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O. Young Kwon's  Instablog

O. Young Kwon
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O. Young Kwon, NYU Ph.D. in Economics had worked in securities industry for ten years as a Registered Investment Adviser. He taught Macroeconomics and Statistics. Prior to his academic career, he was an Economist/Bank Supervisor at the Bank of Korea (the Fed's counterpart). In 2009 he set up the... More
  • The REDS S&P 500 Prediction (RSP)

    The REDS S&P 500 Prediction (NYSEARCA:RSP) (June 16, 2013)

    My article ("The RED Spread: A Market-Breadth Barometer - Can It Predict Black Swan?") introduced the RED Spread (REDS) (with the RED) as a Market Condition Monitor. The RED Spread is performing one-month-ahead forecasts of the S&P 500 index. The predictions follow.

     

     

    The REDS&PP
    FORECASTFORECASTTARGETTARGETDATAFEPAME
    DATES&P 500DATES&P 500RANGE%(ABS Mean Error)
    2/24/20131,420.403/22/20131,556.895/2/12-2/22/139.18.7
    3/3/20131,421.093/29/20131,569.195/2/12-3/1/139.98.8
    3/10/20131,428.794/5/20131,553.285/2/12-3/8/138.38.6
    3/17/20131,431.124/12/20131,588.855/2/12-3/15/1310.49.0
    3/24/20131,428.244/22/20131,562.505/2/12-3/22/139.08.8
    3/31/20131,429.614/29/20131,593.615/2/12-3/29/1310.88.6
    4/7/20131,425.705/6/20131,617.505/2/12-4/5/1312.69.6
    4/14/20131,433.875/13/20131,633.775/2/12-4/12/1313.110.8
    4/21/20131,426.255/20/20131,666.295/2/12-4/19/1315.512.7
    4/28/20131,432.375/28/20131,660.065/2/12-4/26/1314.713.7
    5/5/20131,440.946/3/20131,640.425/2/12-5/3/1312.913.2
    5/12/20131,424.346/10/20131,642.815/9/12-5/10/1314.213.1
    5/20/20131,407.066/17/2013?5/16/12-5/17/13??
    5/28/20131,438.236/24/2013?5/23/12-5/24/13??
    6/3/20131,410.327/1/2013?5/30/12-5/31/13??
    6/10/20131,439.787/8/2013?5/6/12-5/7/13??
    6/16/20131,438.267/8/2013?5/6/12-5/7/13??
    NOTE
    Forecast Error Percentage (NYSEARCA:FEP) = 2*(A-F)/(A+F) (A=Actual F=Forecast)
    Absolute Mean Error (NYSE:AME) = (sum(ABs of 7-day errors)/7)/A (A=Actual F=Forecast)

    The evaluation of the predictions made on 2/24/2013, 3/3/2013, 3/10/2013, 3/17/2013, 3/24/2013, 3/31/13, 4/7/2013 4/14, 4/21, 4/28, and 5/5/2014 is available: The Forecast Error Percentages were 9.1, 9.0, 8.3,10.4, 9.0, 10.8, 12.0, 13.3, 15.5, 14.7, and 12.9, respectively; and the Mean Absolute Errors were 8.7 8.8, 8.6, 9.0, 8.8, 8.6, 9.6, 10.8, 12.7, 13.7, and 13.2; respectively. They were under-forecasts. The error were significant because the data range (5/2/2012 to 4/12/2013) don't cover a full year. From the 5/5/2013 prediction the data have a full year, as shown in the above Table..

    It was also because the budget negotiations have been worked out this time, surrounding the sequester (March 1) and the smooth passage of the spending bill or a continuing resolution (NYSE:CR): The market not only didn't respond negatively on across-the-board spending cuts even though White House exaggerated the impact of the sequester, but the new CR keeps government open through September, averting shutting down government on March 27 when all stopgaps spending measurements will be expired.

    All these timely good movements of Congress boosted the market more much than expected one month earlier.

    The Model

    Y (t) = X (t-1) + e,

    Where Y (t) = one-month average of daily changes in the S&P 500 at t, X (t-1) = one-month average of daily changes in REDGs at t-1, and e = errors.

    (1) The Data

    The RED Spread or REDS from 4/3/2012 to date.

