My Timing Model

My timing model is composed of 8 indicators; 4 trend indicators and 4 sentiment indicators. The concept behind the model is quite simple – the trend indicators quantify the direction of the U.S. equity market and the sentiment indicators provide a counter-balance when markets reach extremes and begin to reverse. I designed my model intentionally to generate yin/yang messages – using two opposing but complementary factors - trend and sentiment.

The eight indicators are:

1. Russell 3000 Index vs. its 200 day moving average
2. Value Line Arithmetic Index vs. its 200 day moving average
3. Russell 3000 Index vs. the 75 day moving average
4. Value Line Arithmetic Index vs. its 75 day moving average
5. Buy/Sell Confidence Model (via Sentimentrader.com)
6. Advisor and Investor Sentiment Model (via Sentimentrader.com)
7. Composite Model (via Sentimentrader.com)
8. Intermediate Term Indicator Score (via Sentimentrader.com)

Each indicator can log a maximum (bullish) score of +1, or a minimum (bearish) score of -1. Theoretically, the model can oscillate between +8 to -8, although +5.5 and -4.5 are the best and worst readings I have ever seen.

Here is how I translate model scores into percent long equity allocations.

2.5 = 100%
2.0 = 90%
1.5= 80%
1.0 = 70%
0.5 = 60%
0.0 = 50%
-0.5 = 40%
-1.0 = 30%
-1.5 = 20%
-2.0 = 10%
-2.5 = 0%