Kurtis Hemmerling's  Instablog

Kurtis Hemmerling
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I am a stock market enthusiast that has dabbled in many trading disciplines that range from extremely long-term value investing in dividend stocks to high-frequency day trading during the 2008/09 crash. I have enjoyed creating investing seminars and joining trading challenges to prove the... More
My company:
Portfolio123
My book:
Myth-Busting the Stock Market: Developing Uncommon Sense By Challenging Financial Truisms
  • The S&P 500 is Popping Upwards - Should You Be a Bull? 6 comments
    Oct 12, 2011 4:54 PM | about stocks: SPY

    The market has popped almost 10% since October 3rd. Is it time to back up the truck and start buying? While some eager investors have begun to do so, there are a couple of reasons you may want to wait just a little bit longer.

    Forecast Earnings
    The S&P 500 (NYSEARCA:SPY) forecast earnings for this year and next year are the consensus estimates on the 500 companies within the index. When the earnings are being revised upwards, the market usually follows. When forecast earnings are being slashed, the market generally trends down. This is a simple gauge that doesn't rely on valuation.

    I'll explain at a later date how this works but it can be a good indication of a snow-balling trend that goes from news, to fear, to forecast earnings revision, to more fear, which results in bad news, and on it goes. While the changes in earnings forecasts are not typically the catalyst for a trend, it can be a timely signal when market growth is slowing and prices are heading for a correction. Conversely, it can be a great indication of when markets are about to turn upwards for a while.


    As you can see on the 5 month chart of current year earnings estimates on the S&P 500, it is still in a downtrend. Now as we are late in the year I rely more heavily on the next years estimates. They offer the same current downtrend indication. To be a buyer in a potential bull market I would wait for the earnings estimates to turn up first. You might miss out on a few weeks of movement off the bottom, but you will almost always miss out on the big drops.

    Confirmation on Price Chart
    A simple confirmation to this 'earnings forecast' method is to add a moving average on the S&P 500 price chart. I find that the 100 or 150 day moving averages work just fine. The forecast earnings might turn up briefly, but the price must prove the move.


    If the earnings forecast trend pops up over the next few days (and it hasn't yet), the S&P should clear the 100 day moving average at a minimum. Today that moving average sits at 1239.79 and we are beneath it.

    Buy or Wait?What does this mean for your trading? If you are a swing-trader or a very short-term trader that likes to go bull one week and bear the next - decide for yourself. But if you are the type of investor that builds a portfolio and likes to hold it for many months to years - I would strongly suggest that you wait for the market to make these two positive signs first.

    Stocks: SPY
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Comments (6)
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  • Tumblebug
    , contributor
    Comments (246) | Send Message
     
    Where can I find a chart on earnings revisions
    26 Oct 2011, 02:07 PM Reply Like
  • Kurtis Hemmerling
    , contributor
    Comments (597) | Send Message
     
    Author’s reply » stockscreen123 or portfolio123 carries this data
    I report on this information weekly on my website under the Market Timing tab as well
    26 Oct 2011, 03:09 PM Reply Like
  • Tumblebug
    , contributor
    Comments (246) | Send Message
     
    I like your blog and strategies. However, a 2 year back test doesn't give a good picture since it was coming off of an oversold market about that time. Do you have any detail over a greater time period
    27 Oct 2011, 10:14 AM Reply Like
  • Kurtis Hemmerling
    , contributor
    Comments (597) | Send Message
     
    Author’s reply » The strategies have been tested over the past 10.5 years. I only report the trailing 24 months on my site to give a more relevant picture. The 10 year stats will come out when my new book is published (hopefully soon). Is there one specific strategy you would like more information on? I'd be happy to post.
    27 Oct 2011, 10:19 AM Reply Like
  • Tumblebug
    , contributor
    Comments (246) | Send Message
     
    Utilities
    28 Oct 2011, 09:23 AM Reply Like
  • Kurtis Hemmerling
    , contributor
    Comments (597) | Send Message
     
    Author’s reply » Just the utility strategy without any market timing over the past 10.5 years has the following stats:

     

    Robustness testing with a one year buy and hold tested with over 500 different entry and exit points. Capital gains are 5.89% on average and minimum 5% yields but average is higher.

     

    Monthly portfolio rebalancing over past 10.5 years with no market timing works out to 10-12% annual gains if you combine dividends and capital gains.

     

    Same test as above with market timing model works out to 8.75% capital gains per year plus dividends for 13 - 15% total annual growth.

     

    Doing the simulator portfolio test with low frequency trading rules that I use for actual trading - 5 years of data tested - 8.75% annualized capital gains plus another 5 -7% dividend yields.55% annual turnover of stocks. This includes market timing where you are out of the market over 1.5 years. If you parked your cash in bonds or t-bills you should have higher total 5 year gains than what is listed above.

     

    Hope this helps
    28 Oct 2011, 08:58 PM Reply Like
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