    Introduction

    Market forecasts refer to market perspectives of unknown events, whether in the past, present, or future. It is the future that attracts most attention of investors because the practical purpose of the forecasts is to help make and improve investment decisions, which are forward looking.

    Large econometric models which have many variables and various data are available for market forecasts, but a naïve single-variable model is introduced here. For stock-market forecasts, a simple model with a well-defined set of data can compete large model because stock prices and bond yields (and bond prices in the opposite direction), all of which are highly volatile, responsive to a continuous flow of rumors and headlines that affects expectations of investors. As a result, it is almost impossible predict the future movements of the stock market in a relatively short term, say, a time horizon of one to three months which are my primary target.

    The purpose of this column is not to expect to provide any acceptable results of near-term market forecasts, but rather to attempt to test a naïve autoregressive equation with seven-day moving averages of changes in both the S&P 500 index and the RED Spread or the REDS. The REDS reflects all market activities - large and small - at the closing every day. They are unbiased and directly observed. Hence I have a strong confidence on this data set.

    The REDS series just starts from April 3, 2012. After making changes and moving averages, the final input series begin May 2, 2012. Changes and moving averages made the original series less noisy, but still a year-on-year forecasting is better to eliminate further any remaining cyclical or seasonal components.

    Hence, weekly one-month-ahead predictions will continue to be performed using the same starting data, May 2, 2012, until May 3, 2013. After that, the starting data will change to cover just one year. As the series lengthen, two-month and three-month predictions will be performed in the future.

    The evaluation of predictions will be made by two criteria: (a) The Forecast Error Percentage (FEP) and (b) The Absolute Mean Error (AME). The FEP is for at one point at the target day while the AME is for 7-day forecasts.

    At this time, I am not certain about the likely outcomes of this experiment. The only hope is this model with this innovative data set would shed some light in a very changeable area of predictions of the equity market with an explicit link with the bond market.

    Background

    The origin of The REDS went back to early 1980s when a paper was submitted to the American Economic Association [AEA] meeting in Montego Bay, Jamaica. The paper was to predict stock markets (the level of the S&P 500) by employing the NBER composite indexes which were compiled at the Center for International Business Cycles Research [CIBCR]. Since the S&P 500 is one of the components of the Composite Leading Index, the paper used the Composite Lagging Index inverted: The inverted Lagging index normally leads the Leading Index.

    Last summer a science-oriented reader and I exchanged our views on whether the REDS can predict the market or not, as follows:

    Reader - "Here are my predictions for today at closing based on your chart above RED REDS S&P 500 10Y T Yield 9/28/2012 52.8 5.0% 1445.99 1.665."

    Author - "It is pretty difficult to grasp the relevance of your comment which perhaps is based upon a presumption that the RED and the RED Spread can forecast the closing prices of the S&P 500 and 10-year Treasuries. I wish your comment works, but unfortunately it cannot because economics (finance) is not an exact science."

    Reader - "Still, I look forward to your post on Monday to see how far off I am and in what direction."

    Author -- Yesterday (September 28) numbers were: RED = 52.*% RED Spread = 4.6% S&P 500 = 1,440.69 10-Y Treasury Yield = 1.64%...[A]ny economic forecast should be done with an explicit model…[W]e should build two equations as:

    Y1 = a1X1 + b1X2 (1)

    Y2 = a2X1 + b2X2 (2)

    Where Y1 = the S&P 500, Y2 = the 10-Y Treasury yield, X1 = the RED, and X2 = the RED Spread. A further discussion along this line of thought is beyond of the scope of this article."

    (From our comments on "The RED Spread: A Market-Breadth Barometer - Can It Predict Black Swan?".)

    The experimental work is to show my analysis to the reader (quoted above) and all other readers who might be interested in a short-term market forecast which is not seen on Seeking Alpha.

