Rotation Investor Nasdaq 100
Indicators, Universe, Methods and Signal Tables
The usual disclaimers apply for the strategies and the analysis on TrendInvestorPro. Past performance does not guarantee future performance. You and you alone are responsible for your investment and trading decisions. Do your own due diligence.
Rotation trading strategies capture the power of momentum by rotating into the strongest stocks and out of stocks that are losing upward momentum. This report explains Rotation Investor NDX (RO-Investor-NDX), which trades Nasdaq 100 stocks using weekly signals. We cover the required conditions, trend indicators, momentum rank, rotation thresholds and exit signals. This report concludes with an overview of the signal pages and the ranking tables used to trade these strategies.
Rotation Investor vs Rotation Trader
The RO-Investor strategies are more long-term oriented than the Rotation Trader strategies (RO-Trader). For example, the RO-Investor strategies use 200 periods for their trend indicators, while the RO-Trader strategies use 60 and 120 days. In addition, the RO-Investor strategies use the current values for the momentum rank indicator, but RO-Trader strategies use a 20 day negative offset (value 20 days ago). The RO-Investor strategies have longer holding times, fewer trades and the average Profit/Loss Percent is larger. Both strategies trade once per week, but the RO-Investor strategies are for less active traders because they generate fewer signals.
RO-Investor-NDX Highlights
- Weekly Trading (once per week)
- Market beating returns with lower drawdowns
- Trend indicator to ensure stock is in an uptrend
- Momentum rank to rotate into leading stocks
- Market timing model to trade only during bull markets
Dual-Momentum
Momentum has provided a persistent edge in the US equity markets for decades. Stocks that are currently in uptrends are more likely to extend their uptrends and stocks that are outperforming now are more likely to outperform in the future. This strategy capitalizes on momentum by using two types: absolute momentum and relative momentum. First, we filter to find stocks that are in strong uptrends (absolute momentum). Second, we rank performance to select stocks that are outperforming the other index constituents. When used with a market timing filter, this dual-momentum approach outperforms buy-and-hold with significantly lower drawdowns.
RO-Investor-NDX
RO-Investor-NDX trades stocks in the Nasdaq 100 to capitalize on growth and Beta. Launched in January 1985, the Nasdaq 100 represents the 100 largest non-financial companies in the Nasdaq. You read right. The creators purposely excluded the finance sector – and the rest is history. As the chart below shows, the Nasdaq 100 is by far the best performing major index ETF over the last 20 years. NDX is up more than twice as much as the S&P 500, S&P MidCap 400 and S&P SmallCap 600. The Nasdaq 100 is the place to capture long-term growth and outperformance.
Strategy Mechanics
This is a long only strategy that trades only during bull markets. We use the Broad Breadth Model to define bull and bear market environments for stocks in the Nasdaq 100. Indicators in this model include 13, 26 and 52 Week High-Low Percent, and the Percentage of Stocks above their 100, 150 and 200-day SMAs. The strategy is fully invested when the model is positive (bull market) and in cash when negative (bear market). This market filter limits drawdowns and preserves capital during bear markets.
We use the 20/200 %Differential to define the trend (PPO(20,200,0). This is simply the percentage difference between the 20 and 200 day EMAs. The trend is up this indicator is positive (20-day above 200-day) and down when negative. We are not quantifying trend strength. Instead, we are simply filtering for stocks that are in long-term uptrends. The chart below show Intuitive Surgical (ISRG) with the 5/200 %Differential turning positive in late November 2023 as a long-term uptrend started.
The momentum indicator measures the volatility-adjusted rate-of-change (ROC). Instead of using pure momentum, we divide the Rate-of-Change by a volatility indicator to level the playing field. This means we are selecting stocks with the strongest momentum relative to their volatility. Risk (volatility) is being adequately rewarded (momentum).
We use the current values to rank stocks (no offset). The Nasdaq 100 and S&P 500 strategies purposely use different momentum indicators for ranking. This is to reduce duplicate positions and add an element of strategy diversification. The NDX Momentum Indicator is smoothed with a 5-day EMA. The chart below shows Intuitive Surgical (ISRG) with an example of the NDX Momentum Indicator.
There are two volatility filters. One excludes stocks with excessively high volatility (extreme risk), such as meme stocks (Gamestop GME). The other filters out stocks with unusually low volatility because they are often takeover candidates. Stocks that receive a takeover bid often trade in tight ranges with extremely low volatility, such as Kellanova (K).
Stocks receive a pass when they meet three conditions. The meets the Min/Max volatility requirements, the stock is in an uptrend and the NDX Momentum indicator is positive. Once stocks meet these conditions, the strategy buys the top 8 stocks and sells a position when the stock drops out of the top 16. This is the “rotation” aspect. The replacement is the stock with the highest ranking and a stock that is not already in the portfolio.
Initial positions are 1/8th of the portfolio (equal weight). There is no rebalancing because this defeats the purpose of a momentum-rotation strategy. Rebalancing involves selling a portion of the winners and redistributing the proceeds. The aim is to ride the winners, not to reduce exposure to the winners.
The rotation feature triggers sell signals in stocks that experience a decrease in relative momentum. These stocks are often still in uptrends, but relative momentum is waning. Exit signals, therefore, are not always based on a trend change or significant decline. This rotational aspect reduces the average loss. The strategy then rotates into stocks showing stronger momentum.
