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Timing The Market
How to use the CrystalBull.com economic data, read the indicators, and interpret the signals
Transcript: Thank you for visiting CrystalBull.com, an educational website designed to provide information about the US economy, the stock market, stock market timing, and other considerations prior to investing.
We wanted to provide this short video to better explain how to use the information and services on the site, how to read the charts, some frequently asked questions, and some of the hidden features that you might otherwise miss. Thank you for taking a few minutes to watch this screencast, which we hope you will find informative.
First, some housekeeping... It is important to explain what we are, and, more importantly, what we are not. We are not investment advisors or broker-dealers. We are not advising, recommending, or soliciting any users to buy or sell any securities. Nothing in this site is to be considered investment advice, but is provided as information for users to discuss with their own investment advisor(s).
Now, if we haven't yet scared you away, let me explain what we are, and what we are trying to accomplish...
We are a small group of programmers with mathematics and economics backgrounds, who saw the need for better public access to economic data, and an easier method of correlating that data to the broader economy and the stock market in general. Each of us is bombarded every day, at the top and bottom of every hour, with news reporters making questionable correlations of economic data to the stock market, such as, "The market is up 25 points, on news that GDP rose last quarter". Is it really that easy? After years of research and study, we can say, emphatically, "No! It is NOT that easy." There is a lot of noise in the data, and reactions can be fleeting.
Many so-called stock market "experts" have proclaimed that stock market timing is impossible. Impossible? Well, that sounded like a challenge to us. If market timing is impossible, then why do all the big firms have thousands of people each studying 6 simultaneous screens, trying to beat the market with new data? In fact, if market timing is not possible, then why bother monitoring economic data at all? Technology has advanced greatly in the last 2 decades, when many of these experts made these proclamations. Now, with better access to data, super-fast computers, and advanced algorithms, can we not analyze the data to find true correlations? That is our objective. Thus, our tag line, "Seeking to build the world's most accurate stock market timing model". It may take many decades to perfect such a model, but, in our opinion, we are about as close as we can get using current data. Of course, there are no guarantees, and there is risk inherent in following any model. But, we will do our best, and believe we are on the right track.
At the top-right of every screen, you will see historical returns listed. These returns are based on back-testing of our current model, which we update roughly twice per year. The current model has not been published for this entire time period, so these are not actual real-world returns obtained. Yes, we are well-aware of the problems inherent in backtesting of models, and trying to project results. Any fool can create a model that says, "If it rains on a Tuesday in Minneapolis after the market rises 28 points, then sell." False correlations, such as the Super Bowl winner or skirt lengths, abound. But, really, back-testing is all anyone really has. Anything else is just guessing, which is what we want to avoid. We have taken great care to make sure that the correlation of the data used in the model makes sense. It is our opinion that we have done just that. We are not trying to sell subscriptions based on a model that earned incredible returns. Besides, we have all heard the disclaimer, "Past performance is no indication of future results", which is absolutely true of any model. But what we want to present is a way to study the current model, that says, "IF the current model, which is based on what we believe to be correlating data, were in place over the last X years, then these are the results that it would have obtained." In trying to build the world's most accurate stock market timing model, we believe this is the best approach, and the proper representation. Clicking on this box brings up a chart showing the indicator itself, along with the returns going back to 1996.
We'll get to reading the charts here in just a second. First, let's go over the site design briefly. The first thing you'll notice is that when you go directly to CrystalBull.com, you come straight to the dashboard. We wanted you to get quick access to the data, without having to read text, marketing language, or puffery. If, at any time you wish to return to the dashboard, simply click the dashboard link at the top.
Clicking on the 'Home' link, or any logo at the top of the page brings you to our Home page. We encourage you to read the information presented there.
We also have a Commentary page, where we periodically post information which we think is relevant, but perhaps missed by other media sources.
The How-To link brings you to this video.
There is also an 'Extras' link, which allows you to access some other valuable information, which may be outside the scope of market timing, such as discussions on tax policy and Social Security, a mortgage true-cost calculator, a retirement calculator, with more to come.
Next is an important 'Share' link, which we encourage you to use to spread the word about our site. We believe that the information on our site is valuable, and not properly dispersed by other media sources. Please use these links to tell your social media friends about the data presented. Feel free to link to our charts to make your point in blogs and discussion groups, whenever relevant.
