The late-bull intermarket clock and regression-channel gates

Read the clock first

A late-cycle intermarket timetable was defined as a rise in gold, then a rise in commodity prices, then a decline in bond prices. That sequence was not observed in the prior one to two years. Once it appeared, it was treated as an end-of-bull-market clock.

Intermarket transmission was described as a perturbation that can move from gold through other commodities into bonds and then equities. Transfer functions were proposed as a way to quantify those cross-market correlations.

Reweight the style quadrants

After metals and other commodities advanced, the book was shifted toward short-term bonds in anticipation of higher policy rates. Equities then declined on 4 February 1994 following the first rise in the federal-funds rate.

When traditional valuation measures labeled the domestic equity market historically expensive, allocation was described as skewed toward value names plus a 50 percent weight in short-term bonds, with a preference for dividend income where large capital gains looked less likely.

Style was changed toward the end of a bull market versus the beginning: more value and less growth. Late-cycle, non-dividend small-capitalization names were judged harder to hold with an acceptable risk-adjusted profile.

Holdings were kept in standing style quadrants of large versus small capitalization and growth versus value, plus a geographic overlay of markets closely tied to the United States versus markets such as Japan that sat in a different cycle stage.

Broad diversification was described as eight to 16 names spanning size, style, and geography, generally nearer 16 when those dimensions were all required.

Admit or evict one name last

No security entered the book unless portfolio construction, fundamental work, and technical confirmation all agreed. A holding was sold if it ceased to satisfy all three. That three-gate rule is the admission triangle.

A least-squares regression line with parallel bands that contain price was used as the technical gate. A breakdown of that channel in April 1992 was labeled bearish. A later buy required both an on-balance-volume cross of a 40-day average inside a two-standard-deviation, 40-day envelope and an upside break of a downward channel.

The volume envelope is that cumulative volume line with a 40-day average and a two-standard-deviation band. It was used as a preliminary timing filter.

Once price occupied an established upward regression channel, a break below the channel was used as trailing-stop logic. A spike through the upper band was treated as a warning that the rise was speculative and typically not sustainable.