Its founder was the inventor of the well-used MACD market indicator. Here, his son talks about how markets and indicators have changed over the past five decades.
You probably are unaware of how big a debt you owe to Gerald Appel. But chances are good that you frequently rely on one or more of the technical indicators he invented several decades ago.
The occasion to point this out: Systems & Forecasts, the newsletter that Appel published along with his son Marvin Appel, has ceased publication after 49 years. The Appels’ firm is joining Siena Wealth Advisory Group, part of Ameriprise Financial, and publishing an investment newsletter “is not part of their business practice,” as Marvin Appel put it in his final communication to subscribers.
(Disclosure: Systems & Forecasts is not one of the newsletters that contract with my auditing firm to calculate their track records.)
Perhaps the most famous technical indicator invented by the elder Appel goes by the acronym MACD, which refers to Moving Average Convergence Divergence. The MACD is a momentum indicator that is based on the relative movements of two moving averages of different lengths. It has become so ubiquitous that all charting websites and day-trading apps have MACD functionality built in—even if none of you know who created it.
Earlier this week I reached out to Marvin Appel to get his thoughts on the markets, how investing has changed over the last five decades, and the investment lessons he draws from his and his father’s combined five-decade tenure as newsletter editors. (The elder Appel died two years ago.) A summary of our conversation is below.
Question: How have the markets changed over the decades?
Marvin Appel: I can think of two major changes that have greatly impacted the advisory business. The first is the ability to trade virtually everything. ETFs are a relatively recent creation, after all. In the 1960s and 1970s, you couldn’t trade into and out of the market with one transaction, at any time of the trading session, without restriction or trading commission. Though index funds existed in the late 1970s and 1980s, you were allowed trades just once a day and the number of such trades was restricted. The ability to trade everything is a relatively recent development, and it has led to the disappearance of many patterns that used to be quite reliable.
And the second change?
Answer: The second is related to the first: The markets move much more quickly than they used to. My dad used to say that market tops take a long time to evolve. Not necessarily any more. In February and March 2020, after all, the market dropped 35% in just five weeks’ time and then a new bull market began. That’s unprecedentedly fast. The speeding up of the market cycle gives investors a lot less time to jump on board a trend. And that in turn makes many indicators less effective. It’s become a lot harder to trade the market.
I wonder if a good example of this is the demise of your newsletter’s famous “Time Trend” market timing model. From the early 1980s, when my Hulbert Financial Digest tracking service began calculating its performance, until the late 1990s, you could have significantly beaten the market by using the model to switch between the market and T-Bills. Futures magazine in July 1997 rated Time Trend as one of the “Top Ten Trading Systems of All Time.” But beginning in 1999 the model fell flat and you discontinued it in late 2002.
Answer: That is a good example of what I’m talking about. The problems with the Time Trend model that developed were a manifestation of how the market had become harder to time.
Is that why you decided to cease publication?
Answer: No. The lesson I draw from the markets’ evolution over the years is that no indicator works forever. The job of a market analyst is always evolving, taking into account how the world and the markets have changed. Just because Time Trend stopped working doesn’t mean market timing is impossible; it instead means we need a new model. The equity timing model we have currently isn’t perfect, but it did generate a sell signal in late December, just days before what so far is its all-time high.
Is your model still on a sell?
Answer: Yes. That doesn’t mean being completely out of equities. But I am recommending that clients write call options against their equity positions as a way of reducing downside risk.
Why then did you bring your newsletter to an end?
Answer: I came to realize that, in order for our firm to grow, I would have to spend an increasingly big chunk of my time on marketing and PR, which would have taken me away from focusing on the markets. So we’re partnering with a firm that will allow me to continue to do for my clients what I do best, which is risk management using quantitative market timing models.
Both you and your dad took unconventional paths to market analysis—practicing psychoanalyst in the case of your father, while you were a Harvard-trained anesthesiologist with a PhD in biomedical engineering. Did your backgrounds help you analyze the market?
Answer: While I would never recommend my path to someone interested in getting into money management, I have no regrets. Both my dad’s and my backgrounds made us realize the importance of being rigorously quantitative. Otherwise our judgments are too easily clouded by our emotions.
