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Author: Said   😊 😞
Number: of 3962 
Subject: Bear Catchers
Date: 12/26/2022 5:21 PM
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I have a question for the 'Mechanical Investing' Pro's which is related to what Manlobbi just wrote about staying 100% invested versus market timing: Of what value are or how to properly use the Bear Catchers?

Date Signal SMA NH/NL DBE
20221223 0 Bear Bear Bear
20220822 0 Bear Bear Bear
20220805 2 Bear Bull Bear
20220525 0 Bear Bear Bear
20220428 4 Bear Bear Bull
20220331 5 Bull Bear Bull
20220324 7 Bull Bull Bull
20211118 5 Bull Bear Bull
20211013 7 Bull Bull Bull
20211004 5 Bull Bear Bull
20210825 7 Bull Bull Bull
20210817 5 Bull Bear Bull
20210721 7 Bull Bull Bull
20210716 5 Bull Bear Bull
20201103 7 Bull Bull Bull
20201030 5 Bull Bear Bull

Have a look at the 'big bear' that followed the Dec 2021 high of S&P 4800:

- SMA and DBE stayed bullish until Apr 28. That was the first time more than one turned to 'Bear'. Finally a clear bearish signal --- but far too late to have been useful, as with around 4100 the S&P already was down nearly 20% from it's Dec 4800 high. And it's not as it would have helped to avoid another big longer term downdraft either. Though it did fall another 10% in the following month it did rise from there 20% in the then following one.

- Worse: Mar 24, after the S&P rising 10% in the previous 2 weeks, NH/NL also turned to 'Bull'. The perfectly wrong time for that triple bullish signal as exactly from then on it was going 20% down, from 4550 first straight to 3900 and shortly after further to 3550.

- And again: After being triple bearish since May 25 on Aug 05 NH/NL turned bullish. The perfectly wrong time as that was the top after a 20% rise and directly before the following 15% fall.



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Author: Said   😊 😞
Number: of 3962 
Subject: Re: Bear Catchers
Date: 12/26/2022 5:51 PM
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I see much more value in this (Click on 'Timeline'):

https://edition.cnn.com/markets/fear-and-greed#fng...

Especially if you recalibrate their scale a little, keeping 0 as the low end of fear (=strongest buy signal), but cutting the upper end already at 75 as the most extreme greed (=strong sell signal).

Compare that with a 1 year S&P chart and be amazed:
- Every single time this index got close to the (recalibrated) scale's end for extreme greed of 75 it was a precious signal to sell.
- Every single time it got close to the scale's end for extreme fear of 0 it was a perfects signal to buy.

I know of only one equally great signal this year: Jim's Major bottom indicator which signaled on Sep 29 --- which was perfectly in line with this index having been in the 'Extreme Fear' zone then (resulting in me having done heavy buying that day).

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Author: FlyingCircus   😊 😞
Number: of 3962 
Subject: Re: Bear Catchers
Date: 12/26/2022 5:58 PM
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Said, take a look at the FAQ & linked posts to get a good overview of how to best use the BCs, generally and a couple of them specifically.

http://mechinvesting.wikidot.com/timing-methods

With the short-lived 'triple-bull' 3/24/22, IF one were following the original method of using the EMA9 on the NHNL on CLOSE, that signal never went bullish. I don't follow the GTR1 version of NHNL so I'm not sure what it's doing.

SMA and DBE are the two slowest reacting signals. They are not designed to be short term trading signals. Because as Zeelotes pointed out years ago, one of the worst ways to destroy your rate of return is to get out of the market too early. So, they are designed to minimize whipsaw. But whipsaw still happens.

You call 8/5 'the perfect wrong time'. But that's in hindsight. There was enough buying going on in the market to push the NHNL to bullish (for about a week). As the shortest-term signal of the 3 it can get flipped with shorter term improving breadth. It's also the only one of the 3 that measures market breadth - which makes it a great complement for the other 2.

You understand that if the events had happened differently (interest rates got slowed down, inflation suddenly dropped, the Ukraine war ended abruptly) and the market had gone UP at that time, it would have been a GREAT time to get in and the NHNL would have been the harbinger - also in hindsight.

