Image Source: Pixabay

Motivation

As the environment changes so do our strategies. As In real-life trading, we periodically re-evaluate our models and assumptions. We retest them and adapt if necessary. This is not done often as it would mean we would be chasing ‘what has recently worked best’. Or in quantitative jargon, we would be ‘over-optimizing’. We do this every few years, or as often as necessary, especially when fundamental market changes are at play. Which is the case now.

Please take a few minutes to read about the changes.
 

Backtest results will not reflect the actual historical performance

Since we have updated the strategies and re-optimized the strategy parameters (before you ask, yes, we have tools to avoid over-optimization), backtests on the site will not reflect actual historical performance up until July 1. In other words, if you have traded the Nasdaq 100 strategy from January 1, you may have lost -5%. The backtested equity on the site may show a gain of +3%. That is normal and expected because the strategy backtests are based on the new (after the fact) rules.

This seems ‘not fair’ but it is necessary (read why) as these new rules determine the correct upcoming allocation for the coming month. The actual historical returns of the strategies are still on site.
 

We are in a Bear market

The S&P 500 has plunged more than 20% since the January high and that puts us officially in bear territory. To summarize, the major assets, year-to-date:

SPY -20%, TLT -21.9%, TIP -9%, EEM -17.2%. GLD is flat at -1.5%. In contrast XLE (Energy Sector ETF) is up 31.5%.

Bear markets are volatile, they may present good opportunities but they mostly bring a higher risk of loss. Assume we look at the market through a simple filter. the 200-day moving average: When the SP500 is above its 200-day MA and when below the 200-day MA:

An additional metric worth drawing attention to is returns at the 20th percentile; -1.95% when closing above the average vs. -5.64% when closing below the average…  
In fact, if investors used this system in isolation (which they should not), history suggests that there is a significantly higher likelihood of a deeper decline when the index spends time below the moving average.

https://potomacfund.com/200-day-moving-average-strategy/

Invest accordingly and keep, at a minimum, a rudimentary action plan.