Long Term Market Model

Scaled: 85.34%

Combined: 23.56%

Valuation - 30% WeightValueSignal
Price / Peak Earnings18.8
Cyclically Adjusted P/E (Schiller P/E)25.2
Price / Sales1.69
Tobin's Q1.09
Median Price / Sales2.07
Median Price / Earnings21.64
Valuation: -89.17%
Trend - 30% WeightSignal
Long Term
SMA 200 Slope
EMA 200 Slope
EMA 50>200
SMA 50>200
EMA 20>150 or 50>200
SMA 20>150 or 50>200
Intermediate / Long
EMA 20>50 or 50>200
SMA 20>50 or 50>200
Trend: 100%
Interest Rates - 20% WeightSignal
Intermediate Term Trend
TNX 50 EMA Slope
IRX EMA 20<50+0.1
TNX EMA 20<50+0.1
Long Term Trend
TNX 200 EMA Slope
IRX 200 EMA Slope
TNX EMA 20<200+0.1
IRX EMA 20<200+0.1
Interest Rates: 100%
Seasonality - 15% WeightSignal
Halloween Indicator
Presidential Cycle
Seasonality: 0%
Sentiment - 5% WeightValueSignal
AAII Bull28.3439
AAII Bear28.6624
AAII Bull Ratio49.72
NAAIM Mead76.81
NAAIM Median78
Sentiment: 6.23%

Data as of May 10, 2014


The long term market model is an overview of indicators that can help form an expectation of how the market will do over the next couple months. While the model is just a guideline, its goal of the model is to perform inline with the stock market with significantly less volatility before accounting for interest earned when it is not fully invested. Including interest, the goal is to significantly outperform the market. Its signals do not change very frequently, with significant shifts in position happening only a few times per year. Smaller changes, however, may happen from week to week.


Each indicator is given a score between 100% and -100% based on its signal or on where it is relative to its historical range. These scores are averaged into categories.

Valuation and trend are two of the most important factors in long term market performance and so these categories are each given a 30% weight in the composite score. Interest rate trends were given a slightly smaller 20% weight, and seasonality was given an even smaller weight of 15%. Sentiment is more of an intermediate term indicator and does not fit here as well, so it only has a 5% weighting.

What is the Scaled Signal?

The scaled signal is the percentage the model is invested in the market. The composite indicator cannot be used as this for two reasons a) it would be partially short the stock market than one third of the time, and b) as an average of other indicators, it never reaches fully invested, even at the most favorable of times. Historically, the composite indicator has remained largely between -60% and 60%. Because we don't want the model to be short the market, and we also want it to be fully invested a significant portion of the time, we set -33% to 0%, or a cash only position, and 33% to 100%, or a fully invested position.

How can it be used?

This strategy can be used to allocate assets between stocks and cash by holding the amount indicated by the scaled signal in stocks. However, it is a strategy for long term investors only as it is conservative and can underperform the market for significant periods of time during overvalued bull markets that eventually crash.

One way it can be used is as an overlay for strategies that pick stocks. An investor would hold a portfolio of stocks but would vary the exposure according to the current market environment.