Improving on Buy and Hold: When is the Best Time to Sell

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My model, Improving on Buy and Hold: Asset Allocation using Economic Indicators, has been updated with the ECRI U.S. Weekly Leading Index and its annualized growth rate published on June 3, 2011, and with the most recent values of the other indicators.

The figure below shows the buy and sell signals obtained from the model for the time period 2003 to 2011. A basic sell signal was generated during the week ending on May 13, 2011 as reported on May 17, 2011 in Improving on Buy and Hold: An Initial Sell Signal.

Fed Funds Rate

A Sell-A type signal will be generated by the model in the second week of August and I advise reducing one's stock market investments then. Historically, the S&P 500 has on average been 3.60% higher at the Sell-A date then what it was on the Sell-basic date, as shown in Table 1 below. During the 65-trading-day period from the Sell-basic to the Sell-A date the average maximum increase in the index was 5.33% and the average minimum decrease was -5.06%.

Table 1