Simple Stock Model aggregates financial and economic data so that investors can easily form a comprehensive data-based outlook on the market. This is a completely free resource provided by Movement Capital

MOMENTUM


The momentum effect is one of the strongest and most pervasive financial phenomena. Researchers have verified its efficacy as an alpha generating strategy with many different asset classes. Time series momentum measures an asset’s absolute return over a given time horizon. Despite an abundance of momentum research over the past twenty years, no one is exactly sure why it works. The most common explanations have to do with behavioral factors such as herding. In herding, buying begets more buying and causes prices to over react and move beyond their fundamental value.

Research: Fact, Fiction, and Momentum Investing by AQR, Absolute Momentum by Antonacci, Two Centuries of Price Return Momentum by Geczy and Samonov, and many others as outlined in Newfound Research’s summary on momentum
Filter Rule: If the 4-week average of 12-month total return momentum as of Friday’s close is greater than 0%, be invested
Notes: There’s nothing unique about 12-month momentum, the strategy works for a variety of different time horizons
Current Reading: 16.8%
Data Source: Yahoo! Finance

TREND


Trend following strategies are similar to momentum strategies. The age-old trend following approach is to have long exposure to the S&P if the index is above its 200 day moving average. That works, but you get whipsawed with a lot of false signals. That’s why I use a 4-week average of SPY’s distance relative to its 200-day moving average. It’s a bit slower on catching big moves but signals fewer false positives.

Research: The Trend is Our Friend: Risk Parity, Momentum and Trend Following in Global Asset Allocation by Clare, Seaton, Smith, and Thomas, Following the Trend: Diversified Managed Futures Trading by Clenow, A Century of Evidence on Trend-Following Investing by Hurst, Ooi, and Pedersen
Filter Rule: If the 4-week average of of SPY’s distance relative to its 200-day closing moving average is greater than 0%, be invested
Notes: As with momentum, there’s nothing inherently special about the 200-day. Moving averages of different frequences could be effectively used
Current Reading: 5.4%
Data Source: Yahoo! Finance

BEST SIX MONTHS


Most people dismiss the saying “sell in May and go away”. Surprisingly enough, the strategy has worked well over the past few decades (and over the past few centuries in the UK stock market).

Research: Sell in May and Go Away in the Equity Index Futures Markets by Dzhabarov and Ziemba, Are Monthly Seasonals Real? A Three Century Perspective by Jacobsen and Zhang
Filter Rule: If Monday falls between April 30 and November 1, be out of the market
Current Reading: Outside of the best six months
Data Source: Yahoo! Finance

FOMC DRIFT


The FOMC drift is the tendency of equity prices to rise more often than average in the days leading up to a FOMC meeting. The two FRB researchers who wrote about the drift in 2011 basically concluded they had no idea why the effect was so strong.

Research: The Pre-FOMC Announcement Drift by Lucca and Moench of the Federal Reserve Bank of New York, Update on The Pre-FOMC Announcement Drift by Chan
Filter Rule: If Monday is within 20 trading days of a FOMC meeting, be invested
Notes: The drift is particularly strong in the 24-48 hours immediately before a meeting. Being long 20 trading days before a meeting results in being invested ~2/3 of the time
Current Reading: Next FOMC meeting is November 1, the upcoming Monday September 25 is outside of the 20 trading day pre-FOMC window
Data Source: Federal Reserve

BUYBACK BLACKOUT


It has become increasingly common for corporations to buy back their own stock. As a percentage of total NYSE volume, corporate buybacks have increased over the past few years. Most companies suspend both insider transactions and share repurchases during the five weeks leading up to their quarterly earnings announcements.

Articles: Stock Buybacks: The Rules by McCarthy, Buyback Blackout Leaves U.S. Stocks on Own Prior to Earnings by Renick
Filter Rule: If Monday falls within one of the four following time periods, be out of the market: March 15 to April 25, June 15 to July 25, September 15 to October 25, and December 15 to January 25
Notes: The five week suspension window is unique for each company and is not fixed for the market as a whole. In the filter, I seek to capture the five-week periods where a majority of reporting firms suspend their buybacks
Current Reading: Inside of the blackout period

NYSE MARGIN DEBT


Growth in margin debt occurs when investors pledge securities to obtain loans from their brokerage firm. The New York Stock Exchange releases margin debt data on a monthly basis. It’s important to avoid looking at the nominal amount of margin debt outstanding, as any credit-based indicator will steadily grow over time with the economy. Instead, I like to look at the yearly change in margin debt.

Articles: A Look at NYSE Margin Debt by Short, Margin Debt and Market Cycles by Felder
Filter Rule: If the yearly percentage change in margin debt is negative, be out of the market
Notes: Margin debt data is lagged to reflect the NYSE release delay
Current Reading: +15.9% YoY
Data Source: NYSE

SITE INFO

All data on Simple Stock Model is refreshed each weekend. The site has been updated to reflect data as of 9/22/2017



CONTACT ME

If you have any questions about this site or any of the indicators it covers, send me an e-mail at adam@movement.capital

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