Two Models Trigger Bearish – Dealing with Drawdowns – Momentum Anomaly

2024 was a good year, even though it finished with a drawdown in December. The rotation trader strategies put in solid performances, especially RO-Trader-SPX. The rotation investor strategies started off well in November, but took a hit in December as the market fell. Momentum rotation strategies follow the ebb

Not all pullbacks result in long-term trend changes and not all drawdowns lead to bear markets. The odds favor the bulls as long as the bull market signal is valid and drawdowns provide opportunities during bull markets. Today’s report will analyze the drawdowns in the Rotation Investor strategies. We will show the Maximum Drawdown, Median Drawdown and a drawdown range for putting money to work.

Momentum-Rotation strategies get their edge from upward momentum. More often than not, this means there will be entry signals for stocks that seem overbought. Not all overbought stocks continue higher and some correct hard after becoming overbought. Can we improve performance by avoiding stocks that are extremely overbought? Today’s report will discuss the recency bias, show some overbought examples and puts an overbought filter to the test.

It is important to understand the ebb and flow of the equity curve when trading a strategy. How long is the strategy flat or down? How often do we see strong momentum runs? How often does the strategy experience double-digit drawdowns? How can we take advantage of drawdown? We will answer these questions and more.

Buying stocks that seem overbought is difficult, but this is often required when trading a momentum-rotation strategy. By design, these strategies buy the strongest stocks and many seem “overbought”. Momentum is all about buying high and selling higher. This report will test the original Rotation Investor strategies with the addition of an overbought filter. In other words, we will avoid stocks that are overbought. Does this filter help or hurt performance?

Everyone has a trading plan until they go into drawdown. The Dual Momentum Rotation Strategies are off to a great start here in 2024. This is the easy part. Don’t forget that RISK is always lurking in the equity markets and this is something we must always take into account. There is no reward without risk.

The Dual Momentum Rotation Strategies started out with a bang this year and produced big gains in the first three months. Market action then turned mixed with tech-related stocks falling sharply. The Nasdaq 100 strategy moved into a deep drawdown the last five weeks (NDX update here). The S&P 500 strategy is holding up well because

Regretfully, I must discontinue the mean-reversion strategies. Performance does not justify the effort. The last update for these signal tables will be on Thursday, June 27th.

Today’s report will put the Zweig Breadth Thrust indicators for the various indexes to the test. My default breadth index is the S&P 1500 because it covers all bases and represents a broad swath of the US stock market. We can also generate ZBT signals using

Today’s report features the Zweig Breadth Thrust, which was developed by the late, and great, Marty Zweig. We will show how it works and look at some recent signals. Despite a long history, the indicator is missing something and we will propose a modern day alternative.

The S&P 500 is battling the 200-day SMA with four crosses over the last eleven days. We are also seeing a rise in volatility as this market benchmark plunged 5.86% in nine days (18-27 October) and then surged 5.85% the last five days. With such conditions, it is a good time to step back and look for ways to filter the noise.