3i For The Financial Markets
TrendPointers Information Influence Analytics were designed to anticipate economically sensitive behavior among the linked activity of consumers, business sales and the financial markets.
- Modern investment success is achieved with successful management of volatility, uncertainty and direction. Critical decisions often have little or no “inventory” of anticipatory decision data that can provide the edge over the conventional wisdom.
- The speed of market activity and reporting in financial markets provide the ultimate feedback loop. Immediate measures of pricing are reentered into the 3i system to fine-tune the cause-and-effect models.
TrendPointers 3i leading indicators can be used alone or in combination with other variables to create proprietary market signals.
TrendPointers has created its own approach employing the macro-measures in Directional Sentiment Signals (DSS). A full report of the methodology and performance criteria is available on request.
- DSS historical performance is based on a systematic application of the signals.
- Directional Sentiment Signals (DSS) for selected asset classes.
- Signals are not an explicit portfolio strategy – they are an information system matching of macro-sentiment, environmental influences and market pricing.
- DSS are based on data collected daily, summarized weekly (after the close of market business on Friday), and available for application the following Monday morning.
- The primary signal is based on a two-week forward forecast of market direction, which is then recalculated midcycle after one week of new data is accumulated within the two-week cycle.
Directional Sentiment Signals
TrendPointers has developed proprietary models using the 3i leading indicators as the input in creating directional signals. Current signals are for SPX, QQQ, XLE, GLD, LQD. Custom asset models may be available. 3i indicators and signals optimized for the S&P/SPX. There are two components to the Directional Sentiment Signals.
- The Relative Directional Strength Index indicates the statistical estimated directional change in the asset for the specific time cycle.
- The Signal Consensus Agreement represents the level of consensus among the thousands of model simulations of the potential change in asset direction. Nonlinear model results are organized into deciles of estimated change and the strength index represents the highest level of consensus among the models.
- Primary Signals are issued biweekly with a midcycle update after one week.
DSS Relative Directional Strength and Signal Consensus Agreement biweekly cycle.
Perhaps the most important criteria for market strategies are consistency over different market conditions and catching the biggest turns.
3i leading indicators and DSS provide both consistency and alerts to the tipping points, on a weekly basis, for professional applications.
The cumulative performance of each type of leading indicator illustrates its core capability, and each provides consistent incremental gains compared to the S&P benchmark.
We demonstrate three types of TrendPointers directional indicators/signals:
- TP.EESI is composed of the full macro-sentiment data plus external variables and daily pricing feedback.
- TP.MPI is EESI with a third-party enhanced market response feedback measure. TrendPointers’ research has the capability to test other third-party data or proprietary client data in combination with 3i to produce customized leading indicators for specific needs.
- 3i is TrendPointers proprietary Macro Sentiment Monitor Directional Sentiment Signal, which benefits from the fundamental power of the leading indicator when used in complex forecasting models.
- 3i leading indicators can be used alone as a directional signal or used by clients in their own proprietary systems.
- Sentiment Model Performance The base EMSI leading indicator outperformed the benchmark.
- Information Influence Model Performance: When market feedback is introduced into the EESI model the incremental returns are significantly greater.
DSS Volatility Performance
Directional Sentiment Signals help manage volatility and uncertainty.
Market volatility is a pervasive and persistent condition for the foreseeable future. The elusive quest for active managers is to identify intermittent but eventual opportunities to generate incremental alpha by anticipating the biggest turns in the market, regardless of direction.
We are all know the familiar retrospective analyses of “failure to connect the dots” – but this is no longer the insurmountable obstacle with the use of TrendPointers Information Influence Analytics.
The uncertainty which surrounds most market analyses is largely manufactured by a variety of external events and speculations, but still must be resolved in daily asset management decisions. We know the conditions that create uncertainty from Federal Reserve expectations to bailouts of Greece. The uncertainty is about how they will be resolved with regard to timing and magnitude and we all make our decisions accordingly.
Information influences are diverse, continuous and cumulative. The 3i design captures all three elements and when used in directional signals is extraordinarily able to identify the major turns in markets ahead of the headlines.
Capture Volatility and Extremes
IEA measures of cumulative sentiment and pattern recognition analysis improves detection of major moves in the markets – with 100% accuracy over the past five years.
Directional Signal Activity and Performance Accuracy
3i directional sentiment signals, using a simple systematic application, provide successful navigation within the volatility of markets.
A comparison of the S&P benchmark vs. DSS with application of the signal transitions.
- More frequent turns in signals indicate more intense Uncertainty and speculative trading around current influences.
- Signals had a sustained period of Positive Signals but since early May there have been frequent turns across the spectrum.
- DSS Signal changes SPX over the past 4 periods have been sufficiently accurate to maintain the incremental performance over the B&H of the S&P benchmark, as the market has transitioned from the linear (trending) phase to choppy sideways movements.
Analysis Notes: The Directional Signal history depicts the occurrence of SPX signal changes from the end of 2014 to present. The green line represents the cumulative performance of the DSS directional signals, and the black-dotted line represents the buy and hold performance of the SPX asset The complete signal history and methodology is available to subscribers and is updated biweekly.
NOTE: TrendPointers is strictly a research and information provider, not a financial adviser, money manager or developer of trading models. The TrendPointers IEA data and Directional Sentiment Signals are to be used only as research by financial/investment professionals. Please see our complete subscription agreement and methodological report for all terms and conditions.
TrendPointers signals are currently used by registered financial firms and employees of TrendPointers for their own personal investments.
Each investment manager will have their own asset and risk criteria, models and strategies. But to demonstrate the fundamental power of IEA as Signals, we developed models for core asset types and performed the basic analyses of how leading indicators and signals perform as directional market signals.
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