Thursday, April 14, 2016

Market and Model Performance - April 12, 2016

Market Overview

As we approach the earnings season, SP500 and DJIA is approaching all time highs. Although this has reduced the risk of immediate decline but the market remains in bear territory. US Market entered bear territory, as per our proprietary model, in August. Since then the markets has experienced extreme volatility including a sharp rally in October, one of the worst starts of the year in history and then another rally that started in February.

From the market action, rally that began in February triggered few breadth signals. These breadth signals will work themselves off by the 3rd week of April. Therefore, beginning of the earnings season will have enough technical support to stage another rally before fizzling out.

From an Elliott Wave perspective, market is tracing out a 5-wave structure from Feb 11th bottom. Although 5-waves mean that trend is now up, in case of corrections last waves are also 5-waves in nature. Based on market structure over the past several years, its likely that we are completing a corrective pattern. And once this last leg up is complete, market will decline.

Last 3 Months and Model

Under such volatile circumstances, staying in the market in 2016 has been like being on a nauseating roller coaster ride. Just when one thought that the market was about to break down and many investors exited the markets out of fear in February, markets ripped higher. Now people are confused if this rally can be sustained or is this just the end of the uptrend. In other words, is this a good time to buy or sell?

In order to avoid this question to totally remove emotions from trading, we created the portfolio enhancement model. Although it has a lot of potential and we will keep on updating with new enhancements and IPM timing, its performance in 2016 has been very good.

Following chart shows the performance of the model (till Apr 12) since the beginning of the year, in comparison to the SP500 total return performance.

Performance numbers are provided courtesy of Openfolio and shows performance of actual portfolio in brokerage account. 

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