    Mar 25 5:41 AM | Link | 2 Comments
  • The Daily TANER Momentum

    The TANER ETF Model (TEM), The TANER Stock Model (NYSE:TSM), The TANER Rotation Model (TRM), and The TANER Vanguard Model (TVM), were introduced in my article. Link: www.seekingalpha.com/article/817551

    The Daily TANER Momentum (DTM) (Jan. 29, Wednesday)

    TANER Momentum ™ List on Jan. 29, Wednesday) based upon Closing Prices on Jan. 28, Tuesday

    The TANER ETF Model (TEM) (Jan. 29, Wednesday)

    ETF:T1 (QQQ VTI) A1 (VHT PFM) E1 (VDE VWO) R1 (PGF VNQ)

    ETF T2 (VHT VTI) A2 (MDY VAW) E2 (VDE VWO) R2 (PGF VNQ).

    ETF T3 (QQQ SPY) A3 (MDY XLF) E3 (PHB BWX) R3 (PZA PGF).

    SUMMARY OF THE TEM

    E.TM. 1-2-3 (NYSEARCA:PGF) E.TM. 1-2 (VHT VTI VDC VWO VNQ) E.TM. 1-3 (NASDAQ:QQQ) E.TM. 2-3 (NYSEARCA:MDY) E TM. 1 (NYSEARCA:PFM) E.TM. 2 (NYSEARCA:VAW) E.TM. 3 (SPY XLF PHB BWX PZA)

    The TANER Stock Model (TSM) (Jan. 28, Tuesday)

    STOCK T1 (NFLX AMZN) A2 (ESRX KRFT) E1 (FCX YUM) R1 (BEN ISRG)

    STOCK T2 (LIFE BAC) A2 (AGN EDU) E2 (NKE YUM) R2 (CAT IBM).

    STOCK T3 (LIFE CMG) A3 (AGN EDU) E3 (FCX KSU) R3 (NUS IBM).

    SUMMARY OF THE TSM

    S.TM.1-2 (NYSE:YUM) S.TM.1-3 (NYSE:FCX) S.TM.2-3 (LIFT AGN EDU IBM) S.TM.1 (NFLX AMZN ESRX KRFT BEN ISRG) S.TM.2 (BAC NKE CAT) S.TM.3 (CMG KSU NUS)

    The TANER Rotation Model (TRM) (Jan. 27, Monday)

    ROTATION:T1 (MTK VCR) A1 (XPH ITM) E1 (KIE PCY) R1 (EDV REM)

    ROTATION T2 (XPH IYH) A (KCE XME) E2 (VDC IPE) R2 (HYG RWR).

    ROTATION T3 (MTK XSD) A3 (KIE XRT) E3 (VOX REM) R (XES PSK).

    SUMMARY OF THE TRM

    R.TM.1-2 (NYSEARCA:XPH) R.TM.1-3 (MTK KIE REM) R.TM.1 (VCR ITM PCY EDV) R.TM.2 (IYH KCE XME VDC IPE HYG RWR) R.TM.3 (XSD XRT VOX XES PSK)

    The TANER Vanguard Model (TVM) (Jan. 27, Monday)

    VANGUARD T1 (VXF VTI) A1 (VHT VSS) E1 (VAW VDC) R1 (EDV VNQ)

    VANGUARD T2 (VEU VEA) A2 (VIS VAW) E2 (VHT VDC) R2 (VWO VNQ).

    VANGUARD T3 (VXF VEU) A3(VIS VCR) E3 (VOX VDC) R3 (VAW EDV).

    SUMMARY OF THE TVM

    V.TM.1-2-3 (VDC VAW) TM.1-2 (VHT VNQ) V.TM.1-3 (VXF EDV) V.TM.2-3 (VEU VIS) V.TM.1 (VTI VSS) V.TM.2 (VEA VWO) V.TM.2 (VCR VOX)

    Link: www.seekingalpha.com/instablog/791632-o-young-kwon/1111541-the-taner-data. You can get the names of securities with the ticker symbol in The TEM, The TSM, The TRM, and The TVM...

    Note:

    T (Topping): Leading Leaders.(LDLD)

    A (Advancing): Lagging Leaders (LGLD)

    E (Emerging): Leading Laggards (LDLG)

    R (Reversing): Lagging Laggards.(LGLG)

    The numbers in parentheses (1-2-3) are one-month, two-month, and three-month terms.

    The overall markets (DJIA, S&P 500, or NASDAQ) have their cycles. Individual securities (ETFs or Stocks) have also their own cycles given the market cycles. In general, all securities in The TANER System (20 ETFs and 40 stocks) show their own cycles from R to E to A to T to R and so on, but majority securities (60% of ETFs and 80% of stocks are in N (Neutral, meaning residual). Therefore all securities do not show any pattern. When any of your holding has T or R momentum, you pay your particular attention.

