Status of the KP Trend Model
The KP Market Model has issued signals in real time since January 2006, and the daily performance of earlier years have been simulated, applying the identical formula parameters we use today.
The Green regime suggests full policy exposure US equities — at least for the time being. We do need to keep our eye on the fact that global equity valuations are historically extreme at a time when the majority of equity portfolios have come to follow passive (buy-and-hold) approaches. A rules-based, active portfolio management approach such as ours will become increasingly critical going forward.
While market trends still remain friendly, standing prepared to reduce equity exposure periodically is likely to make a huge difference to your long-term results, and also improve the quality of your journey by reducing portfolio volatility and drawdown.
In our experience, success at investing is mostly about aligning your portfolio with the underlying market trend, and just a little bit about fund choices or the selection of individual investments.
The KP Trend Model adds value by actively shifting market (beta) exposure with the objective of managing volatility and portfolio drawdown. Over a full bull/bear cycle, this process will also likely to improve returns (CAGR), but our Model's priorities are protection and then performance —in that order.
The KP Trend Model averages about eight shifts of exposure a year. A self-directed 401(k) investor might expect to make an allocation change every two months or so. We have seen the Model remain unchanged for over nine months, and others when it has made three adjustments in one month! Keeping up with the current status of the Model, at least weekly, is important.
Managing your portfolio is a long-term journey, but it can be significantly supported by a mathematical process such as ours that has delivered very workmanlike metrics in real time over 20 years. Of course, even a well-designed model such as ours will occasionally get the timing wrong, but it is designed to recover from those errors and to keep moving forward.
Individual investors play the central role in their own success when they follow these model signals in a disciplined manner.
We make every effort to update this status page within one day of a signal change. Historical performance results in the table above assume that all required transactions/adjustments were implemented at the close on the trading day following a signal.
BACKGROUND —
The KP Equity Trend Model has two components:
(1) The KP-1 Intermediate-Term Model, — based solely on internal (non-price) market data KP-1 changes directions roughly 7.8 times a year. This model was introduced in January 2005, and has generated daily signals since then.
(2) The KP-2 Long-Term Model is based on price information only and shifts directions less than once a year (0.7 times). This second, long-term, component was developed for additional balance and as a synergistic companion to KP-1. It was added to the process in November 2011.
Both models have been updated daily since their introduction. In addition, they have been evaluated further ex post to December 31, 1996, using historical market information. We have also applied MModel rules to the 1987 Black Swan event and found that the patterns of past markets closely resembles the signature of present markets.
A three-year chart showing the signal history for the 1986-1988 period is also included in the Charts tab.
Our firm has accumulated and verified one of the most accurate databases of US daily market history.
Formula parameters for the models have been applied consistently over these 29 years and they are the same ones we use today.
Current charts of the KP Trend Model and the two component studies can be found on the Charts menu tab of this website.