Tuesday, January 22, 2013

T2 Commodities...1.22.13

Here's a brand new model using commodity ETFs and a couple old favorites..AGG ( aggregate bonds) and XLU (Spyder Sector Utilities)...a favorite risk hedge.
We try to cover the commodity spectrum as much as possible while avoiding the low volume ETFs that have wide spreads and a narrow focus.

Here are the composite charts of our target group and you'll notice right away there's considerably more variation than in our T2 default model....hence, there should be more opportunity for using a T2 approach.
Running a simple top 2 model (below) with AGG as a benchmark delivers a nice total return but  the equity curve is clearly volatile and subject to short term drawdown whipsaws that can make the average trader/investor ponder the wisdom of following such a model.

This risk situation can be managed somewhat by rigorously following the caveat in the General notes for T2 (above) which advise following the equity curve position relative to the RSQ and P6 as a guide to take or ignore the current momentum signals and to use those same RSQ and P6 indicators as working stops for the portfolio.
I've highlighted the stopped notation in the notes to emphasis this point at the suggestion of one thoughtful reader who has been testing variations of some of the posted models.
Feedback is always welcome.
Our goal is to make the models as functional and as useful as possible in growing and preserving your capital.