    Introduction

    O. Young Kwon, NYU Ph.D. (Economics) had worked in securities industry for ten years as a Registered Investment Adviser. In 2009 he set up the TANER System in order to synthesize performances and relative strengths of 20 ETFs and 40 equities thoroughly. The System captures dynamics of momentum changes of individual securities on the daily basis. The System also builds successfully their momentum trends over time.

    How to Use TANER Momentum (NYSE:TM)

    Every marketday buys, sells, or exchanges (among mutual funds) can be made by TM. All trades except exchanges are posted on StockTalks to share these trades with you. For options players (for me options are excluded) call/put positions can be taken. My experience for three years propose following two Risk/Reward Tables: The Long-Term RR (LTRR) Table and The Short-Term RR (STRR) Table. . Please use this as a guide.

    LTRR (For Long-Term Investors)

    TANER

    RISK

    REWARD

    T (TOPPING)

    HIGHER

    LOWER

    A (ADVANCING)

    HIGH

    LOW

    n (neutral)

    average

    average

    E (EMERGING)

    LOW

    HIGH

    R (REVERSING)

    LOWER

    HIGHER

    Try Advancing (NYSE:A) and Emerging (NYSE:E) TM.

    STRR (For Near-Term Traders)

    TANER

    RISK

    REWARD

    T (TOPPING)

    HIGHER

    HIGHER

    A (ADVANCING)

    HIGH

    HIGH

    n (neutral)

    average

    average

    E (EMERGING)

    LOW

    LOW

    R (REVERSING)

    LOWER

    LOWER

    Try Advancing (A) or Topping (NYSE:T) TM. When a very near term (i.e. daytrading), Topping (T) TM.

    What for R (Reversing)? These TM are useful either for your exits of any holding or your bets in a stable upswing. Sometime R gives you a big gain.

    T (Topping) sometimes help you to take gains with the intraday 5%+ rule.

    Related Instablogs

    Go TANER: The Market Primer

    Autopilot Portfolio: TANER APP (NYSE:I)

    Income Portfolio: TANER APP (II)

    The Tiger Rule: TANER APP (NASDAQ:III)

    Daytrading: TANER APP (IV)

    The TMT (TANER Momentum Trend)

    Dec 24 6:16 PM | Link | 6 Comments
  • THE TANER DATA

    The DATA of The TANER ETF Model [TEM] (20), The TANER Stock Model [TSM] (40), and The TANER Vanguard Model [TVM] (20)

     

     