Systematic Trading
Systematic trading is a long-term endeavor, not a brief undertaking. There will be ups, downs, periods of outperformance and periods of underperformance. We cannot judge performance using days, weeks or even a few months. Long-term endeavors require a minimum of six months before passing judgement. Past performance does not guarantee future performance, but this dual-momentum strategy should keep its edge as long as the momentum edge persists in the US equity markets.
Signal Tables: Entries, Exits and Closed Positions
This section shows the signal tables that are posted at the end of every week (usually Saturday morning). We start with a summary table showing current positions and new entry/exit signals. The top 16 stocks for the current week and prior week are on the right (blue/yellow shading). These side-by-side tables make it easy to see when a stock falls out of the top 16 from one week to the next.
The table below shows current positions (Open Long), new ENTRIES (green) and new EXITS (red). These signals are based on the close on the last trading day of the week. This date appears at the top left of the table. The actual ENTRY and EXIT are for the first trading day of the following week.
The current ENTRY/EXIT signals also appear below this table. In the example above, there is an ENTRY signal for TTD and an EXIT signal for AEP. Not all weeks have ENTRY and EXIT signals. Sometimes the portfolio stays the same. EXIT signals trigger for three reasons: the momentum rank falls out of the top 16, the three conditions are no longer met, or the Broad Breadth Model signals a bear market.
The next table shows the last 20 closed positions. This table includes the entry date, the exit date, the percentage gain/loss and bars held. Bars represent trading days (no weekends or holidays). 65 bars is the equivalent of 13 weeks and 126 bars is around 6 months. AMZN was held for 115 bars, which is just over 5 months.
Rank and Signal Tables
The sample table below shows the conditions and rankings for the top 16 Nasdaq 100 stocks on October 25th.
- GicsID: industry group code based on the S&P Gics Standard
- Sector: corresponding sector SPDR
- Min&Max Volatility (condition1): Pass = stocks meeting the min/max volatility thresholds
- PPO Trend (condition2): Pass = stocks in uptrend (20-day EMA > 200-day EMA)
- Broad Breadth Model (condition3): bull or bear market
- Conditions: Pass = stocks that meet ALL three conditions
- NDX Momentum: 5-day EMA of NDX Momentum indicator
- 5-day Change: 5-day point change in NDX Momentum indicator
Click a column heading to sort. For a two-column sort, press-hold the shift key and click two column headings. Use the search box to isolate a term (i.e. XLK or a GicsID).
(Sample) Rotation Investor Nasdaq 100 - (close: Fri 24-Oct-2024)
| Rank | Ticker | GicsID | Sector | Company Name | Min&Max Volatility | PPO Trend | Broad Breadth Model | Conditions | NDX Momentum | 5-day Change | Chart |
|---|---|---|---|---|---|---|---|---|---|---|---|
| 1 | TTD | 50201010 | XLC | Trade Desk A | Pass | UP | Bull | Pass | 33.23 | 2.14 | TTD |
| 2 | NVDA | 45301020 | XLK | NVIDIA Corp | Pass | UP | Bull | Pass | 32.93 | 1.04 | NVDA |
| 3 | META | 50203010 | XLC | Meta Platforms A | Pass | UP | Bull | Pass | 30.32 | -0.54 | META |
| 4 | CTAS | 20201070 | XLI | Cintas Corp | Pass | UP | Bull | Pass | 30.06 | 3.34 | CTAS |
| 5 | DASH | 25301040 | XLY | DoorDash A | Pass | UP | Bull | Pass | 26.17 | 3.51 | DASH |
| 6 | ADP | 20202010 | XLI | Automatic Data Processing | Pass | UP | Bull | Pass | 22.49 | -0.63 | ADP |
| 7 | COST | 30101040 | XLP | Costco Wholesale Corp | Pass | UP | Bull | Pass | 22.28 | 1.48 | COST |
| 8 | ISRG | 35101010 | XLV | Intuitive Surgical | Pass | UP | Bull | Pass | 22.16 | -1.31 | ISRG |
| 9 | TMUS | 50102010 | XLC | T-Mobile US | Pass | UP | Bull | Pass | 21.73 | -2.53 | TMUS |
| 10 | NFLX | 50202010 | XLC | Netflix | Pass | UP | Bull | Pass | 20.80 | -1.11 | NFLX |
| 11 | FTNT | 45103020 | XLK | Fortinet | Pass | UP | Bull | Pass | 20.30 | -1.63 | FTNT |
| 12 | ORLY | 25504050 | XLY | O'Reilly Automotive | Pass | UP | Bull | Pass | 19.79 | 1.90 | ORLY |
| 13 | AVGO | 45301020 | XLK | Broadcom | Pass | UP | Bull | Pass | 18.18 | 0.44 | AVGO |
| 14 | BKNG | 25301020 | XLY | Booking | Pass | UP | Bull | Pass | 16.97 | 2.65 | BKNG |
| 15 | PYPL | 40201060 | XLK | PayPal | Pass | UP | Bull | Pass | 16.32 | 3.54 | PYPL |
| 16 | LIN | 15101040 | XLB | Linde PLC | Pass | UP | Bull | Pass | 16.28 | -0.42 | LIN |
The usual disclaimers apply for the strategies and the analysis on TrendInvestorPro. Past performance does not guarantee future performance. You and you alone are responsible for your investment and trading decisions. Do your own due diligence.
