A Warning from Martin Zweig

Monday, Feb 05 2018 by
6

I work out Martin Zweig's “Winning on Wall Street” System for allocating money in the stock market largely based on how the Fed sets interest rates. Last Friday the 4% component that measures Wall Street went negative and we know have a bear market according Zweig. The full model now says you should only be 50% invested in the Stock Market.
Not actually put the figures up on the web site yet but when I do they will be at http://investstrat.com/4percent.html and http://investstrat.com/supermodel.html.

If the US market goes bear it is highly likely the rest of the world will catch the bears as well.



Anybody know of a good short term money market ETF that is likely to keep its value pay some interest and avoid the collapse of the bond market?



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18 Posts on this Thread show/hide all

dfs12 5th Feb 1 of 18

Interesting stuff. I wrote an article on the stockopedia site last night suggesting we might see a pullback in the markets. I'm not sure the UK will take as much of a hit as the US - but the US definitely looks a bit expensive to me and due a reversal. Your figures seem to suggest the same. Thanks for alerting me to Zweig. Another book to read.
If you find the ETF then I'd be interested too!

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vik2001 5th Feb 2 of 18
1

the RSI for the FTSE is at 24, which is 6 below the recommended 30 low. if anything the FTSE is oversold, and is due a uptrend soon . Im waiting for the MACD levels to crossover so I know my entry back in.

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dfs12 5th Feb 3 of 18
1

In reply to post #309748

RSI of 24 is pretty low. Please could you confirm which index and timeframe you are looking at as I can see short term RSI on the FTSE100 is about 34 (according to my calcs) - but it is likely you're using a different time period/index. Thanks.

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PJ0077 5th Feb 4 of 18
7

The 4% rule worked in the 1970's & 1980's when Zweig backtested it, but has performed poorly in the last 15-20 years against all of the major US indicies (S&P500, Nasdaq-100, Russell-2000)

https://www.cxoadvisory.com/37...

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mojomogoz 5th Feb 5 of 18
3

The US is undergoing a balance of payment crisis and so all bets are off. This is nowhere near consensus view and is just an inkling in the 'mind of the market' at the moment. BoP crisis is usually an emerging market event and is accompanied by rising real asset prices and falling currency. A US BoP will not unfold like an EM one (e.g. Venezuela is the current example, Argentina the best known in market minds from recent history) due to its global financial system pre-eminence.

To believe that anything other than a correction is happening here one needs to believe two things: 1) that global synchronised growth roles over quickly and 2) that central banks will stand aside and let market prices dictate.

Neither of those things are happening. I believe the US is very highly valued on historic steady state metrics (and the most ever when looking at median rather than cap weighted measures!) but a developing BoP issue is not steady state.

So US stock prices will recover...but it is the rest of the world that will zoom after this correction. If you thought it was a bull market until now then hold onto your socks for what is about to come...

:)

PS I'm a natural contrarian and would normally be inclined to look for the downside given current implied optimism in markets and valuation levels

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vik2001 5th Feb 6 of 18
1

In reply to post #309753

I look at it on a daily chart. to me that gives a better overall impression of trends.
my 2 cents is also we are undergoing a healthy correction. it is needed, if it didn't happen now it would be much worse when it did. hopefully we get a pullback that can provide a decent level back in.

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mgallear 5th Feb 7 of 18

In reply to post #309758

Had a look at the article by CXO Advisory and not sure why the 4% Model is doing so badly for them. They have used a number of ETFs that are subset of the broader US market, as strangely there is no single ETF that tracks this.

The 4% model is a simple trend detection device and I have come across being used by other people long before Zweig used it in his book.

The last bear period was from November 13, 2015 - Feb 12, 2016 and gave a -11.27% fall. The last bull period was from Feb 19, 2016 - Jan 26, 2018 and this gave a 58.24% rise. (It is not possible to buy and sell on these exact figures!)

It can whip lash and go back positive shortly after going negative and does so for time to time. The bear periods are generally not all that bear and you can make money in them.

