5 April 2017: CAPE

Every stock investor would love to have some kind of measurement device that is able to tell you when stock prices are about to tumble or when they are set to rise. Reality is that there is no such device and there probably never will be. Too many factors exercise their influence on the stock markets. And more problematic is the fact that they sometimes do in totally unpredictable ways.
Nobel prize-winning economist Robert Shiller came up with a measure which definitely has its value for determining in which phase the market is. It is called the cyclically-adjusted price-earnings or CAPE ratio. If this ratio is at a high level (above 30 points), you can be sure that we are closer to a market crash than when it is below 10 points. Currently, the CAPE is around 29 points. Yahoo Finance published an interesting article on the value of CAPE under the current market conditions. A must-read for everyone who wants to have a better understanding of how the valuation of stock markets works.
Do These Dutch Guys use the CAPE ratio in their models? No, we don’t. Because we are interested in market sentiment rather than stock valuations. As is pointed out in the article, these two magnitudes are not unrelated, but for considerable periods of time they can move quite independently. It is this difference between sentiment and valuation of which our model White Chapel takes advantage.

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U.S. stock indexes edged higher Tuesday, led by a rise in shares of manufacturers. Data on factory orders and the trade balance were somewhat better than expected. US markets started the day in the red, but soon turned to positive territory. The S&P 500 added 0.06% and the NASDAQ 0.07%. The Dow even gained 0.19%. Volatility eased with the VIX dropping below 12 points (-3.47%). As a result, UVXY ETFs dropped more than 2% and XIV ETNs added 1.27%.
Danny Daredevil ‘s return since the start dropped to 362%. His YTD remained positive, however: 15%. Adventurous Anny is still holding cash. Her RSS remained at 22%. Solid Suzy and Lazy Larry are in the possession of XIV ETNs. Their RSS climbed back to above 10%.
None of our models gave a trading signal at the end of yesterday’s session.

Model Holds Start date

RSS

YTD

QTD

AAR

Danny Daredevil UVXY 1 January 2016

361.82%

14.56%

-1.48%

237%

Adventurous Anny Cash 6 March 2017

21.78%

21.78%

0.00%

Later

Solid Suzy XIV 6 March 2017

10.29%

10.29%

0.70%

Later

Lazy Larry
XIV 6 March 2017

10.29%

10.29%

0.70%

Later

RSS = Return Since Start | YTD = Year-To-Date | QTD = Quarter-To-Date | AAR = Average Annual Return

 

RS_v05-small In Japan, springtime is a magical time. It is the season of sakura (cherry blossoms) and hanami (the celebrations surrounding this beautiful natural phenomenon, which involve enjoying foods, drinks, and music, while gathering under the cherry blossoms). As we speak, this season is in full swing in the southern and center part of the country. There is even a ‘Cherry Blossom Forecast’ information site on the internet (check it here).
From Chūgoku-chihō, the largest island of Japan, René received 3 pictures of different stages of cherry blossom development over the past week. The pictures were taken on 28 March, 30 March, and 3 April respectively.

Photos by Keiko. Some rights reserved