Alpha Momentum Strategy - Portfolio Report – May 2018 – First Half

As per The Alpha Momentum Strategy:

  • The intermediate term trend of the S&P 500 remains down

  • The long term trend of the S&P 500 remains up

From our last note:

“When the system determines that the trend of the stock market is down on one time frame (but not both), like right now, we take a defensive stance and move half of the 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 such a significant portion of the portfolio to cash? The risk is that the market quickly regains strength and continues higher without us. While our testing shows that that can certainly happen (and often does), our testing 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.”

Half the portfolio will remain in cash until at least May 14th, when we will run the algorithm again for trades to be executed on May 15th.

We will be executing trades in the portfolio tomorrow, May 2nd, so that the portfolio has the following composition by the end of the day.