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Market Momentum – ETF Rotation System Newsletter Posted

We’re almost through December and that means it’s time to update the Monthly ETF Rotation Systems.  December proved to be a rocky month for both the Basic ETF Rotation System and the Schwab Commission Free Rotation System.  Fortunately, it looks like both will end up in positive territory for the month and all of the ETF’s went ex-dividend in December as well.

The Market Momentum newsletter is posted as a link through the Newsletter page or it can be downloaded using the link below.  If you have any thoughts or criticisms about the newsletter, I’d love to hear from you.  Happy New Year!

December 2014 Market Momentum Newsletter

Market Momentum Newsletter Page

  • Rich Durham

    Happy New Year and great news letter! Just so I understand, your lookback period is an average of 3, 6 and 12 month ROCs? Also, your rebalance period is one month? In my Fidelity Account, it takes about 5 days for ETF sales to settle, so I cannot purchase a replacement ETF for that period of time. Not a big deal if your rebalance period is a month or longer but if your rebalance period is one or two weeks, it may drive how you manage money. Would you ever be tempted to trade inside your one month rebalance period in the face of falling market breadth?

    • HI Rich, thanks for the comment. The lookback period I’m using for the systems is 3 months. That being said, my testing suggests that periods from 3-6 months produce fairly similar results. Using an average of two periods in the 3-6 month range also produced good results. I found that as you moved out in time, the performance began to decrease, but the 3, 6, 12 combo was still valid. I present the 3, 6, 12 more for context than for trading purposes. In other words, I like to get an idea of how the market is performing over a longer lookback period.

      The system is intended to take new positions on a monthly basis and, no, I wouldn’t exit in the middle of the month. In some cases markets will recover by the end of the month and in others they won’t. However, unless I can quantify and test a criteria, I don’t want to bring it into the mix. While I think you could quantify a decline in price during the month (maybe with an ATR trailing stop), testing the idea would be more challenging given the tools I’m using.

      The 5 day settlement does seem to be less than ideal even for a monthly system. If I was under that constraint, I would exit far enough in advance to take the new position on the last day of the month. The exception is that I would probably hold positions through an ex-dividend date.

      Hope that helps and thanks for the comment. Happy new year!

  • david lightbody

    In your ETF Rotation System Rules I see that you only use at maximum 50% of you account capital. Why is that?

    • Hi David,

      Thanks for the comment. I’m only using 50% of the taxable account for the strategy, but that’s so I can keep money available for other strategies. There isn’t another risk based reason for that allocation. Ultimately, it’s about what an individual wants to commit to a particular strategy. Personally, I like to diversify against myself! Hope that helps.

      Best,
      Dan