ETF Prophet

Most asset return processes can be characterized as containing a primary trend, along with mean-reversion around that trend, as well as a certain amount of random noise.  Econometricians classify these elements using a Hurst Exponent as either : 1)black noise (trending/positive autocorrelations- Hurst>.5) 2) pink noise (mean-reverting/negative autocorrelations- Hurst<.5) or 3)  white noise ( no trend/mean-reversion, low/insignificant autocorrelations- Hurst=.5). [...]

The All-Weather Portfolio was designed by Ray Dalio (and clearly influenced by Harry Browne of the Permanent Portfolio) as a robust static allocation that can be used by investors to deliver consistent performance over time. The logic of the portfolio construction is to be neutral to risk/uncertainty with respect to inflation or economic growth–the two primary [...]

I am periodically asked to update the performance of the two S&P 500-based models that are published at each close in the ETF Rewind Pro newsletter.  Here are the original posts from over two years ago discussing the construction of these signals: Mrkt_MACD – Seeking Linearity (Chart 1) Mrkt_RSI – Relative Volatility & Mean Reversion I have updated the runs, [...]

In the last post we looked at the performance of static versus dynamic clusters on Dow 30 stocks. It is also logical to look at the same comparison on multiple asset classes. Michael Kapler of Systematic Investor ran the same set of tests on major market asset class ETFs for comparison.  To avoid distortion in [...]

For those seeking to delve into stock models using the T2 approach here are 2 sample portfolios that are now part of the MOSAIC stable. The first, SA, is based on the previously posted Mosaic / Seeking Alpha model and is based on their considerable research and experience.The second, WS, is based on a Reuters [...]

A natural comparison for an allocation method that makes use of dynamic clustering is to use a static clustering method. An example of the use of static clustering are the sector classifications made by large index firms. Typically clusters are formed based on the type of business or industry associated with a company (ie utilities, energy [...]

Here is a backtest that was done using a dynamic clustering method introduced by Michael Kapler at  Systematic Investor combined with multiple allocation schemes: 1) equal weight within and across clusters 2) risk parity within and across clusters and 3) cluster risk parity (CRP):  equal risk contribution (ERC) is used within and across clusters. For comparison purposes, [...]

One of the concepts that I have developed with Michael Kapler at Systematic Investor : http://systematicinvestor.wordpress.com/ is a  method of passive portfolio allocation (omitting expected or historical returns) that captures the true spirit of diversification. It is a more elegant but also more complex than our heuristic algorithm: Minimum Correlation. This new method is called “Cluster Risk [...]

This graphic is designed to help readers understand the logic and assumptions embedded in the Permanent Portfolio model by Harry Browne. It is also a useful framework for understanding how to construct  regime-based portfolios. The results are re-published from an earlier article written by Corey Rittenhouse at Catallactic Analysis: http://catallacticanalysis.com/permanent-portfolio/. It was a very good post [...]

Here is a good link to summarize how to calculate various moving averages: http://www.metastock.com/Customer/Resources/TAAZ/?c=3&p=74 Here is an interesting post showing a comparison of performance of different moving average variants across a number of markets by moving average length. It is worth noting that recency-weighting (wma) tends to perform better on average than the less responsive [...]

One of the unique aspects of modelling financial time series  is that recent data is more important than previous data. This is because forecasts need to be made for the next time period, and prices compound in value over time. The other unique aspect of time series data is that there tends to be a [...]

We’re in the midst of a mid day reversal pattern as equities appear to be losing their mojo.  TLT has actually gone positiver for the day after an early smack down.  Materials are the hot sector today…both gold and oil were roaring early on but have cooled considerably.  The NYSE advance/decline line (NYAD) started to [...]

We’re seeing some gains in 2o year bonds via TLT but is this a recovery or a pause before a larger correction?  Here’s one view. Back at the hourly chart of the new market neutral index QQQ is still holding top slot driven almost entirely by APPLE.  In fact, 80 of the NAZ100 are in [...]

It looked like there might be a break out to the upside today but volume never picked up and the stalwarts refused to yield more than a modest gain.  There are winners within this market malaise, which can be detected by looking at a ranking of relative strength and momentum among the the various market [...]

Following on the heels of VIX’s sub 14 close, the always puzzling VIX rose 7% even as the SPY, DIA and QQQ also rose in unison. The hourly chart of the VIX (shaded background) tells it all.  TLT has dropped over 1.25% today and the low volume plod to new highs goes on. Qs are [...]

OK trader buddies…I bet this is something you didn’t think would happen so soon after the Euro, Italian, Spanish, etc crises.  VIX slid below 14 briefly today and what’s coming next could be a big move.  Volume today is REALLY thin, about 35% normal and old time market watchers like myself are having a hard [...]

Mosaic has a whole new look and feel (it’s been a long time coming) so I thought I’d take a little breather and explore some possibilities for predicting volatility thresholds as part of the evolving PDQ module.  In this case we use the PDQ to look at XIV (the Inverse VIX ETF) vs a variety [...]

One of the building blocks of a successful investment portfolio is obviously selection of components that are each robust on their own. When pursuing a market neutral strategy like Mosaic that cannot be  accomplished by combined winners and losers, each component must exhibit positive returns although the mix of components have to also exhibit inverse [...]