Structural Breaks (Bull or Bear?)

April 26, 2012

(This article was first published on Timely Portfolio, and kindly contributed to R-bloggers)

When I spotted the bfast R package, I could not resist attempting to apply it to identify bull and bear markets.  For all the details that I do not understand, please see the references:

Jan Verbesselt, Rob Hyndman, Glenn Newnham, Darius Culvenor (2010). Detecting Trend and
  Seasonal Changes in Satellite Image Time Series. Remote Sensing of Environment, 114(1),
  106-115. doi:10.1016/j.rse.2009.08.014

Jan Verbesselt, Rob Hyndman, Achim Zeileis, Darius Culvenor (2010). Phenological Change
  Detection while Accounting for Abrupt and Gradual Trends in Satellite Image Time
  Series. Remote Sensing of Environment, 114(12), 2970 – 2980.

I believe the result on the S&P 500 (even with a high h and only one iteration) is a fairly close marker for bull and bear markets, and I thoroughly enjoyed applying forestry techniques to financial time series.

From TimelyPortfolio
From TimelyPortfolio
From TimelyPortfolio

R code from GIST:

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