Actionable Risk Opportunities, Tactical Musings and Timing Indicators for Investors
Thursday, August 18, 2016
Mean Reversion Still Tops for Bonds?....08.18.16
We're continuing to test the reliance of mean reversion versus momentum strategies on TLT...the 20 year Treasuries ETF. For the past several months the 3 day mean reversion pullback approach has been highly reliable versus a similar 3 day momentum tactic. But now a new dynamic has emerged and I scratched my head over these metrics trying to decipher what they meant. I suspect the parity of the 2 models is a function of the narrow range periodic cycling of the current market as reflected in the Bollinger Band studies profiled yesterday.
Note the behavior of each model along the 2 year RSQ equity line.
Also note the 30 equity curve of each model supporting our mean reversion preference for TLT.