They used the wrong index according to Zweig you are supposed to use the Value Line Arithmetic Index. (Indeed this is an alternative to using his own index which is no longer calculated.)
Having said that it is the Super Model and the wider interest model that is particularly bearish it is long time since it signalled that you should only be 50% invested. Not sure why the markets have picked now to fall rather than on an interest rate rise by the Fed. The story seems to be that further interest rates will catch people holding bonds paying less than they could in the bank. They are supposedly heading for the exit doors and this is feeding through into stocks. You could say the same for Bitcoin as their loses could force these investors to sell shares to make up for expected gains and loss of wealth.

Many thanks for the interest.


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vik2001 5th Feb 8 of 18

wall street seems to have recovered somewhat this afternoon. Apple to use Intel chips lited the spirit up. I expect from this things in US will be a bit more stable tomorrow. On the daily chart the RSI has moved back into safer territory at 41 from a previous high of 81 which is good news.


EDIT - spoke to soon started a slide back down after 5pm

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mgallear 11th Feb 9 of 18

I am afraid that the fall for the week ending on Friday 9th Feb 2018 for the whole of the US market as measured by Value Line was even worse at -4.57%. I hope the market bounces soon, however bear markets tend to last a few months on average.

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Dean Tonna 13th Feb 10 of 18
1

Interesting post, I personally use on old rule of thumb that if the index is above the 200 Mda then it’s a Bull market and if the index is below the 200 Mda then it’s a Bear. Currently the S&P500 is above it but only just, and could easily dip below soon.

I’m sitting on the sidelines watching .....

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vik2001 13th Feb 11 of 18

In reply to post #314918

I use this method for most things and find it intriguing.
what do you think of the ftse 100? the index price is below the 50/150 and 200 moving average. full bear mode?

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Dean Tonna 13th Feb 12 of 18

In reply to post #314968

hi Vik,

Yes it is an interesting indicator the moving average-especially the exponential one. I think definitely FTSE100 is now in full Bear mode as is Small Cap and in my view not a good time to be buying in those markets.

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mgallear 18th Feb 13 of 18

The 4% rule is now flashing a bull market and has whiplashed back after all. However, all the reasons for the low score for the Super Model still exist. More interest rates hikes and wealth loss for bond holders will continue. So be careful ....

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vik2001 18th Feb 14 of 18

this is going to be both a bull and bear market, a mix of the two I reckon. volatility is back but bulls should come out on top, lets see :)

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Edward John Canham 18th Feb 15 of 18
2

In reply to post #315008

Dean & Vik

If you follow your argument/rule to it's logical conclusion, as soon as the market falls below its 200 day MA then it would be sold down to nil because everyone would sell and it would continue to fall and continue to be below its 200 day MA until it was down to zero.

So the question is, where is the floor? What makes the floor? At what point do you switch between a graphical rule and fundamentals?

Interested to know your thoughts here.

Phil

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Blissgull 19th Feb 16 of 18
1

One way is to look at what has happened in the past.

Readers here might enjoy this analysis by Alexander Elder, author of the popular "Trading For a Living" book.
Elder is currently expecting the markets to form a double bottom followed by a resumption of the bullish trend.

http://www.elder.com/newsletter/2018_02_249A.pdf

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vik2001 19th Feb 17 of 18

In reply to post #327108

million dollar question. well at the moment there is no floor as there is no support by any of the moving averages,as shown on the chart below. the macd has crossed back over just recently so its in a uptrend at the moment due to volume and buyers getting back in. so in time if this continues support will be found by one of the moving averages very soon.
but at the moment as it stands, one bit of bad news for the UK and this FTSE can plunge like a rocket down. also I don't think the GBP/USD has helped the ftse either.

5a8a80134d868ftse.JPG



Now compare the ftse chart with the Emerging markets tracker. EEM

just look at that uptrend with great support, I know where I rather put my money:

5a8a80712eea9eem.JPG


So from these charts if you look at the trend of the moving averages, which is what I use to gauge direction.  the ftse seem to be neutral - they are flattening out which indicates to me the trend will shift sideways (just up and down around the same range). if they start guiding down which can easily happen we are in trouble as no support.

EEM has all its moving averages pointing upwards so indicates a strong bullish momentum.

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Edward John Canham 19th Feb 18 of 18

In reply to post #327178

Hi

Interesting.

Phil

( City of London Investment (LON:CLIG) produced good numbers today from Emerging Markets)

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