Short XLU

📚 Fabian Market Timing Model
1. Origins

Creator: Richard Fabian (author of The Mutual Fund Wealth Builder).

Context: 1970s–1980s, when mutual funds were a primary way to access markets.

Philosophy:

Investors can’t predict markets consistently.

But a mechanical, rules-based approach removes emotion and reduces major drawdowns.

2. The Core Rule

Signal: Follow the 39-week moving average (≈200-day MA) of the S&P 500.

Buy/Hold: When S&P 500 closes above its 39-week MA.

Sell to Cash: When S&P 500 closes below its 39-week MA.

This is a trend-following system, aiming to keep investors in the market during long uptrends and out during deep bear markets.

3. Confirmation Filters

Fabian added two confirmations to reduce false signals:

Dow Jones Industrial Average (DJIA) must confirm by being above/below its own 39-week MA.

Utilities Sector Index must also confirm above/below its own 39-week MA.

➡️ If all three agree (S&P, Dow, Utilities), it’s a valid buy/sell signal.

This is effectively a triple-moving-average breadth check, designed to filter whipsaws.

4. Why Utilities?

Utilities are rate-sensitive and considered defensive leaders.

If utilities diverge (e.g., falling while S&P rises), it often warns of economic stress.

Fabian used them as a canary in the coal mine to confirm or deny broader market trends.

5. Practical Application

Originally applied to mutual funds (long-only, buy/sell, no shorting).

In modern terms:

Can be applied to SPY, DIA, XLU ETFs.

Could use in systematic portfolios → switch between equities and T-bills.

Conservative investors → smooths out crashes (1974, 2000, 2008).

6. Strengths

✅ Simple, mechanical, no subjectivity.
✅ Historically avoided catastrophic drawdowns.
✅ Long-term friendly (checks once a week).
✅ Uses confirmation to reduce false alarms.

7. Weaknesses

❌ Lagging: Being trend-following, it exits late (after market already dropped).
❌ Whipsaws: In sideways markets, can generate losing signals.
❌ Underperformance: Misses some of the strongest rebounds after corrections.
❌ No shorts: Purely “risk-off” into cash/bonds, so can underperform buy-and-hold in strong bull markets.

8. Educational Takeaway

Richard Fabian’s message was:

Don’t try to outsmart the market.

Don’t rely on news, opinions, or gut feeling.

Instead, use a disciplined system (like the 39-week MA) that reduces catastrophic risk, even if it’s not perfect.

Perfection isn’t required — consistency is.

✅ In one line:
The Fabian Market Timing Model = a mechanical, long-term trend-following system based on the S&P 500’s 39-week MA, confirmed by the Dow and Utilities, designed to reduce big drawdowns and remove investor emotion.

https://www.tradingview.com/script/DwMkkZZt-Fabian-Z-Score/