Alpha Momentum Strategy - Portfolio Report - November, 2018 - First Half

As per The Alpha Momentum Strategy:

  • The intermediate trend of the S&P 500 is down

  • The long term trend of the S&P 500 is down

When the system determines that the trend of the S&P 500 is down on both time frames, we take a defensive stance and move the entire portfolio to cash. We move to cash in order to protect capital and avoid a deep and prolonged drawdown.

What is the risk in moving the portfolio to cash? The risk is that the market quickly regains strength and continues higher without us. While our model shows that this can certainly happen (and often does), our model shows us that by taking the risk of missing out on some upside performance, we are increasing the likelihood that we avoid drawdowns of 30%+ like those seen in the early 2000s and during the Great Financial Crisis. This is a risk that we want to take.

We will be selling out of all positions tomorrow at the open.