Business Cycle and the Intermarket model

As quantitative analysts our goal is to prove that this approach is reliable and applicable in investment strategy. Therefore the final step consists of merging the Business Cycle model and the Intermarket model as it is shown in figure 5.2 to see how the two models would look when merged.

Figure 5.2: Business Cycle and the Intermarket model merged

Based on the above assumptions we have created a timing indicator which we will call Stages Indicator which will signal the stage we are at. We have also run the same exercise which we ran on the Business Cycle as described in the previous pages and tested the performance of Bonds, Stocks and Commodity at each phase of the Intermarket model.

From the results below (figure 5.3) it seems that the six stage Intermarket model is very similar to the six phase Business model (figure 5.4). In the simulation of the Intermarket model, the trading strategy always consists of buying and selling the 10-year T-Bond, S&P 500 Index, and CRB Index according to timing signals derived from our Stages Indicator.

Figure 5.3: Annualised performance in Intermarket model and its phases 1900-2017

Figure 5.3b: S&P composite and Intermarket phase performance 1900-2017

Figure 5.4: Annualised performance in Business Cycle and its six phases 1900-2017

Figure 5.4b: S&P composite and Business Cycle phase performance 1900-2017