Predictive Value May Not Be What You Think

Each week, I post some charts that show how the TSPers on our tracker are positioned going into the new trading week. I show how the Top 50 are positioned and how the entire group (there are 972 participants currently) are positioned. If you are in the Top 50, you are in a very select group. Just a bit over 5% of the total number of participants are in this group. So they must be doing something right, right? Follow the leaders, right?

I've been looking at this years week over week results (January to present) to see how often the Top 50 had correctly shifted their stock exposure with respect to how the market actually performed for that week. In other words, if the Top 50 had a 10% increase in total stock allocation and the market was up for the week, I would view that as getting correctly positioned with the market for that week. If on the other hand the Top 50 increased their stock allocation for the week and the market was down, then the shift in stock allocation for that week was not correct. After reviewing this years data, I was a bit surprised to see that the Top 50 were more of a contrarian indicator than anything else.

So far we've had 34 weeks of trading this year (January - present). The Top 50 correctly shifted their stock allocation only 9 weeks out of those 34 weeks of trading. That means the Top 50 as a group were correct only 26.47% of the time. About 1 out of every 4 weeks.

The Total Tracker over the same time frame was correct 32.35% of the time.

So the shift in stock allocation for either group would seem to be more of a contrarian indicator this year than anything else.

Here's this week's charts:




This week the Top 50 shifted into cash and bonds again as total stock allocations fell 26.88%. Based on this year's week over week performance for this group, that may indicate we'll be seeing some upside this week.




The Total Tracker showed a drop in stock allocations of 5.28% this week. Our total stock allocation for the entire tracker sits at a modest 37.75%.

So the bearish tilt remains. And our sentiment survey hasn't changed either as it remains on a buy.

 

[RealMoneyIssues]

Interesting idea, as I am finding that most anything to do with human nature, is contrarian...

Is there any point to seeing if a 2 week moving average compared to the next weeks stock move will provide better results? It is possible that the movement is in preparation for the next week. If you were to do a daily look (data would be hard to get), then it might show better results than a weekly view.

Thanks for all you do and it's good to hear from you and what your thinking!

 

[coolhand]

Interesting idea, as I am finding that most anything to do with human nature, is contrarian...

Is there any point to seeing if a 2 week moving average compared to the next weeks stock move will provide better results? It is possible that the movement is in preparation for the next week. If you were to do a daily look (data would be hard to get), then it might show better results than a weekly view.

Thanks for all you do and it's good to hear from you and what your thinking!

An indicator that can give you 4:1 accuracy on whether the market will be up or down for the week is a pretty good supplemental indicator. I am still long TSP based on the Seven Sentinels (although it's close to a sell right now). And while I can see that the technical picture has been deteriorating the past week there are reasons to expect some upside soon (such as this indicator, not to mention our sentiment survey).

If you want to get a longer term read on these charts, the fact that we remain largely out of stocks is longer term bullish. I very much doubt we've seen an important top yet, but that doesn't mean we can't continue to correct. But the odds say we're up overall by the end of this coming week.

 

[MrJohnRoss]

Very interesting study, Jim. So if you take this one step further, does this mean that if you're in the Top 50, chances are you'll be reverting to the mean? The data certainly appears to support that idea. That would be another interesting study, i.e., how long the avg person stays in the Top 50.

Not that I'd know anything about that. :toung:

FYI, my system was also very close to a sell last week, but turned around at the last minute.

Good luck, Jim, and keep up the good work!

JR

 

[coolhand]

Very interesting study, Jim. So if you take this one step further, does this mean that if you're in the Top 50, chances are you'll be reverting to the mean? The data certainly appears to support that idea. That would be another interesting study, i.e., how long the avg person stays in the Top 50.

Not that I'd know anything about that. :toung:

FYI, my system was also very close to a sell last week, but turned around at the last minute.

Good luck, Jim, and keep up the good work!

JR

It is darn hard to remain in the Top 50 on a year to year basis. A few years back I took 3 years worth of data and came up with 15 TSPers who seemed to have relatively consistent performance. I no longer track it however, as too many of them eventuallly became scattered up and down the tracker. I will say though that Intrepid Timer was one of those 15, and now he has a premium service. He is definitely a consistent performer.

 

[Intrepid_Timer]

I'm just proud to see multiple subscribers scattered throughout the top 50, just like last year. I usually get two buy signals per month and I always go with the first one. As you probably know, some will occasionally wait for the second one based on their own research, or my commentaries, and it has proven to be the prudent thing to do at times. I like to keep it simple and always use the first buy every month.