    The TANER DATA
    The TEM (20)
    Vanguard Total Stock Market ETF (NYSEARCA:VTI)Vanguard Materials ETF (NYSEARCA:VAW)
    SPDR S&P 500 Index ETF(NYSEARCA:SPY)Vanguard Emerging Markets ETF (NYSEARCA:VWO)
    SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA)Power Shares Dividend Achievers (NYSEARCA:PFM)
    Vanguard Extended Market ETF (NYSEARCA:VXF)Vanguard Utilities ETF (NYSEARCA:VPU)
    SPDR S&P Midcap 400 Index ETF(NYSEARCA:MDY)Power Shares Fin. Preferred Port. ETF(NYSEARCA:PGF)
    Power Shares QQQ Trust ETF (NASDAQ:QQQ)Vanguard Total Bond Market ETF (NYSEARCA:BND)
    Financial Select Sector SPDR ETF(NYSEARCA:XLF)i Shares Barclays TIPS Bond ETF (NYSEARCA:TIP)
    Vanguard Health Care ETF (NYSEARCA:VHT)Power Shares Insured Muni Bond ETF (NYSEARCA:PZA)
    Vanguard Energy ETF (NYSEARCA:VDE)Power Shares High Yield Corporate Bond ETF (NYSEARCA:PHB)
    Vanguard REIT ETF (NYSEARCA:VNQ)SPDR Barclays Capital Intl Treasury Bond ETF (NYSEARCA:BWX)
    The TSM (40)
    Boeing (NYSE:BA)Express Scripts (NASDAQ:ESRX)
    Bank of America (BOA)FreeP't McMoran Copper & Gold (NYSE:FCX)
    Caterpillar (NYSE:CAT)FedEx (NYSE:FDX)
    Home Depot (NYSE:HD)Flowserve (NYSE:FLS)
    Intl Business Machines (NYSE:IBM)Intuitive Surgical (NASDAQ:ISRG)
    Johnson & Johnson (NYSE:JNJ)Joy Global (NYSE:JOY)
    Kraft Foods (KFT)Nordstrom (NYSE:JWN)
    Coca Cola (NYSE:KO)Kansas City Southern (NYSE:KSU)
    McDonald's (NYSE:MCD)Life Technologies(NASDAQ:LIFE)
    Wal-Mart Stores (NYSE:WMT)MasterCard (NYSE:MA)
    Aetna (NYSE:AET)Mosaic (NYSE:MOS)
    Allergan (NYSE:AGN)Netflix (NASDAQ:NFLX)
    Amazon.com (NASDAQ:AMZN)Nike (NYSE:NKE)
    Franklin Resources (NYSE:BEN)Nu Skin (NYSE:NUS)
    Baidu (NASDAQ:BIDU)NVR, Inc. (NYSE:NVR), homebuilder
    CME Group (NASDAQ:CME)Parker-Hannafin (NYSE:PH)
    Chipotle Mexican Grill (NYSE:CMG)Perrigo (NYSE:PRGO)
    Deere (NYSE:DE)Praxair (NYSE:PX)
    Dollar Tree (NASDAQ:DLTR)Suncor Energy (NYSE:SU)
    Oriental Education & Tech (NYSE:EDU)Yum Brands (NYSE:YUM)
    The TVM (20)
    Vanguard Total Bond Market ETF (BND)Vanguard Extended Duration Treasury ETF (NYSEARCA:EDV)
    Vanguard Mortgage Backed Securities ETF (NASDAQ:VMBS)Vanguard Energy ETF (VDE)
    Vanguard Health Care ETF (VHT)Vanguard Utilities ETF (VPU)
    Vanguard Consumer Staples ETF (NYSEARCA:VDC)Vanguard Telecom Services ETF (NYSEARCA:VOX)
    Vanguard High Dividend Yield ETF (NYSEARCA:VYM)Vanguard Materials ETF (VAW)
    Vanguard REIT ETF (VNQ)Vanguard Total Stock Market ETF (VTI)
    Vanguard Extended Market ETF (VXF)Vanguard Emerging Markets ETF (VWO)
    Vanguard Consumer Discretionary ETF (NYSEARCA:VCR)Vanguard MSCI EAFE ETF (NYSEARCA:VEA)
    Vanguard Industrials ETF (NYSEARCA:VIS)Vanguard Financials ETF (NYSEARCA:VFH)
    Vanguard FTSE All World ex-US ETF (NYSEARCA:VEU)Vanguard FTSE All world ex-US S-Cap ETF (NYSEARCA:VSS)
    The TRM (40) (Partial Listing)
    i Shares 1-3 Year Credit Bonds ETF(NYSEARCA:CSJ)Vanguard Consumer Discretionary ETF (VCR)
    i Shares NAREIT Mortgage ETF(NYSEARCA:REM)Vanguard Communication Services ETF(VOX)
    i Shares Corporate Bonds ETF(NYSEARCA:LQD)Vanguard Consumer Staples ETF (VDC)
    Market Vectors Gold Miners ETF(NYSEARCA:GDX)Wisdom Tree Emerging Market Local Deb ETF (NYSEARCA:ELD)
    SPDR Insurance ETF (NYSEARCA:KIE)Vanguard MSCI EAFE ETF (VEA)
    SPDR Biotech ETF (NYSEARCA:XBI)SPDR Wells Fargo Preferred (NYSEARCA:PSK)
    SPDR DJ Willshire REIT (NYSEARCA:RWR)i Shares High Yield Corp Bonds (NYSEARCA:HYG)
    SPDR Capital Markets ETF (NYSEARCA:KCE)SPDR Retail ETF (NYSEARCA:XRT)
    Market Vectors Municipals ETF (NYSEARCA:ITM)
    Nov 01 5:38 AM | Link | Comment!
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