2017 Investment Themes

There are many prominent investment themes for 2017. Investment themes help investors understand the broader investment landscape based on historical performance of different asset classes and their current catalysts. This analysis helps in properly positioning one's portfolio to take advantage of the winds of change.

US Stock Market

SP500 and DJIA have experienced an amazing 1 year rally. Since Feb 2016, markets are up ~30%. With such a sharp rally, it won't be wrong to expect a sideways/downward market correction. Since corrections can come in different forms, sideways correction with time will help in digesting last year's gains just like a sharp fall in prices.

Lofty price levels can be supported by equally good earning numbers, which can provide further fuel for the rally. However, with the uncertain political dynamics in the U.S. we should be prepared for any sudden decline in the US stock prices like 1987 market crash - not a certainty but a word of caution.

Note: Next earnings will be reported in mid-April 2017


Emerging Markets

On the other hand, emerging markets finished a 5 year long correction in 2016. As US markets rallied, emerging markets corrected from 2011 to 2015. Since bottoming in 2016, emerging markets have rallied and looks like they have formed an inverted head and shoulders pattern. Once they breakout, emerging markets could go up to there 2011 highs. Therefore, this is an area to keep in mind.

Precious Metals

Gold had been declining since 2013. It bottomed in early 2016 and then rallied sharply. However, since mid-2016, Gold has again experienced a major pullback. However, we think that this pullback is a buying opportunity and would result in higher prices. 

Following chart shows a potential inverted head and shoulders pattern being formed by gold. Once this pattern is complete, gold can make an advance towards all-time highs around 1900. However, the first target would be to reach July 2016 highs. Therefore, gold is an area which one should keep on his/her radar for investment opportunities.

Precious metals are also influenced by the US dollar. US dollar has rallied very significantly over the last two years or so. Therefore, as the US Dollar corrects, it will provide fuel for a rally in the precious metals complex.

Bonds

Bond have been in a long-term bull market. In fact, its one of the biggest bull markets in history of bond prices. However, the bond price cycles are turning and so are the prices. Now the question is whether the Bond Bull has ended or it still has some life left.

Bond prices started declining in mid 2016 and have reached a critical area. Prices should reverse to the upside soon or they will mark the end of the Bond bull, which can be disastrous for the debt-laden global economy. We will keep a tab on the Bond market to understand clues for the future of the US economy.

Investment Options

We are working very hard to make these strategies available for investors. If you are interested in investing, you can register below and we will send you update when the strategy is available for investments. Some of the key outputs from the data models used in this strategy are also available through subscription

January 2017 - Performance Review

January was an interesting month for the markets. In the beginning of the month, markets continued to go sideways, which they had been doing for past couple of weeks - since mid December 2016. Then came the earnings and market zoomed higher. Although this rally was not as significant as post election rally in 2016, it did bring back a lot of enthusiasm. The rally continued with President's oath taking. However, it experienced some difficulty towards the end, with the immigration executive order confusion and protests across the United States.

Following chart shows how SP500 performed in the first month of 2017:

To summarize January action, it was a volatile month. Volatility does not only impact our portfolio, it hampers our investment decisions, self-confidence and risk-taking abilities. In order to reduce the impact of volatility and realize long-term consistent results, UST team develop proprietary strategies based on our 8+ years of investing experience, as documented in this blog and other sources.

These strategies went live with real money at the start of 2016. Their 2016 performance has been documented here (link). Our team is currently working on more than 5 strategies. Two of these strategies have moved to production, two are in beta phase and others are in final development phases.  

Investment Strategies

Two strategies (one conservative and other aggressive) will be used for clients' investment needs. These strategies are customized to meet the performance and risk profile needs of investors. These strategies utilized strategic and tactical portfolio allocation techniques, along with proprietary market timing methods to generate Alpha with extremely low correlation with the benchmark SP500. Hence, have very high Sharpe Ratios.

