Uncategorized, Weekly Update

Is There a Way to Gauge a Signal’s Strength?


Published February 14, 2020


Our Classic and Turbo Models speak in a very clear and simple language of BuySell, or Cash (in Classic‘s case). The output is not shaded in any way to give us a sense that we are looking at a long, strong trend ahead, or just a brief burst of a trend.

We did not know, for example, that our Turbo Buy signal triggered on 12/6/2016 would end up lasting over 200 days and deliver big returns.

We do recognize it would be nice to know what the prognosis is for a given signal. To that end, we can incorporate other indicators into our work to give us a better sense what might be to come. For example, we track a multitude of signals from a wide variety of sources, some developed internally, some not. When those signals are all speaking in the same key, we figure that’s a pretty strong sign.

Additionally, we can look at how we arrived at where we are. If that journey was a long period of stagnation where prices built into an ever-tightening wedge, odds are reasonable that the ensuing market move is likely to be a stronger one.

We know that Turbo delivers a >10% return about every 4 out of 100 signals. We know further that Turbo only delivers a >15% return 2% of the time, or twice out of every hundred signals. We never know what a signal will bring. We do remind often of our counsel to always take at least some portion of a gain if you’re pleased with it.

Market Update

Stocks continued their rebound this week building on recent new highs amid solid corporate earnings. Monday brought the biggest advance of the week with stocks powering ahead by +0.7%. Strength in Microsoft (MSFT) shares helped stocks move higher as the company regained its title of most valuable in the U.S. market. Stocks added a further +0.2% Tuesday with oil prices potentially putting in a bottom after a miserable 2020 so far. Another +0.6% gain Wednesday with investors continuing to discount the coronavirus effects on the global economy, this time pushing oil prices sharply higher. Fed Chair Powell testified before Congress Wednesday reaffirming the market assumption that the Fed is prepared to continue supporting the current ultra-low interest rate environment. A spike in the number of newly reported coronavirus cases in China gave investors pause Thursday sending stocks to their first loss of the week. However, it was a very mild -0.2% by the end of the day as investors jumped in to buy the morning pullback. Friday saw stocks eke out a gain in the closing minutes with strong earnings from semiconductor maker Nvidia (NVDA) providing support. However, the market was mostly led by defensive interest-rate sensitive sectors Friday.

Last week’s return to the uptrend continued this week with the S&P 500 (SPY) gaining +1.63%, the Nasdaq 100 (QQQ) +2.34%, and small-caps (IWM) up +1.84%. Of note, oil prices appeared to find bottom for now at $50 per barrel for West Texas crude, a level that has held for over the past year.

Warm wishes and until next week.