But with volatility in stocks still high, how is an investor supposed to make good returns? That is where the market timing signals come into the picture and they can enhance an investor’s returns.

Consider http://invetrics.com

Its daily DJIA index trading signal is up a respectable 68% for the year (as of November 1, 2009) and it is free of charge for individual investors.

Another “asset class” to look at might be non-marked-to-market bonds, i.e. an income ladder. A 10-year Treasury ladder held to maturity really has NO price movement, per se, but you get 10 years of income. As the purchases mature, the funds are reinvested for income with fresh 10YTs. The initial setup requires buys up and down the curve, though. In the context of a portfolio with non-bonds included, the 10YT ladder could be “rebalanced” by adjusting how much is purchased at the long end each year, to keep the total cash in the ladder equal to the proper proportion of the total.

If you want to look at econometrics for buying junk and corporate instead of Ts, I suggest a mix of multi-year changes in CPI and a non-linear relationship with prevailing 10YT rates. Of course, I’m certain that relative momentum works just as well in marked-to-market fixed income as it does in equities …

Another “asset class” to look at might be non-marked-to-market bonds, i.e. an income ladder. A 10-year Treasury ladder held to maturity really has NO price movement, per se, but you get 10 years of income. As the purchases mature, the funds are reinvested for income with fresh 10YTs. The initial setup requires buys up and down the curve, though. In the context of a portfolio with non-bonds included, the 10YT ladder could be “rebalanced” by adjusting how much is purchased at the long end each year, to keep the total cash in the ladder equal to the proper proportion of the total.

If you want to look at econometrics for buying junk and corporate instead of Ts, I suggest a mix of multi-year changes in CPI and a non-linear relationship with prevailing 10YT rates. Of course, I’m certain that relative momentum works just as well in marked-to-market fixed income as it does in equities …

I have been trying to find the reason for this behavior for some time. It appears to be related to the underlying inflation forces. When they get weaker, the yield curve seems to drive the stock market performance less. I haven't done any quantitative work on this, but I have observed what your chart implies.

Thanks for the post.