Mid-Year 2016 Performance Review

evanscjeUncategorized0 Comments

We offer two levels of service:
1) Small investors receive a daily update of where the two composite gauges are for the S&P 500 and for US 10 year note futures.

2) Institutional traders or portfolio managers receive a full complement of where all three gauges stand for both daily and weekly time frames. In the daily email we also reference what our positions are. This refers to what a pair of trading algo’s are doing in the market. Those algo’s use the gauges and/or their inputs in order to decide whether to buy or sell. Positions are referred to after we have taken them and specific entry prices, times and stops are not included.

3) We also offer a trading advisory service that has specific recommendations of what to buy and in what quantity. These signals or orders are sent out every afternoon before the Globex session begins. These systems also include stops.

For this review we shall refer to all aspects of the service – the daily and weekly gauges, the algo’s and our trading history.
(To enlarge any of these small charts just click on them.)

On the left you can see the daily gauge and the movement of the S&P since the end of 2015. Though the gauge correctly signaled a huge buying opportunity in February, the energy waned and wide stop losses were required. Reentry wasn’t advocated until early May and that was short-lived. Then in late May the gauge hit 100 when the S&P was at 2030. Since then (until today that is) the gauge has been in solidly bullish territory (anything >=60). The gauge did not predict the Brexit vote but it kept you in after the meltdown.
The weekly gauge essentially confirmed the daily over the period, after first avoiding the entire January fiasco. It was easier to stay long in March-May on a weekly chart since that move was smoother so weekly stops would not have been hit.
Our daily trade advisory service correctly recommended a sale and a short on the night of the Brexit vote count! We only sent out an exit recommendation.

For the most part the bond gauges, daily and weekly, were in positive territory in 2016. From May until mid-June the daily went down to weak levels. The weekly gauge almost never wavered.
Bonds have rallied almost 8 points year-to-date so staying long and adding on weakness was a great plan. Risk adjusted, this is like making 16% in the S&P 500.
No one can ask for much more.

Risk Parity rose quite nicely over the period but stalled out between April 1 and mid May. The daily gauge appropriately fell to less attractive levels during this sideways phase. It hit 100 on May 18 – the low day. After that there was no chance of getting stopped out of any long until Brexit day. Any trailing stop would have preserved most of those gains. The gauge fell 30 points the day before the vote. It then jumped back to 100 and the RP trade regained all its losses. We could complain about being too cautious in late March but overall, this was solid work.
Our emails have been extremely clear about our advocacy for this position.

Trading Systems

For the period our daily equity recommendations earned 2% using a very conservative, low volatility profile. Our bond system was just added to the equity system as a complement. It earned .5% for the short time it was operating. Next, we shall add a Risk Parity system. The bond system is negatively correlated with the S&P system – as we want it to be.

The S&P is up 3.5% YTD but to earn that as a buy and hold investor, one had to endure a 10% draw-down. Our returns included a 1.8% worst draw-down. The volatility of the portfolio has been significantly lower than that of the market itself. Using this volatility, we are confident our 10% return target will be reached by year end.

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