first year of performance, the behavioral model signaled to overweight India the most relative to all other markets. India has returned up close to 30% since. In addition the model has signaled US high yield corporate bonds were preferred to US equity. Since September 2009 it appeared the model was incorrect. However, the model was built to pinpoint investment cycles and not short-term movements. Over the past year high yield corporate bonds have returned BFIA 17% relative to the S&P 500 which returned 6.5% over the same time period.
We have become more confident with our weighting system given our one year track record. Currently, we are still over weighting India and Malaysia. Other markets we like continue to be South Africa, Turkey, Taiwan, and South Korea.
Another interesting signal we have discovered in our continued research is based on the spread between our long-term and short-term indicators. Based on the spread, BFIA likes China, Taiwan, Turkey, and Brazil for the short-term, short-term meaning at least 1 month.
As far as bonds, we do see unprecedented bullish in our measures, which means we see a turnaround in the bond market at some point. However, at this point we do not see any signals points to exit bonds.
We have become more confident with our weighting system given our one year track record. Currently, we are still over weighting India and Malaysia. Other markets we like continue to be South Africa, Turkey, Taiwan, and South Korea.
Another interesting signal we have discovered in our continued research is based on the spread between our long-term and short-term indicators. Based on the spread, BFIA likes China, Taiwan, Turkey, and Brazil for the short-term, short-term meaning at least 1 month.
As far as bonds, we do see unprecedented bullish in our measures, which means we see a turnaround in the bond market at some point. However, at this point we do not see any signals points to exit bonds.
Sunday, September 12, 2010
Market Update 9.12.10
The past week was a good week for the financial markets. The BFIA fund is up 3.3% so far this month. However, since May the markets have note been able to sustain a long positive up trend. Below you can find our agent-based indicators for the last several months. It shows that the US has been in the range of .77 to .86 for the last several months. If we stay in that range it means there is little more upside and a high probability of downside to come since the US is currently at .846. Since BFIA fund is not a trading strategy we are remaining long, but we recommend to be cautious for the next several weeks.
Our long behavioral indicators are still bullish on India and Malaysia. Since we purchased Malaysia in August we are up over 10% even over the month of August which was a horrible month for the US stock market. South Korea, Turkey, and South Africa are also markets we are over weighting. We still see some bullishness left in US high yield bonds and less in US government bonds.
5/16/2010 0.84867
5/23/2010 0.8698
5/30/2010 0.82752
6/6/2010 0.83135
6/13/2010 0.80929
6/20/2010 0.83315
6/27/2010 0.85641
7/4/2010 0.82415
7/11/2010 0.77513
7/18/2010 0.82649
7/25/2010 0.81462
8/1/2010 0.84754
8/8/2010 0.84509
8/15/2010 0.86223
8/22/2010 0.82405
8/29/2010 0.81916
9/5/2010 0.81119
9/12/2010 0.84639
Our long behavioral indicators are still bullish on India and Malaysia. Since we purchased Malaysia in August we are up over 10% even over the month of August which was a horrible month for the US stock market. South Korea, Turkey, and South Africa are also markets we are over weighting. We still see some bullishness left in US high yield bonds and less in US government bonds.
5/16/2010 0.84867
5/23/2010 0.8698
5/30/2010 0.82752
6/6/2010 0.83135
6/13/2010 0.80929
6/20/2010 0.83315
6/27/2010 0.85641
7/4/2010 0.82415
7/11/2010 0.77513
7/18/2010 0.82649
7/25/2010 0.81462
8/1/2010 0.84754
8/8/2010 0.84509
8/15/2010 0.86223
8/22/2010 0.82405
8/29/2010 0.81916
9/5/2010 0.81119
9/12/2010 0.84639
Monday, September 6, 2010
Market Update 9.05.10
Markets have performed well in the last week. After running our weekly behavioral model, allocations have not changed much. We still overweight India and Malaysia as well as high yield corporate bonds.
We believe these markets will become over valued in the next year, two, or three as the behavioral model is indicating that they are slowly reaching a contrarian threshold. Our models are designed to determine when that exit point occurs.
Our agent-based market signals an interesting market to look at is Japan. Out of all the markets we study Japan is the most under valued. The US is also one of the most under valued markets. Our model is not a fundamental model and does not explain if there exist structural factors coming into play that are keeping these markets under valued which make take years before they are fixed. Therefore, we have small exposures to these markets for now, but we are looking for appropriate points to add additional exposure.