With one of the 3 bullish, generally the way to use that is to consider *gradually* increasing equity exposure if comfortable with it in case the market really is 'recovering' - but it's not predictive, nobody knows! These are consensus indicators.

If they're too slow for your personal preference - 'far too late to be useful', then begin using additional methods - some of them touched on in that page - to build out an approach you're more attuned to. I simply limited my portfolio losses to 5-7% in the first part of the year while the market went down 15%+.

These particular signals are intended to prevent big losses from big, long-developing & lasting bear markets. Knowing what to do at the hard right edge of the chart is difficult.

FC

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Author: Baltassar   😊 😞
Number: of 3962 
Subject: Re: Bear Catchers
Date: 12/26/2022 6:10 PM
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The Bear-catchers also catch their share of skunks, no question. But skunks just stink up the place. They won't eat you alive.

When back-tested over extended periods of time, BCC generally seems to add 100-150 basis points vs buying and holding the S&P, with markedly improved risk metrics: but start dates matter, and you can certainly find some where things don't work out so well. I can't honestly think of any portfolio I've looked at whose backtested performance was not improved by including BCC: but I no longer invest in individual stocks, and the application of BCC to a more typical MI port may not be so smooth.

In any case, the reason to use it is really risk management, rather than as a tool to boost returns. As so often with investing, it's psychology that matters most in practice. From my perspective what we have experienced since Dec 2021 is not a big bear by any means. It may become one, however, and if it does BCC will afford significant protection. If not, then it won't.

If you are confident you can ride out slumps like 2001 and 2008 without flinching, while fearing and loathing every whipsaw you have to live through in less dire times, then BCC is not a tool you will like. As I say, it's about risk management, and there are other ways to do that.

Baltassar
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Author: lizgdal   😊 😞
Number: of 3962 
Subject: Re: Bear Catchers
Date: 12/28/2022 5:55 AM
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Said wrote 'I see much more value in this (Click on 'Timeline'): https://edition.cnn.com/markets/fear-and-greed#fng...

There's a 6 year backtest here:
Sentiment Data Backtest Statistics: CNN Fear & Greed Index
https://w3data.io/megapro/sentiment-analysis/cnn-f...

The best total return was 88% for the 6 Years 2016/3 to 2022/3 (Buy at FGI first Fear Signal, Sell at FGI first Very Greed Signal). This was worse than B&H or BCC timing. (Over these 6 years, SPY total return was 136%. SPY with BCC0 timing total return was 130%.) I will continue using BCC0 timing.

Timing methods benefit from long backtests that capture various economic and market conditions. FGI is only available since 2010. BCC can be tested back to 1930. Novell's SPY-COMP has been backtested to 1970: https://allocatesmartly.com/paul-novells-flagship-...

links...
SPY-COMP On AllocateSmartly, April 25, 2020
https://investingforaliving.us/2020/04/25/spy-comp...

Fear The Greed And Fear Index, July 15, 2016
'The CNN Greed and Fear Index is not a useful investment tool. Going back to mid-2010, a strategy to buy-and-hold the S&P 500 would have returned 95%. A sell-on-greed strategy would have returned only 50%- or less. During a bull market in equities, as with precious metals, it pays to stay invested.'
https://seekingalpha.com/article/3988758-fear-gree...

Fear & Greed Index: What It Is & How It Works, May 19, 2022
'While the Fear and Greed Index can be a useful tool, it shouldn't be used in isolation. Instead, it is most useful when used to confirm other key indicators or readings.'
https://seekingalpha.com/article/4453044-fear-and-...
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Author: Said   😊 😞
Number: of 3962 
Subject: Re: Bear Catchers
Date: 12/28/2022 8:22 AM
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There's a 6 year backtest........ The best total return was 88% for the 6 Years 2016/3 to 2022/3...... This was worse than B&H or BCC timing. (Over these 6 years, SPY total return was 136%. SPY with BCC0 timing total return was 130%.) I will continue using BCC0 timing.

Very interesting for sure, but none of the 3 backrests used Index values close to the ones I observed were perfect buy/sell signals this year:

- Buy at Index values close to 0 = The low point of 'Extreme Fear' (Their 'Timeline' has too low resolution so you can't see it, but even in Sep there was values of 9, 11, etc.)
But only one of those 3 backtests went so far to say 'buy at first Very/Extreme Fear', which actually is the upper bound of 25 and therefore only 'a little extreme fear'.

