Hi Charley, yes. I plan to continue to post approximately quarterly updates on my take of the status of the bear market / bull market, and this will feature my favorite signals.
I'll also send out action alerts when I make a buying or selling decision based on these signals. I'm a skin in the game guy.
In addition, I'll post when there is a change in an important, non-noisy signal. For instance, within a general bull market, I may not report on every moving-average crossover of the Baltic Dry signal. But I'll for sure tell you folks when Zahorchak has gone from -10 to +6.
Nice article Martin. Did you look at combining this with other indicators? How tight of a trailing stop would you recommend to confirm the sell signal?
Trailing stop: whatever rocks your boat. 20-50 crossover, 30 dma... It depends on your risk tolerance and on the general market conditions.
If the market has been non-volatile, perhaps make it tighter -- a change in general volatility is often a change in market direction.
If the market has been jittery for a while and you can deal with the instability, you might even wait for a Death Cross crossover.
If on the other hand folks are talking about the market being in a bubble to be followed by a crash, or if a pandemic looms, or if there's a distinct chance of a thermonuclear conflict, then I'd say batten down the hatches, and sell at the first opportunity! Better to miss out on a final FOMO melt-up, than to suffer a -30% meltdown.
(Obviously, I haven't backtested any of this, nor will I be able to).
About the 2000-2003 episode, he says, "(The 2000-2003) bear market was primarily large cap issues tied to the dot com bubble. Most of the smaller issues began their bear in the 1998-1999 era."
I took a historical look at small-caps. What he says about them certainly doesn't apply to IJR, which only bottomed in October 2002. But looking at MASKX, one recognizes his point.
(Sorry, I can't post screenshots of charts here, it seems).
However, the matter remains -- if Zahorchak follows smaller issues, then how can one really use it to invest in the SPX? Perhaps by looking at MASKX:SPY before making a final decision?
so, for the future, one would need to select the market that is has begun to trend well when Zahorchack goes risk-on. One would require confirmation from momentum, relative strength, or from moving averages. That would have prevented the 2000-2003 episode.
If back in 2001, I knew what I know now, and I had been blogging, I might have written: "Zahorchack is saying the market is a buy. This is odd, because price for the SPX has not confirmed this position. However, small-caps are looking quite good. This may be because they did not participate in the Tech Bubble, and bottomed in 1999. Based on these two signals, I am scaling into a small-cap position".
good questions as usual. I'll look into it, but there is a dearth of stuff on the 'net as regards Zahorchak, and I am disinclined to spending a hundred bucks for his book.
Surely one would never go all-in just based on this signal. One might start scaling in while waiting for confirmation from other signals such as moving averages and their crossovers. For example, the primitive Golden Cross signal worked pretty well from April 2000 to May 2003, during which it was risk-on for only 34 days.
Using this as part of "a wider tool kit" is exactly my intention. Depending on how many lights turned green, I'd be invested anywhere from 30% to 150%.
(Yes, the latter sounds suicidal, but if we had a -30% crash + Zahorchak go + good long-term sentiment + 30/50 MA crossover + Baltic Dry go, then I'd consider).
point taken. BD is quite noisy. It got risk-on in May 2009 and June 2020, so not all bad, but on a scale of reliable and actionable signals, I'd put it considerably behind Mojena.
Martin, Thanks for the notice of this signal method.
Is this something that yu will follow and update?
Hi Charley, yes. I plan to continue to post approximately quarterly updates on my take of the status of the bear market / bull market, and this will feature my favorite signals.
I'll also send out action alerts when I make a buying or selling decision based on these signals. I'm a skin in the game guy.
In addition, I'll post when there is a change in an important, non-noisy signal. For instance, within a general bull market, I may not report on every moving-average crossover of the Baltic Dry signal. But I'll for sure tell you folks when Zahorchak has gone from -10 to +6.
Nice article Martin. Did you look at combining this with other indicators? How tight of a trailing stop would you recommend to confirm the sell signal?
Hi Steve, thanks!
Trailing stop: whatever rocks your boat. 20-50 crossover, 30 dma... It depends on your risk tolerance and on the general market conditions.
If the market has been non-volatile, perhaps make it tighter -- a change in general volatility is often a change in market direction.
If the market has been jittery for a while and you can deal with the instability, you might even wait for a Death Cross crossover.
If on the other hand folks are talking about the market being in a bubble to be followed by a crash, or if a pandemic looms, or if there's a distinct chance of a thermonuclear conflict, then I'd say batten down the hatches, and sell at the first opportunity! Better to miss out on a final FOMO melt-up, than to suffer a -30% meltdown.
(Obviously, I haven't backtested any of this, nor will I be able to).
Nice Martin! I definitely learned something new today. Will keep an eye on this!
I took another look; here is an article by the guy who wrote the code to integrate Zahorchak into the Stockcharts service:
https://stockcharts.com/articles/dancing/2015/07/zahorchak-measure.html
About the 2000-2003 episode, he says, "(The 2000-2003) bear market was primarily large cap issues tied to the dot com bubble. Most of the smaller issues began their bear in the 1998-1999 era."
Not a very convincing explanation IMO.
Good to hear!
I took a historical look at small-caps. What he says about them certainly doesn't apply to IJR, which only bottomed in October 2002. But looking at MASKX, one recognizes his point.
(Sorry, I can't post screenshots of charts here, it seems).
However, the matter remains -- if Zahorchak follows smaller issues, then how can one really use it to invest in the SPX? Perhaps by looking at MASKX:SPY before making a final decision?
so, for the future, one would need to select the market that is has begun to trend well when Zahorchack goes risk-on. One would require confirmation from momentum, relative strength, or from moving averages. That would have prevented the 2000-2003 episode.
If back in 2001, I knew what I know now, and I had been blogging, I might have written: "Zahorchack is saying the market is a buy. This is odd, because price for the SPX has not confirmed this position. However, small-caps are looking quite good. This may be because they did not participate in the Tech Bubble, and bottomed in 1999. Based on these two signals, I am scaling into a small-cap position".
good questions as usual. I'll look into it, but there is a dearth of stuff on the 'net as regards Zahorchak, and I am disinclined to spending a hundred bucks for his book.
Surely one would never go all-in just based on this signal. One might start scaling in while waiting for confirmation from other signals such as moving averages and their crossovers. For example, the primitive Golden Cross signal worked pretty well from April 2000 to May 2003, during which it was risk-on for only 34 days.
Using this as part of "a wider tool kit" is exactly my intention. Depending on how many lights turned green, I'd be invested anywhere from 30% to 150%.
(Yes, the latter sounds suicidal, but if we had a -30% crash + Zahorchak go + good long-term sentiment + 30/50 MA crossover + Baltic Dry go, then I'd consider).
point taken. BD is quite noisy. It got risk-on in May 2009 and June 2020, so not all bad, but on a scale of reliable and actionable signals, I'd put it considerably behind Mojena.