Following chart shows January 2017 performance of Conservative and Aggressive strategies, directly taken from the brokerage account.

Conservative strategy performed 4.53% and Aggressive strategy gained 11.36%, while SP500 was up 1.90% in January.

Performance of these strategies is also tracked on OpenFolio to see daily changes. Following chart shows daily YTD performance for the Conservative Strategy:

Interested ? 

There are two ways to follow and invest in the strategy:

1. Utilize some of the offerings that UST offers (link). We will officially start sending our Market Classification Model updates in February 2017. And plan to add additional services in the next few months.

Overall, we will actively be working on this blog to ensure that all the services are streamlined. If you have any questions please feel free to comment or interact with the team via Twitter @survive_thrive. Please use the below sign-up button to register for free newsletter or other services:

US Stocks at Tipping Point

For readers who want to quickly read about the action plan in this environment, scroll down to the Next Steps section. For detailed understanding of current situation, please read through:

Background

Latest rally phase started in November 2016, around election time. Initially, it was regarded as a relief rally for Hillary could become president as FBI investigation had yielded no results. However, it quickly turned into Trump rally because of promises for stimulus and other pro-business policies.

The popular belief was that the new president will only implement pro-business policies like stimulus and tax cuts, while several other more aggressive policies will not be enacted. Fast forward to today, and the pro-business policies remain elusive while the aggressive policies are causing confusion and in return global equity markets are suffering.

Correction that was due

Blaming the market's decline on policies or some external factors is what TV commentators do. But there is another perspective to looking at this decline. And that is related to the fact that the markets have not experienced any substantial decline since last February (2016).

Following charts shows a nicely persistent rally that had endured over the last year in the face of all the uncertainty of 2016. Both SP500 and Nasdaq show a clear 5-wave rally pattern.

It is surreal to look back at the extremely dismal start of 2016, when people were talking about Oil crash and so many other variables. Even then the market managed to end up ~12% in 2016.

In such a volatile year, our proprietary strategy beat the market and the gained 12.2%. Most of the gains were long-term gains, thus minimizing tax impact (Detailed 2016 performance evaluation).

Therefore, one cannot judge the performance of the market just by looking at couple of months. But one thing is for sure, volatility will be high as overdue correction finally arrives.

No Buy signal, means continued decline

There are several other reasons to believe that recent decline is the start of something bigger:

1. No buy signal after 2 day decline
2. Extremely high valuations
3. Political uncertainty without any focus on economic stimulus programs
4. Hawkish Fed 
5. Fairly optimistic sentiment

In order for these stock market rally impediments to go away, market needs to consolidate recent gains. Right now there is no indication that this decline will be the start of a new bear market. However, if the government does not deliver on its pro-business policies, it could quickly turn into one.

Next Steps and Investing Strategies

1. Keep an eye on the Market Classification Model to understand if and when the stock market enters a Bear Market (MCM Details).
2. US markets are still in Bull phase and this could be a good buying opportunity, at lower levels
3. Gold and Bonds can be good alternatives, with careful review of the MCM
4. Develop an investment plan with your goals in mind and invest accordingly. For example, if you want good returns and have some extra cash, one can buy BitCoins

We will continue to explore 2017 strategic investing ideas on this blog. Forward looking investing helps you in keeping a level head while investing. For example, we mentioned that the market had not entered a bear market in Oct-Nov 2016 and added longs, and ended up benefitting from the latest rally. Analysis during election time:

• Post Election Investment World
• Reasons to be Bullish - From Twitter
• Elections and the Stock Market

Therefore, if your interested in free e-mail list or in paid services like Market Classification Model, please fill-out the form below.

Amazing 2016 for UST Proprietary Strategy!!

Happy New Year to all the readers. 2016 was an amazing year with our conservative strategy up 12.2% versus 11.96% of SP500 (with dividend). Snapshot below is taken from the brokerage account.

