Status of the KP Trend Model
The KP Trend Model returned to a Green status on Thursday, May 15, effective the close of trading.
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The Green Trend Model condition has by far dominated the 28-year history of our market trend analysis. Our Market Model has issued "live" signals since January 2006, and earlier years of daily returns have been simulated, applying the exact formula parameters we use today.
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Most of the time, the "Trend is Your Friend." Still, periodically reducing equity exposure can make a huge difference to your long-term results, not to mention the quality of your journey.
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In our experience, success at investing is mostly about aligning your portfolio with the underlying trend, and just a little bit about fund choices or the selection of individual investments.
The unusually favorable characteristics of the Green color environment are summarized in the graphic below—
The KP Trend Model adds value by actively shifting market (beta) exposure with the objective of reducing volatility and portfolio drawdown. Over a full bull/bear cycle, our process is also likely to improve returns (CAGR), but our Model's priorities are first 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 times when the Model remained unchanged for more than nine months, and others when it has called for 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 supported by a mathematical process that has delivered very workmanlike metrics over the last 28 years. Still, even a well-designed model such as ours will occasionally get the timing wrong, but it is designed to recover from 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 perspectives 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, is based solely on internal (non-price) market data and shifts 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 (0.9 times). This second, long-term, component was developed for additional balance and as a synergistic companion with KP-1. It was added to our process in November 2011.
Both models have been updated daily since their introduction. In addition, they have been evaluated ex post to December 31, 1996, using historical market information. We believe our firm has accumulated and verified one of the most accurate databases of this daily market history.
Formula parameters for the models have been applied consistently over these 26 years and they are the ones we use today.
Current charts of the KP Trend Model and the two component studies are found on the Charts menu tab of this website.