Thursday, December 24, 2009

Mrkt Rotation Model [Live]

For some time now, I have wanted to publish a live Major Asset Class Relative Strength Rotation Model along the lines of an article that I posted earlier this year on the topic (see Two Simple Relative Strength Rotation Models).

Since I had a little time this Christmas-Eve afternoon and was feeling motivated by BZB Trader's excellent post from this morning (now included, see "BZB" below) to get started on this particular New Year's resolution, I fired up Google Docs and here is the result. The embedded table below will be updated dynamically each week, so you may check in on current ranks regularly should you so desire.

Dynamic Weekly Ranks

The mechanical system assumes equity is reinvested once a week (Friday afternoons -- though given the length of holds, I imagine the following Monday should be just fine) in the highest ranked security according to a simple relative strength formula (see orange colored cell). I was somewhat limited by how far I could go with this in Google Docs, so I settled on a simple stop-less model evaluating six select ETFs representing major asset classes featuring varying degrees of inherent risk, as follows:
  • SPY - Large Capitalization U.S. Equities
  • IWM - Broad Capitalization U.S. Equities
  • EEM - Emerging Market Equities
  • AGG - Aggregate Bond Index
  • DBC - Commodity Basket Index
  • UUP - US Dollar Index

    [Automatically Updates Each Weekend]

    Historical Performance

    While this is hardly a complete system as presented, you can see that the simple switching model is nonetheless quite tradable and performed admirably during one of the most difficult decades for investors in recent memory. Do note that many of the ETFs only more recently became available, however. In the earliest years it was a contest between IWM and SPY alone.

    Nevertheless, with a little money management, I'd imagine one could go quite far with a little system like this, particularly in a 401-K type account. At the very least, it is a terrific way to read the current risk appetite of the markets. I will revisit and improve on the model throughout 2010.

    Never Investment Advice


    Damian said...

    I'd be surprised if the dollar index was taken at any point - has it ever been the #1 pick?

    jgpietsch said...

    And yet it was as recently as this year, perhaps somewhat surprisingly. Think extreme flight to safety... More importantly, I should have mentioned that the ETFs only become available to the the ranking system as they were released for trading. Merry Christmas all!

    jgpietsch said...

    I see BZB included his ticker symbols, so I will add that as a second system after the holiday. Don't forget these will automatically update. OK, enough of this -- again, good cheer to all!

    Anonymous said...

    will this be up on this page each week?

    Very good idea!

    jgpietsch said...

    That's right Anon. Of course ETF Rewind subscribers have the ability to run the strategy against nearly 190 ETFs nightly. ;-) JP

    lrb said...

    shatiThis is a great addition. I appreciate its potential utility.

    Anonymous said...

    Do you mean that the selection criteria for the 6 ETFs is based on the highest RSI for the ETFs for that week?