Introduction

We will start 2017 by reviewing 2016 performance. This review will cover every aspect of the performance, along with how the strategy performed in times of uncertainty and volatility. Each blog post will cover a different aspect of the performance review.

UST team has been developing repeatable, scalable and easily explainable proprietary investment strategies, along with built-in risk-management measures. In 2015, the strategy was developed and back tested. Last year, strategy was moved to production with real money. At the same time, we also developed 3 additional strategies, which will be discussed in future posts.

2016 - The Year of Volatility:

2016 was a very volatile year. It started with one of the worst starts of the year for the US stocks. Although market started a rally phase from Feb/March time frame, it remained on the edge due to following three major reasons:

1. US presidential election primaries
2. Fed's rate decision
3. Brexit 

Brexit was one of the biggest surprises of 2016. The night of Brexit vote, market dropped over 1000 points before starting another rally phase, which most of the market participants didn't see. This was followed by an unprecedented US presidential election, which took almost everyone by surprise. If some people got the election results right, their market positioning was wrong. In the end market ended with a ~12% gain from a ~5% loss at the start of the year.

Conservative Strategy Performance - 2016

Interesting aspect of this strategy is that the returns are uncorrelated with the market. 2016 Beta was -0.57, while 9 year back-testing showed a Beta of -0.08. Since the returns are totally independent of the market performance, we can say that these returns were Alpha.

Throughout this volatile year, our proprietary model kept us on the right side of the trade and kept on adjusting the holdings to dampen impact of volatility, while amplifying potential gains. Following is a snapshot from the brokerage account showing the monthly performance:

Following chart is from Openfolio, showing daily change of the same portfolio in 2016:

Overall gains were impacted by pre-election jitters and post-election bond rout. However, it gave the strategy an excellent buying opportunity, whose benefits we could reap in 2017. We also learned several very important lessons for the strategy, which has enabled us to improve the nimbleness of the model. Benefits of these additions are clearly visible in 2017's performance, which we will discuss in one of the next blog posts. 

Investment Options

We are working very hard to make these strategies available for investors. If you are interested in investing, you can register below and we will send you update when the strategy is available for investments. Some of the key outputs from the data models used in this strategy are also available through subscription

November Review and December Forecast

Over the last 2 weeks we have discussed Gold market and the Bond market, in terms of their structure and sentiment, to understand the next rally phase. Detailed analysis can be reviewed here:

• Bond Market Analysis
• Gold Analysis (Part 1 - Structure, Part 2 - Sentiment)

As we enter a new month, its critical to quickly review last month and then try to understand where things could go in the last month of 2016.

November 2016

Elections 

At the beginning of November, market experienced a sustained consecutive negative days. This negative behavior, not only tilted the sentiment to bearish and technical indicators to oversold, it also completed the correction pattern. This completion gave way to an amazing rally. We discussed the upcoming rally several times in following posts:

• Reasons to be Bullish - From Twitter

• Elections and the Stock Market

even though few people will remember this fact but the market started rallying even before the election on the news that FBI had dropped the investigation involving Hillary Clinton's e-mail. At that point, people attributed the rally to Mrs. Clinton's impending victory. However, as Mr. Trump won and the market continued its rally, it took many by surprise. 

This tells us that news/economic/political events don't matter. It's the reaction to these events that matter. And one of the best ways to gauge the reaction objectively is by looking at the price structure and sentiment indicators, along with forecasting strategies. 

Correlation with the US Dollar

Even more interesting is the fact that this rally has come in sync with rallying US Dollar. Typically, when US Dollar rallies, all asset classes are impacted. And if not directly impacted, they find it difficult to rally. But following chart shows the amazing correlation between US Dollar and the stock market:

Divergence with Advance Decline line

While this rally has made a lot of market commentators excited about the prospects of a major rally and 2017 with prospects of a major stimulus, this rally wasn't substantial enough to eliminate NYAD divergence.

