M3 subscribers know I'm always looking for ways to improve the model and increase reliability.
Going forward the nightly M3 model will be supplemented with the M3 R model which contains no volatility components but is a true SPY beta spectrum from UPRO to SDS with SHY (cash) to help define neutral trading environments.
Why the new model?
Quite simply...volatility has decoupled from price...a potential development we expressed concern about over 6 weeks ago. Now, here it is.
By engaging the perspective of M3 R we gain a clearer picture of underlying bull/bear momentum, which should help to confirm or negate XIV and VXX signals that M3 may generate.
The AUTO-STOP function has been turned off in M3 R so we see the full lineup all the time. Waning momentum components are not shown as -- like the M3 model but,perhaps surprisingly the net return short term are pretty impressive. These results DO NOT reflect the use of ANY money management stops but the net drawdown doesn't exceed the M3 model simply because the uber beta XIV and VXX are not included in the portfolio mix.
As an alternative game plan M3 R can simply be traded all by itself until the volatility/price correlation comes back into balance.