Monday, January 25, 2016

Portfolio Performance & Market Overview

Market remains in a bear market. Sharp rally of last weak as the feel of a bear market rally. Today's decline might be the start of next leg down. However, this leg might not be as long as what we saw in early January. In fact, once this phase is over, we could see a sharper rally, lasting for 2-3 weeks.

Although the above analysis is based on Elliott Wave theory, overall trend remains down. And till the time this trend turns up, we should remain cautious. Our portfolio allocation model exited long positions in August. And shorted the market at the start of 2016.

So far the portfolio is up ~5% (YTD) in comparison with ~8% (YTD) decline in the SP500. Another interesting aspect of this portfolio is that its "Beta - measure of risk when compared to SP500" is -0.56. 

Therefore, it is not correlated to the market. In a bear market, this portfolio mix not only allows us to gain from the market decline, but also enables us to protect ourselves in case of a sharp rally (like the one we saw last week).

This portfolio is an auto-allocation portfolio with diversity considerations to ensure protection against systematic risks. Asset class risk is managed by employing proprietary Bull/Bear identification mechanisms. We will keep tracking this portfolio on an on-going basis to see how it performs over the long-term. This portfolio can also be considered as the next step in our effort since March 2015 to automate portfolio management through advanced analytical and statistical tools.

As for the overall market, their is no change in the outlook. Stocks remain in a bear, while bonds remain in Bull market. There are some asset classes which have just entered a Bull market or are trying to carve not a base before entering the next phase (Oil is not one of them).

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