Divergence in Advance Decline issues is critical for a sustained rally. This doesn't mean that this current rally cannot move much higher, it just means that the near-term rally could face challenges to continue in face of this divergence.

What's Next in December?

In summary, we have credible reasons to believe that the recent stock market rally is extended and we could see a market correction over the next 1-2 weeks (probably till next IPM turn window). While Stocks market corrects, asset reallocation can take place with money flowing into oversold sectors like Gold and Bonds.

Since US Dollar is also extended, a correction in the Dollar index will also support Gold rally. On the other hand, Fed FOMC meeting and an announcement to increase the short-term rates can also reduce some of the uncertainty from the Bond market, which could result in reprieve rally for Bonds.

Market might resume its uptrend in the 2nd half of December. However, the velocity of the ascent might not be as significant, as it has been in November.

Lastly, for Gold it is a do-or-die point. It needs to rally above 1205 in the next few weeks or it will likely enter another bear market.

If interested in free e-mail list or in paid services, please fill-out the form below.

Post Election Investment World

We have been discussing stock market uptrend and upcoming bottom for the past few weeks (post 1, post 2, post 3). And as of today, DJIA futures are above all time highs (shown below).

Such a market action in the face of presidential uncertainty is amazing. Although it bodes very well for the overall economy, we will talk about potential Trump impact in the upcoming post.

From an investment perspective there are different scenarios that one needs to be aware of.

Stock Market:
As stocks break out into uncharted territory and Nasdaq approaches the vacuum zone, it means that we are on the cusp of a major rally.

Like many rallies before it, this rally will also be debated by market participants as to why would market rally while president's economic plan would mean job losses. However, the pattern suggests that the stock market remains in a bull trend.

In essence, the underlying economy is very strong and would result in strong growth without any external influence. We will discuss internal structure of the market in future posts.

Bond Market:
Bond market's sharp sell-off probably suggests that the long-term bond bull market has ended. We are probably on the cusp of a significant inflation cycle. Near zero bonds are a thing of the past. Even though we might see some respite from the Federal Reserves, which might hold-off on the decision to increase the interest rates, we are surely in for higher rates.

Following chart shows a very long-term bond yields. Post-election rally has broken a long-term down trend line - another confirmation of the trend change. We have been keeping track of this wave count for years now and have discussed potential bond yield bottom with clients.

Many of our clients bought houses, properties etc in the last 2 years!

This market behavior has significant consequences for investors and we will discuss these consequences in detail. However, one should keep in mind that this kind of behavior will not result in bonds going to stratosphere in the near future. In fact, after couple more months of rising yields, yields might see a very sharp correction.

Metals
Copper has rallied very sharply over the past few days. Precious metals rallied on the news of potential Trump win - fear trade, but since then have declined. This decline was a significant intra-day reversal. But the overall trend in metals remains up.

Gold could continue to rally in anticipation of a higher inflationary environment. So will the gold stocks. Gold and Silver are tracing out very interesting patterns and could have significant upside potential if the can break above 1320 in Gold. We will also discuss the gold pattern in the near future. Past analysis on gold accurately predicted the bottom in October.

Portfolio Allocation:
Our proprietary model has performed extremely well in 2016. It not only kept us in the market during relevant bull phases, it also enabled us to maintain our calm whether during Brexit shock or Trump shocker. Any portfolio that can:

1. Yield returns which are uncorrelated to the market
2. Save a lot of heart-burn when the market goes against you by 1000s of points whether in futures or cash
3. Provide you consistent returns AND
4. Mitigate volatility and provides very high Sharp ratio

by the grace of Almighty, is an amazing performance. We will write a white paper on the performance of the model portfolio in 2016 - a year of surprises and nerve wrecking market action!

If interested in free e-mail list or in paid services, please fill-out the form below.