- Sell at Index value close to 75 (The backtest just mentioned, the only one coming close with respect to the buy signal, already sold much earlier, at the beginning of Greed = 55).

And the question of course is: If that Index is more or less useless, why then was it so extremely perfect this year (just overlay S&P 1 year chart with 'Timeline', with 'Buy' not far from 0 and 'Sell' around 75)?

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Author: 4321rewq   😊 😞
Number: of 48483 
Subject: Re: Bear Catchers
Date: 01/05/2023 3:52 PM
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You want to then look at every other year when markets were bullish. It might have helped you now but it doesn't mean it week help you over the long term.
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Author: mungofitch 🐝🐝🐝🐝 SILVER
SHREWD
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Number: of 48483 
Subject: Re: Bear Catchers
Date: 02/05/2023 4:10 PM
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That graph seems to be only a year.
Not a very long time frame to draw conclusions.
Anyone know of a way to get a longer history or comparable display?

I think (?) this is the same index with a bit longer time on the graph, a little under two years.
https://en.macromicro.me/charts/50108/cnn-fear-and...

This link seems to have the three years prior to that
https://seekingalpha.com/article/4393168-fear-and-...

..and this one seems to have another 2-3 years prior to that
https://twitter.com/tn/status/1191923195944800258

Jim
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Author: anchak   😊 😞
Number: of 48483 
Subject: Re: Bear Catchers
Date: 02/05/2023 9:11 PM
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Jim ..... IIRC its calculable and reproducible -

it has fixed components with disclosed weights - the level of the VIX the highest weighted one.

I will see if I can dig up the link

Best
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Author: anchak   😊 😞
Number: of 48483 
Subject: Re: Bear Catchers
Date: 02/08/2023 8:02 PM
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Here's the link. I have to say - I think they changed the methodology - emphasis on THINK. Because I remember looking at this in 2014-15 and I distinctly recall that they weighted at that time - and I dont remember the Junk Bond Spread..... anyway .... I could be mistaken

https://www.cnn.com/markets/fear-and-greed#:~:text....

My guesstimate is that they use some sort of a diffusion index calculation to come up with a Stochastic ie percentile range and do the composite.

Best
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Author: anchak   😊 😞
Number: of 48483 
Subject: Re: Bear Catchers
Date: 02/08/2023 8:36 PM
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I also found this link - this guy seems to have been scraping it for a while.

https://www.marketnoise.net/2020/11/01/the-signals...
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Author: Said   😊 😞
Number: of 48483 
Subject: Re: Bear Catchers
Date: 06/19/2023 11:53 AM
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To follow up on a discussion about CNN's "Fear and Greed Index" (https://edition.cnn.com/markets/fear-and-greed#fng...) : This what I wrote

Buy at Index values close to 0 = The low point of 'Extreme Fear'
Sell at Index value close to 75


while having been perfect last year seems to be wrong for the upward market since March (Click on "Timeline" to see) as it's since a few days over 75 (82 now), with the market still going up.

So either the market trend inverts very soon (which would be amazing confirmation for this indicator) --- or what I wrote this time did not apply. If so I would still not throw this indicator out, but would rather modify what I wrote as there is a difference to the previous moves of the needle from "Fear" to "Greed" (again, click on "Timeline" to see): This time sentiment changed MUCH slower, it took much more time from "Extreme Fear" to the current "Extreme Greed". And that might explain a lot.

Theory: If sentiment abruptly changes from fear to greed it's unstable, doesn't cause real trust in the change, market participants mistrust the others that they don't change their minds tomorrow again. Result: Self-fulfilling prophecy. The lack of trust in the upward move causes it to end.

If on the other hand under constant mistrust the market slowly rises and sentiment slowly gets more and more positive it creates trust, creates a stable basis for the upward trend and the positive sentiment to continue.

In other words: CNN's sentiment indicator might be a fantastic predictor if not only seeing the absolute numbers but also taking account of the rate of change of sentiment, whether it's fast or slow.



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