Friday, March 14, 2014

Gamma... A Model for All Seasons...3.14.14

Here's an update and revision of the 6 ETF M6 Gamma model using both daily bar and weekly bar rebalancing based on current momentum/relative strength rankings.
A closer examination of the model shows how using the money management stops in the daily version can be useful of avoiding inter week drawdown in the weekly bars model.
Gamma is not a beta neutral model and in fact will always perform better in bullish trending markets.  The use of an SSO (SPY ultra) input allows the model to pick up maximum gains during those periods.
On the other hand, the 3 bond components will help buffer the portfolio from drawdowns when the trend is downslope.
We're using a top 2 sort for this study.  That allows the model to pick up some gains and avoid some drawdowns during periods when the trend is in a transition phase.
As with all the Mosaic iterations its important to adhere to the money management stops regardless of what the rankings are suggesting.  SSO and QQQ can be he leaders and still be losing money...all that means is that the other inputs are performing even worse.
In the situation below the equity line and the P6 stop crossed the RSQ line simultaneously 9 weeks ago....a clear sign that cash was the safe course of action going forward.
Looking at the daily bars version of the model below we detect that TLT has crept into #2 slot as of yesterday and QQQ has moved almost to the lowest ranking...not a good omen for QQQ.  At the same time the short term ALERT stop crossed the equity line back on 3/7 suggesting that the market trend was under threat from the bears. Note that TLT is the pair study input against a SPY benchmark.
Now keep in mind that daily results are different than results obtained from a weekly rebalance.
The results of the daily rebalance model are shown below. What's interesting is that the equity chart and the pairs chart (SPY versus TLT) both confirm 3/7, 3/8 as a turning point in the trend ...thus indicating the safety of cash as the recommended course of action.