Reasons to be Bullish - From Twitter

Market completed longer term corrective pattern - Higher prices ahead? https://t.co/lyQxShgxmX $SPY $DJIA $QQQ pic.twitter.com/SeQjjd6D9P

— U_S_Thrive (@survive_thrive) November 8, 2016

A rerun chart from last week. VIX now now longer above all its futures contracts. Looks therefore like it was a scary dip, not a downtrend. pic.twitter.com/xyklR0F14r

— Tom McClellan (@McClellanOsc) November 7, 2016

$VIX term structure suggests that we are approaching an inflection point but note that it has spiked much higher in a few cases#volatility pic.twitter.com/s36s0ZnGun

— Babak (@TN) November 3, 2016

Options Traders Ramp Up Put Buying As Fear Spikes - https://t.co/bq51yqoc8t blog by @JLyonsFundMgmt $SPY pic.twitter.com/UGvsSzqECd

— See It Market (@seeitmarket) November 7, 2016

Chart Of The Week (by views): Investors (Over?-)Prepared For Election Volatility (11/1) $VXST
Post: https://t.co/p7piJzdNeI pic.twitter.com/lOpF6pMibP

— Dana Lyons (@JLyonsFundMgmt) November 5, 2016

we have yet to see any panic from the CBOE equity put/call ratio (normalized by dividing 10d/150d MA) $OEX P/C ratio still negative for mkt pic.twitter.com/z2wvkaDdmv

— Babak (@TN) November 4, 2016

Elections and the Stock Market

Market rallied very powerfully today and after a long time it sustained the morning gains. Not only did it sustain the morning gains, market was able to build on it.

We have maintained that the stock market remains in an uptrend and no matter how the election results come out, market would continue its uptrend till the time it enters a bear market. Right now there are no indications that the trend has reversed.

In fact, right now, market seems to have completed its ~4 month long sideways action and is on the verge of breaking out of current 2 year old range.

We discussed the market structure in this post few days ago. Following charts shows what was highlighted and what we saw today:

Long-term consolidation along with this pattern and sentiment decline suggests that there is a very good chance we could see a sharp rally from here. This rally could last for few months. Following chart shows the longer-term range bound market:

Portfolio Alignment

Our strategies are aligned with this potential market moving scenario is ready to take advantage of market move. At the same time, it is possible that we might see a surprise in the election and could witness some near-term turbulence in the markets. Keeping this scenario in mind, we are positioned to mitigate any volatility impact. 

Our portfolios take advantage of market moving events by positioning ahead of them and hedging against potential risks. So far in 2016, we are up ~20% YTD with a Beta of 0.36 i.e. these returns are totally uncorrelated with stock market performance.

As for other areas for investment, we will discuss metal and bonds in the next few posts. Bonds might see further sell-off after the election and before Federal Reserves rate announcement in December. 

If interested in free e-mail list or in paid services, please fill-out the form below.

Market Approaches Key Levels

Market's decline is now almost 3 months old and sideways action is ~4 months long. In the beginning this action was purely sideways but recently, it has taken a sharper turn to the downside. With this decline comes an opportunity that the sentiment is getting worse by the day, while proprietary indicator remains in a bull state.

This worsening sentiment is essentially fuel for the market. Sentiment is one fuel which really kindles market rallies. Right now sentiment is at level normally seen at significant market bottoms, and the market structure is now supporting a potentially sharp rally.

Market Structure
Recent investigation of the market structure suggests that the SP500 along with other indices is tracing out a potentially corrective structure of 3 wave decline.

Following chart shows this structure. Wave C (3rd leg) seems like an ending diagonal. Ending diagonals take place towards the end of a market move and give way to a sharp rally. So once the market rallying, it could take-out many of the recent highs.

Similar pattern is visible in almost all major indices. Following chart highlights this structure in Dow Jones Industrial Average

Along side this market structure, stock market indices have also traced more than 50% of their rally since Brexit vote. This shows that recent correct is now very substantial and should be treated as a minor wave 2. If this is wave 2, it will give wave to a very sharp wave-3 rally.

