Model Condition Green

Posted by on Wednesday, Sep 11, 2013 in Featured Slide | 0 comments

Model Condition Green

The Keller Partners Equity Trend Model is once again at a Green status — full commitment to US equities. The Long-Term element of our Model remains comfortably in positive territory where it has been since April 2016, and the more sensitive Intermediate-Term Model returned to positive on Thursday, September 7, after a brief dip.  The overall Trend Model has been in Green status for most trading days of 2017, an excellent year for stocks.  When the two component models agree, we categorize the equity trend as fully committed to equities (“risk-on”), or Green.

We stress in our various publications, that this trend analysis work is based entirely on internal market data and forms its conclusions independent of Wall Street views or economic data.

Over the last 40 years, our Model has classified over 50% of all the trading days as Green, or “risk-on” the current condition, and roughly 35% of all trading days as Transitional (Yellow) mode.  Green is the most common color of the KP Model and it is statistically associated with returns that are roughly twice as high as “normal” — 14.6% annualized, versus 7.1% average for all trading days over the last 18 years.  In addition, the volatility of the daily returns is well-below average!  Truly an ideal environment for stocks.

We manage our cash exposure accordingly.  When the color of the market is Green, we hold minimal cash balances, but when the color shifts to yellow or red, we adjust our cash holdings quite radically.  Our approach is active and occasionally becomes aggressively defensive. The Red market condition is relatively rare and accounts for less than 15% of all trading days, but these are statistically associated with some of the most hazardous market environments for risk assets.

Statistical profiles of all three “colors” of the KP Trend Model are summarized on the second page of the KP Model Fact Sheet, available for download here.

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