Last is the 'Subscribe' link. The purpose of your subscription is simply to help support our work. It does not imply any advisor/client relationship. Subscribers get live readings of the CrystalBull Trading and Trend indicators, with email and text alerts of any significant change in information on the site, such as new commentary, or when the model enters or exits the market. Consider this a subscription to an economic newsletter updated on a regular basis, throughout the day.
Subscriptions are user maintained. Clicking on your username at the top right of any screen takes you to your account information, where you can easily turn on or off the auto-renew feature, change your subscription term, update your password, contact, or credit card details, or enter an address to receive SMS (or text) alerts. Simple.
Now, let's get to the dashboard, which is a comprehensive set of current economic data, updated regularly. Gauges are grouped into various segments, such as inflation, money supply, housing, etc., with our proprietary indicators, the CrystalBull Trading and Trend Indicators at the top. On many gauges, you will see more than one needle. In those cases, the names on the gauges are color-coded to explain the needles. For example, the Put/Call Ratio gauge has 3 needles: the gold is the current reading, the blue needle is the 60 day moving average, and the red needle is the 10 day moving average. On others, like Personal Income, you will see both the year-over-year and month-over-month values. The red, yellow, and green segments are meant to show favorable or unfavorable readings. As you can see, there are a lot of conflicting data at any time. So, how do you make sense of all this? It should be noted that many of these data indicators are not reliable for timing the market. Some, despite pundit blatherings to the contrary, are simply not correlated. Others, such as GDP, come out long after their sampling periods have ended, and are subject to many revisions, months, or even years later. Yes, we have our work cut out for us, but that is why we are here.
...which brings us to the good part, the CrystalBull Trading and Trend Indicators. At the culmination of our studies of all available economic data, we have derived two separate and distinct indicators. The CrystalBull Trend Indicator is updated monthly, and is intended as a modified buy-and-hold strategy. The intention is to remain in the market, except for periods when a downward trend is detected. This has resulted in trades roughly every few years. We have studied other indicators with this strategy, such as MACD (which stands for Moving Average Convergence / Divergence), and found them to have lost their accuracy in recent years. As you can see, this indicator has done a decent job of exiting the market during recent bear markets.
The CrystalBull Trading Indicator represents our primary model, which is the basis for the historical returns discussed earlier. After studying all available data, this is what we believe to be our best indicator. The Trading Indicator is updated every 5 minutes during the trading day, and attempts to detect overbought (bearish) or oversold (bullish) conditions. It has proven to be a contrarian indicator, which, when you think about it, is exactly the intention of the adage, "buy low and sell high". In order to buy low, you need to buy when others are selling, at lower price levels. You then need to sell when others are buying, at higher levels. The human brain, in an attempt to survive, has evolved to detect trends, and, unfortunately, to project their continuation and to follow them. This explains why you hear all the pundits predicting Dow 50,000 after a price runup, and predicting Dow 5000 after a selloff. They are almost always wrong. For many, it is difficult to be a contrarian. It is difficult to buy when others are selling, and when the pundits are predicting a crash. It is just as stressful to sell when the market appears to be going to the moon. The CrystalBull Trading Indicator attempts to take the emotion out of trading. Emotional responses in this market are just guesses, projecting the trend, and, usually, wrong. To buy low and sell high requires being a contrarian.
Before we get to reading the chart for the Trading Indicator, let's take a look at a different chart, with multiple series, so we can better explain the hidden functions of the charts.
Clicking on any gauge pulls up a chart of its recent activity, with a corresponding chart of the S&P 500 index above, so you can test for correlation between the data and the market.
The S&P 500 chart has a log/lin link, which allows you to switch between logarithmic and linear representation of the series. Every chart has a Help link, which pulls up a box explaining some of the details that I'll go through here.
The first hidden feature is Balloons, which pulls up a balloon representation for each data point along the series. Clicking on the series locks the balloon to that date. You can then use the left and right arrow keys to switch day-to-day-to-day along the series. As you can see, the values also update at the top right of every chart. The up and down arrow keys then switch from series to series to series. Let's go ahead and toggle Balloons off.