Sentiment

Following charts show sentiment as measured through Fear/Greed indicators and AAII. Both of these measures suggest that the sentiment is in areas where we see significant bottoms.

However, the key is to be detached with the market. Know when there is potential for market moving events but stock to your plan. So far in 2016, our strategic investment portfolio has beaten the stock market by ~12%.

 If interested in free e-mail list or in paid services, please fill-out the form below.

Inflection Point Model - Performance Recap

Inflection Point Model predicted a market turn date on Oct 21, 2016. Market declined on the 21st and then rallied. The rally continued today and futures are up now. With new catalyst along the way in the form of earnings from Apple and Google, we can expect more gains. Good thing is that even with today's very powerful rally, there was no sell signal. This suggests that the trend remains intact and is strong.

IPM Output - Turn date 10/21/16

Following chart shows the IPM model's output, as shared on Oct 17th (link)

Market Structure
Analyzing IPM model in conjunction with the market structure showed us that the trend had been sideways to down since mid July. Hence, the likely scenario was for market to put in a bottom during the IPM turn window and rally.

Following chart shows the latest structure shared on the blog along with a blue box, highlighting potential market turn window.

Following chart shows performance of SP500 as of today i.e. after bottoming within IPM turn window on Oct 21, one can observe the green bar with a gap up. Today's performance shows that the market gaped-up but did not cover the gap, hence, hinting towards a strong move. At the same time, confusing so many market participants, who have been taking failure of rallies as the new norm. 

Next Steps

We will continue to evaluate the market with respect to its structure and Inflection Point Model. One of the biggest benefits of the IPM model is to forecast potential market turn dates. And when IPM turn dates are combined with Market Classification Modal, it paints a much clearer picture. 

Market Classification Model is bullish. Next run of the model will be in next few days. Once the model is processed, it will tell us whether the internal strength of the market justifies a continued bullish posture or should one be wary of market trend changes. This information will be shared with subscribers immediately, so that they may evaluate their long investment positions.

Tomorrow's market Action

So far the futures are up and we could see a  continuation of the rally. This rally has a lot going for it but there are some signs of tiredness appearing in the market. We will evaluate the market structure and next IPM turn window in upcoming posts.

If interested in free e-mail list or in paid services, please fill-out the form below.

Portfolio Performance - August 23, 2016

Last few weeks have been extremely slow for the market, and also for our proprietary portfolio. Following chart shows the performance of SP500 in relationship with our portfolio.

Some of the key observations are:

1. SP500 (total return) is up +0.62% MTD, while portfolio is down -0.5% for the same period
2. Model has been consolidating in a very tight range, which means a break is coming
3. SP500 is also stuck in a very tight range with a slight upwards tilt
4. Historically, model's performance has been uncorrelated to the market with upwards bias. If this continues, we should expect a break-out in the near future

Portfolio Overview
At a time when stock market has not performed well, and has caused a lot of anxiety among investors, our prop investing strategy has out performed the market in all aspects:

• Volatility - Historical testing shows that model has 8% standard deviation vs 16% for SP500
• Sharpe Ratio - Historically, model has a sharp ratio 2.5+
• Beta - Current weighted average Beta based on portfolio components is 0.32

And above all, model is positioned to take advantage of the next market move. Therefore, it enables one to relax and invest with confidence. 


Market Action and upcoming events
There are genuine reasons for current market calm e.g. August is a slow month and also people are awaiting Fed action. By some measures optimism among investors has reached levels where it has resulted in market declines. We think that market structure, IPM turn window and extreme in sentiments will give way to a sharper decline in the stock market after Labor day, once people return from vacation.

However, it won't be a reason to sell the market. The time to sell is now, if you want to. That will be time to buy because the trend remains up. Following the bull market is one of the most critical things an investor must do. Staying long in a bull market pays dividends in the long-term. At UST, we stay aligned with the trend by following our proprietary Market Classification Model

MARKET CLASSIFICATION MODEL

A proprietary algorithm that classifies market conditions i.e. Bull market or Bear market. Currently, this model is suggesting a longer-term up-trend for the US Stock Market. For Subscription click below:

Benefits of Model - Part 3

With Federal Reserves not raising the interest rates and Bank of Japan maintaining negative interest rates, the markets are primed for some interesting action. At this point, one must ask:

• Why is the Fed so uncertain? 

