While we provide free market research and analysis, we trade solely using our quantitative trading models. Click here to find out about our trading models. We mainly trade using the Medium-Long Term Model.
What is the Medium-Long Term Model
The Medium-Long Term Model predicts bull markets, bear markets, and “big corrections” in bull markets. Click here for the model’s historical BUY and SELL signals.
Medium-Long Term Model’s Returns
The Medium-Long Term Model yields an average of:
- 43% per year when traded with $UPRO (the S&P’s 3x leveraged ETF)
- 30% per year when traded with $SSO (the S&P’s 2x leveraged ETF)
- 14.7% per year when traded with $SPY (no leverage)
A more risk-averse way of implementing the Medium-Long Term Model yields an average of:
- 38.1% per year when traded using $UPRO
- 25.5% per year when traded using $SSO
- 12.7% per year when traded with $SPY
Click here to learn about the Medium-Long Term Model’s exact components.
BUY and SELL signals
These charts demonstrate the model’s BUY and SELL dates.
*We do not update these charts on a regular basis. We only provide the real-time BUY and SELL signals in the Trading Models Membership Program.
Here are some more zoomed-in charts.
The Medium-Long Term Model
This model is actually 2 models combined into 1:
- The Long Term Model predicts when bull markets will start (i.e. when bear markets will end) and when bull markets will end (i.e. when bear markets will start).
- We define “bear markets” as 40%+ declines that last at least 1 year from top to bottom. We define “bull markets” as the time between 2 bear markets.
- The Medium Term Model predicts when “big corrections” will start and end.
- A set of criteria define the term “big correction”, but generally it is a 14%+ decline.
Here’s an example (log scale chart).
Following the model to the letter will maximize long term investment performance.
Go 100% long when the model states that there is no bear market or “big correction” on the horizon.
Shift to 100% cash when the model predicts that a “big correction” or bear market will start.
Go back to 100% long when the model says that the “big correction” or bear market is over and that the stock market has bottomed.
- The model has a 100% accuracy rate for predicting bull markets and bear markets.
- It has only failed to predict 1 big correction over the past 50+ years. The market made a big correction every time my model predicted one. Sometimes the big correction began several months after my model predicted one, but the market always fell below my SELL price.
My model does not “fit” the data. Instead, I implement a wide margin of error and utilize 3 stop loss indicators to limit our losses in case the model fails to predict a large decline in the stock market.
The Medium-Long Term Model predicted each of the 4 massive bear markets from 1950 – present (1968-1970, 1973-1974, 2000-2002, and 2007-2009). In addition, it predicted the 1987 crash with stunning accuracy.
What the Medium-Long Term Model doesn’t do
The medium-long term model does not predict “small corrections” (e.g. 6-14% declines in the S&P 500).
Concept behind the Medium-Long Term Model
The U.S. stock market is one of the easiest markets to trade.
- Fundamentals (the U.S. economy) determine the U.S. stock market’s long term direction (i.e. is this a bull market or a bear market). The U.S. stock market and U.S. economy move in the same direction in the long term. Hence, leading economic indicators are also leading stock market indicators.
- The stock market’s medium term direction (big corrections & big rallies) is determined by a mixture of fundamentals and technicals.
- Technicals determine the short term. The short term is mostly random, but technical analysis does give traders an edge.
*Technical analysis does not determine the long term. Technical analysis has far too many false signals. For example, every bear market includes a “breakdown below the 200 day moving average”, but most “breakdowns below the 200 day moving average” don’t lead to bear markets. Using indicators with a <50% probability of success is worse than flipping a coin.
The stock market tends to go up more often than it goes down because the U.S. economy expands more often than it contracts. Recessions are short in comparison to economic expansions.
This also means that when the stock market deviates from the economy’s direction (e.g. the economy improves but the stock market goes down), the stock market will eventually go up with the economy.
Valuations are of secondary importance
The Medium-Long Term Model incorporates valuation indicators. However, the Medium-Long Term Model does not rely on these indicators too much. Valuation indicators are of secondary importance.
Too many traders rely heavily on “valuations” to trade. In reality, valuation indicators are long term indicators. They aren’t short term or medium term indicators.
- Valuations tell you where the market will be in 5 years.
- Valuations don’t tell you where the market will be in the interim. I.e. valuations don’t tell you where the stock market will be next week, next month, or even next year.
Here’s the data to prove that valuations don’t matter for short term traders.
These are the S&P 500’s 1 month forward returns vs. its valuation (P/E ratio). Notice how there is almost no correlation between the stock market’s valuation and 1 month forward returns.
R squared = 0.008
These are the S&P 500’s 3 month forward returns vs. its valuation (P/E ratio). Notice how there is almost no correlation between the stock market’s valuation and 3 month forward returns.
R squared = 0.0255
These are the S&P 500’s 6 month forward returns vs. its valuation (P/E ratio). Notice how there is almost no correlation between the stock market’s valuation and 6 month forward returns.
R squared = 0.05
These are the S&P 500’s 1 year forward returns vs. its valuation (P/E ratio). Notice how the correlation between the stock market’s valuation and 1 year forward returns is weak.
R squared = 0.0765
These are the S&P 500’s 2 year forward returns vs. its valuation (P/E ratio). Notice how the correlation between the stock market’s valuation and 2 year forward returns is weak.
R squared = 0.0646
Access the Medium-Long Term Model
Join our Trading Models Membership Program to learn:
- Whether the Medium-Long Term Model is bullish or bearish right now.
- How we’re trading the U.S. stock market based on this model.
- Exactly what goes into the Medium-Long Term Model so that you can make it your own, and…
- How we’re trading the U.S. stock market based on our other quantitative trading models, such as the Medium Term Volatility Model.
Our other trading models
We have 2 other key trading models
Medium Term Volatility Model
Our Medium Term Volatility Model predicts when the stock market’s volatility (e.g. VIX) will spike, which coincides with short term declines in the stock market.
Short Term Trading Model
The Short Term Trading Model is suitable for short term traders. Trades last approximately 2 weeks.
You can find all this in our Trading Models Membership Program.