We believe these markets will become over valued in the next year, two, or three as the behavioral model is indicating that they are slowly reaching a contrarian threshold. Our models are designed to determine when that exit point occurs.
Our agent-based market signals an interesting market to look at is Japan. Out of all the markets we study Japan is the most under valued. The US is also one of the most under valued markets. Our model is not a fundamental model and does not explain if there exist structural factors coming into play that are keeping these markets under valued which make take years before they are fixed. Therefore, we have small exposures to these markets for now, but we are looking for appropriate points to add additional exposure.
Sunday, August 29, 2010
Market Update 8.29.10
We are at an interesting crossroads right now. Our long-term behavioral model has indicated as in previous weeks that emerging market equity and fixed income are the best bets. More specifically our model is signaling to overweight India, Malaysia, South Korea, and Turkey and high yield and Investment grade bonds.
The country that received the lowest exposure is the United States equity market.
I make a point about the interesting crossroads because I see that bullishness in fixed income is moving toward unprecedented levels. Which at some point becomes a contrarian signal. However, the US equity market behavioral measure is signaling bearish sentiment. This means at some point the investment cycle of over weighting bonds (which to year to date has been the best move regarding the US) may end in the near future. But where to put the money when that time comes if US equity market is still signaling bearish sentiment. Well, we have confidence when that time comes our behavioral model will signal the correct steps to make. As of today, we will are still allocating to fixed income and emerging market equity.
The country that received the lowest exposure is the United States equity market.
I make a point about the interesting crossroads because I see that bullishness in fixed income is moving toward unprecedented levels. Which at some point becomes a contrarian signal. However, the US equity market behavioral measure is signaling bearish sentiment. This means at some point the investment cycle of over weighting bonds (which to year to date has been the best move regarding the US) may end in the near future. But where to put the money when that time comes if US equity market is still signaling bearish sentiment. Well, we have confidence when that time comes our behavioral model will signal the correct steps to make. As of today, we will are still allocating to fixed income and emerging market equity.
Sunday, August 22, 2010
Market Update 8.22.10
Last week our short-term US behavioral indicators signaled a down week last week. The S&P 500 was slightly down for the week. Given the week was slightly down instead of down big, our short-term US behavioral indicators have improved indicating to close the US hedge.
Our agent-based indicators still indicate the US is 18% under valued. However, the long-term behavioral indicator or sentiment is still bearish. The fixed income sentiment is still very bullish. We believe that there could be a bubble in fixed income since we have not seen such bullishness last for such a long time. Even though, we do not see signs of the bubble bursting anytime soon.
Our long-term plays currently are India, Korea, and Malaysia. In addition, we like fixed income markets in Emerging markets and the United States.
Our indicators indicate a relatively mild week of volatility.
Our agent-based indicators still indicate the US is 18% under valued. However, the long-term behavioral indicator or sentiment is still bearish. The fixed income sentiment is still very bullish. We believe that there could be a bubble in fixed income since we have not seen such bullishness last for such a long time. Even though, we do not see signs of the bubble bursting anytime soon.
Our long-term plays currently are India, Korea, and Malaysia. In addition, we like fixed income markets in Emerging markets and the United States.
Our indicators indicate a relatively mild week of volatility.
Sunday, August 15, 2010
Market Update 8.15.10
Last week was a pretty bad week for the global stock markets. What does the behavioral model indicate about what do for the coming week and beyond?
First, our US behavioral indicator has crossed it's short-term threshold indicating that this week will be a down week. Therefore, we are hedging our position for the week.
Second, our agent-based indicator indicates that the US is 18% under valued. The dynamics appear the US market will hover around 20% under valued for sometime. Therefore, we do not anticipate too much more downside. The worse possible scenario is 5% downside in the next month.
Our long-term perspective is still overweight emerging market equity and US high yield corporate bonds. Our indicators are also bullish on emerging market fixed income. We purchased some several weeks ago.
First, our US behavioral indicator has crossed it's short-term threshold indicating that this week will be a down week. Therefore, we are hedging our position for the week.
Second, our agent-based indicator indicates that the US is 18% under valued. The dynamics appear the US market will hover around 20% under valued for sometime. Therefore, we do not anticipate too much more downside. The worse possible scenario is 5% downside in the next month.
Our long-term perspective is still overweight emerging market equity and US high yield corporate bonds. Our indicators are also bullish on emerging market fixed income. We purchased some several weeks ago.
Subscribe to:
Posts (Atom)