Equity Market Timing Strategies

Equity market timing strategies use stock-screening models based on simple technical trading models to search global equity markets until short-term profit opportunities are discovered. The manager holds a long portfolio of risk-free money market securities until a profit opportunity is identified, at which point he switches to a long equity portfolio. Once the profit opportunity is exploited, the manager reverts back to the money market portfolio, which is typically held about half of the time. Screening models often focus on one particular sector, industry, or geographic region by looking for short-term and medium-term momentum trend indicators. Fund managers buy upon an indicated upward trend and sell upon an indicated downward trend. Keeping transaction costs low by trading highly liquid no-load mutual funds is a key part of equity market timing strategies. Maintaining strict cost control can allow managers to profit even from micro movements in equity markets.

Equity market timing strategies can be divided into two primary categories: sector timing and time-zone arbitrage. In sector timing strategies, managers attempt to capitalize on micro upward trends in an entire industry resulting from positive news regarding an individual stock within the industry. The micro trends generally last only one to two days. Time-zone arbitrage strategies exploit temporary price inefficiencies resulting from the effect that market news in one time zone has on a market in a- different time zone.

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