Stocks & Commodities V. 20:11 (14-19): Letters to S&C

Stocks & Commodities V. 20:11 (14-19): Letters to S&C
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Letters by Technical Analysis



Can you clarify a point in the article “Waiting For The Fed” by David Penn, which was published in August 2002 issue of STOCKS & COMMODITIES? Does Mark Boucher’s system keep out of stocks if the T-bill rate is lower than the prior year? I got confused in reading the description of the system and the commentary.


David Penn replies: Thanks for writing. The monetary timing model I mentioned is a rate of change model. In other words, it doesn’t matter if the percentage change is up or down. If the year-to-year change is greater than 6%, suggests the model, then an exit signal is given. If the year-to-year change is less than 6%, then an entry signal is given.

I think this is key. Boucher points out the conventional wisdom that higher short rates are bad for stocks. In my article, I wanted to suggest that the problem isn’t just higher or lower short rates, but the rate of change from year to year. Stocks, apparently, can thrive in both relatively higher and relatively lower short rates. But what appears to really affect stocks badly is when short rates change dramatically from year to year.

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