SPY-UI indicator update for March 2017

On Friday, March 10, the unemployment rate (UER) for Feb 2017 was released by the BLS.  The UER improved to 4.7%. In this post I’ll update the SPY-UI indicator for March. I’ll also provide some new charts with historical data that will be useful in the future.

The first thing we’ll look at is the latest UER with respect to its 12 month SMA. The chart below plots both of those along with the US recession boundaries and the SP500 monthly drawdowns. The chart goes back to 1948.

For this month the UER at 4.7% is still below its 12 month SMA at 4.83%. From this data alone the SPY-UI indicator has not triggered. Pretty simple. That’s all you need to know for this month. But let’s add a couple of more charts that I’m sure will come in handy in the future.

The chart below adds the SPY-UI indicator signal, which is un-triggered this month. Since the UER is below it’s 12 month SMA the SPY relative to its 200 day SMA doesn’t matter.

As the chart shows there has been no signal for quite some time and there is still no signal. Also, if you look back the SPY-UI indicator has provided a pretty good signal, despite some noise, of weakness in the economy and the market. Now lets add the drawdowns for an investing system that switches between the SPY and cash (at 0% return) based on the SPY-UI indicator.

While not perfect by any means the SPY-UI system would have reduced monthly drawdowns from 49% in the SP500 alone to 26%. And if you add in a risk free investment in US treasuries when the system is out of the market the results would be better.

In short, the SPY-UI indicator remains un-triggered, fully invested for this month. The next employment report, and the next chance for a trigger, is Friday April 7, 2017. It would take a move in the UER up to 4.9% for the UER to rise above its 12 month SMA. Before we get to next month’s update I’ll introduce a system based on a composite of the top 6 indicators that attempts to improve on the SPY-UI indicator. A tall order for sure.

Full Disclaimer - Nothing on this site should ever be considered advice, research or the invitation to buy or sell securities. These are my personal opinions only.

7 thoughts on “SPY-UI indicator update for March 2017

  1. Outstanding as usual, thanks Paul. Using the SPY-UI, have you seen similar improvements to limiting drawdowns in international equities – both developed and emerging? Also, wondering if wide disparity in valuations (as we’re currently seeing between regions) has had any impact on drawdown and recovery time historically when using SPY-UI.

    1. Yep, SPY-UI works with international stocks as well. Haven’t looked at valuations when using SPY-UI. The goal is to keep this as simple as possible

      Paul

  2. Would it not be more robust to study 2 or 3 month MA crossing over 12 mo MA? This is great though, will be a great filter to lay on top of GEM.

    1. Yeah, it would. I don’t have enough data for Bond 1 to do the analysis. Maybe for Bond 3 back to 1973. For me it’s enough to know that adding bonds would make things better from the already impressive results.

      Similarly for anything other than the SP500.

      Also, Philosophical economic is where I originally got the idea. I linked to his post in my original article.

      Paul

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