The next feature is the Legend, which we can reposition. This particular chart has some hidden series. The chart was busy enough that we decided to turn a few of the data series off. Here we'll go ahead and click to turn CPI on. We'll go ahead and turn the 3 Month Treasury and the 30 Year Treasury off. Now, I have to ask, "Where else are you getting this data?" We'll go ahead and toggle the Legend back off.
Next is the Show/Hide link. Click to hide the chart. A hidden feature is that when you click again, the chart displays at a larger size, for closer study of the data. We'll go ahead and turn the Help box off. As you can see when you move the mouse along the series, every data value updates at the top-right of every chart. The red line corresponds the data from chart-to-chart. You can zoom in on any date range by clicking and dragging left right. While zoomed in, you can hold down the Alt or Option key and drag left or right to change the date range. Double-click on any chart zooms all the way back out.
Now, let's get to the part we've all been waiting for... Reading the CrystalBull Trading Indicator chart. Clicking on the gauge takes us to the recent chart. Indicators are shown in standard technical analysis format, with an upper threshold, here it's +50 and red, and a lower threshold, here -50 and green. A reading above the upper threshold indicates a possibly overbought condition, while a reading below the loser threshold represents a possibly oversold condition. Overbought and oversold conditions are, by definition, unsustainable, and therefore indicate a possible trend reversal. An oversold condition is bullish, and an overbought condition is bearish.
Let's zoom in to take a closer look.
While the Trading Indicator is updated every 5 minutes during the trading day, the official model enters or exits the market based only on the closing value at the end of each day. This chart represents the closing value each day. The model is long-only. It enters the market at a reading below -50, and remains in the market until a closing value above +50. It then remains out of the market, in cash, until the next close below -50, where it re-enters.
(NOTE: This video was recorded in 2012. The following paragraph pertains to the chart as it appeared during the recording. A model update in 2013 changed some of the indicator readings, so the current historical chart will not show these values. Here is the transcript from the video. Next, we will update the narrative to match the updated readings:)
[ video ] For example, here the model entered the market on June 1st, with a reading of -52.09, and an S&P 500 value of 1278.04. It exited the market on June 8th, with a Trading Indicator reading of +51.89, and 1325.66 on the S&P. It remained out of the market until the next close below -50, on June 20th, with the S&P 500 at 1355.69. It remained in the market until today, where it exited the market at S&P 1390.92. You can see that the indicator picked up some other oversold conditions in July. Since it was already in the market, no actions were taken. But, it should be noted that the markets "appeared" to be in free fall on those dates, with many pundits predicting a crash. The CrystalBull Trading Indicator recognized those as oversold conditions, and reversals occurred.
[ current chart ] For example, here the model entered the market on June 1st, with a reading of -51.9, and an S&P 500 value of 1278.04. It exited the market on June 8th, with a Trading Indicator reading of +51.73, and 1325.66 on the S&P. It remained out of the market until the next close below -50, on June 25th, with the S&P 500 at 1313.72. It remained in the market until today (08/03/2012), where it exited the market at S&P 1390.99. You can see that the indicator picked up some other oversold conditions in July. Since it was already in the market, no actions were taken. But, it should be noted that the markets "appeared" to be in free fall on those dates, with many pundits predicting a crash. The CrystalBull Trading Indicator recognized those as oversold conditions, and reversals occurred.
From where else are you getting such readings? Trend followers bought at higher levels, and were scared out of the market at lower levels. It is easy to buy high and sell low. It is much harder to buy low and sell high.
For further details on the structure of the model, please refer to the How To Use section at the bottom of this page.
Before we go, we want to point out a few more hidden gems within the site accessible only from the Site Map link at the bottom of each page. The first are the individual gauges. These links make it easy to add the gauges to your smart phone. No downloading of apps at an app store is necessary. Simply click the link, and add to your home screen on your phone. Now, you have the gauges with you wherever you go.
There are some other links there, such as how to import live readings into your spreadsheets, or, hey, here is a copy of the original 1935 pamphlet explaining Social Security.
Thank you for taking the time to watch this screencast. We did not expect it to run this long, but we hope it was informative. Please feel free to email us with your comments or questions.