• What are they seeing that even with stock market (SP500 and DJIA) near all time highs, they are not willing to increase the rates?

We know that the economy is not very strong. And it is a good decision from the Fed to not raise rates. However, what type of signal will it send to the investors? Is it time to be wary of the stocks as the economy struggles or is it time to get aggressive?

The question then becomes, even though the Fed has maintained the interest rates for now, how long can they maintain this posture? Will they not increase the rates on the first sign of strengthening economy? In that case, if the May jobs report comes in very strong, which is expected based on last week's extra-ordinarily strong weekly claims data, will that push Fed over the edge to raising rates at June's meeting?

In short, there are so many questions on the fundamental side. Similarly, from a technical perspective there are also several questions. At this time, the best strategy for any individual could be to stay out of the market and wait for the market to show its true direction, which could result in a delayed entry into a good long/short position. Or follow a system that takes out emotion from the investments. Since we have been using the Portfolio Enhancement Algorithm since the start of 2016, we decided to analyze the Q1' 2016 performance.

In the last few blog posts, we have discussed the benefits of Portfolio Enhancement Algorithm based in 2016 based on real-time performance with real money (as of April 12th, model was up ~9%, while SP500 total return index was up ~2.5%. 
Following are some additional benefits that we realized by using the model during Q1' 2016.

1. Benefits of the Model - Part 1
2. Benefits of Model - Part 2

5. Trend/Momentum following ability

Model offers the ability to utilize two of the most basic concepts of investments that help investors in the long run. In fact, hedge funds, which made a lot of money in 2015, were momentum following hedge funds. These funds realized that oil price decline had strong momentum and therefore, continued to hold short positions in oil.

As long as one can stay with the trend, investments pay off in the long run. My 8 years of experience in the financial industry has confirmed the adage that "Trend is your Friend." If a person tries to fight the trend, it’s possible that he might make few good trades but in the long-run the investment account will suffer. 

Although there are indicators and analysis techniques that allow a person to identify potential areas of trend changes and market timing, there is no Holy Grail. Therefore, the best option for investors is to stay with the trend. While staying with the trend, it’s imperative to have risk management facets to guide one about potential upcoming changes in the market structure.

This is similar to regular health checks that one undergoes to see how a person is doing internally. If one doesn't do health checks, they won't get a forecast of what is going on inside his/her body. As a result, it can be too late when one reacts to the new developments. In order to mitigate such risks in the investment world, this model has in-built risk management and market health check mechanisms.

6. Positioning for Next Market Move 

Another key aspect related to risk management and market health check is the ability of the model to position for the upcoming move in the appropriate area. It’s always critical to position one's portfolio before a move happens rather than reacting after a move has started. This not only reduces the stress, but allows one to establish a good position

Since majority of portfolio gains occur at the start of a new rally phase, if a person waits for the rally to begin, they might miss on the lion share of the move. On the other hand, if a person enters too early they might sell before the move actually starts. As a result, it’s always critical to correctly position the portfolio for next moves and have confidence in the allocation.

This is another huge benefit of this model that it allows us to position the portfolio for an upcoming move without taking too much risk and ensuring enough diversification with risk management perimeters. As a result of these benefits, this model can be applied in any portfolio and can be used with leverage to compound returns.

As an example, the model allowed us to position in such a way that we benefited from the Jan/Feb 2016 market decline and then allowed us to mitigate losses through accurate positioning in March, followed by sharp gains during the last week of March and first week of April.

• Buy and Hold features
• Quantitative benefits:
• Beta
• Sharpe Ratio
• Alpha