Better bear market crash protection requires
information, not just tweaking the averaging algorithm
or its time constant. All
indicators use just a single source of data (usually the
S&P500) as the basis for determining market direction.
Metaphorically, watching one knee of an elephant
to know if it's going to take a step has
value. But, watching three knees provides
superior information, allowing earlier
detection and eliminating false positives.
StormGuard-Armor achieves superior
performance by incorporating three sources of data to
provide three distinct views of the market.
Not surprisingly, StormGuard Armor has been
quickly recognized as the industry's highest
performance market direction indicator by
individual and professional investors alike. Not
only will it protect your assets during the next
market crash, but when used in conjunction with a
Market Strategy positive returns
can be generated.
is a composite of three measures we call Price Trend,
Market Momentum, and Value Sentiment. Its improvements
do not come from trying to improve predictive timing,
but rather from actual event detection. These are
"tells" indicating behavior changes of momentum and
value investors. The Market Momentum and Value Sentiment
signals are extracted from market volume and new
highs/lows data sources. Twelve separate measures of the
Price Trend, Market Momentum and Value Sentiment signals
are combined using the methods of "fuzzy
produce the final StormGuard-Armor value. Even when
applied to the S&P-500 (right), the improvement is
Incorporates Event Detection, not Simply Timing
Most market sentiment
indicators incorporate only measures of price change
using one or more moving averages. Although there are
many kinds of moving averages and many time periods over
which they can be calculated, it is often the case that
adjusting them to improve performance over one period of
time results in reduced performance in others.
Reacting more quickly generally results in additional whipsaw
losses while reacting more slowly can result in going further
over the cliff during a true market crash.
The daily price record is limited in the amount of
helpful information it can provide.
In order to improve
performance, additional information from other sources is
required. Fortunately there are numerous
measures of other market characteristics available, including daily
volume, new highs and lows, advancers versus decliners
and volatility. The objective is to find additional predictive
information, that like "poker tells" can be used with
high certainty to improve investment decisions.
is the composite of three measures we call Price Trend,
Market Momentum, and Value Sentiment.
The Price Trend signal is
identical to the original StormGuard,
which was derived from the application of Matched Filter
Theory and performs measurably better than the classic
50/200 Death Cross.
The Market Momentum signal further
incorporates volume information, and may be thought of
as a "tell" indicating that momentum traders are
changing their behavior. Note that a Wall
Street "momentum trader" defines momentum as daily
volume times the rate of price change in much the
same way as a physicist defines momentum as mass times
velocity. However, ordinary trend followers (such as
SectorSurfers) generally mix the terms trend and
momentum together by inherently
ignoring the consideration of volume.
The Value Sentiment
signal incorporates new highs and lows information, and
may be thought of as a "tell" indicating value
investors are changing their behavior.
is important to note that the new Market Momentum and
signals are not just timing adjustments made in
hindsight, but actually do provide signals prior to
serious price movements.
The first chart illustrates that during the market's rough patch
it was only the Market Momentum signal that indicated trouble
in the market. In 2011 during the run up to the August
1st sell off triggered by the S&P downgraded US debt, the
Market Momentum signal again indicated trouble ahead of the
event. However, in the
second chart it is the Value Sentiment indicator that
indicated trouble long before the August 2015
market drop triggered by trouble in the Chinese markets.
provided by StormGuard-Armor do not come about from
trying to improve predictive timing, but rather from
actual event detection. These are "tells" indicating
behavior changes of momentum and value investors. The
Market Momentum and Value Sentiment signals are extracted from the
additional data sources using
PID (proportional, integral and differential)
control algorithms to condition them appropriately. The
Price Trend, Market Momentum and Value Sentiment signals are then
combined together using the principles of "fuzzy
logic" to produce the final
Best Bear Market Performance? Here's Proof:
The charts below illustrate the improvement
provided by StormGuard-Armor over (1) owning
only the trend leader, (2) Betterment's 60/40
stocks/bonds portfolio, or (3) simply owning
the S&P500 index. Click the charts for
details. To reasonably compare SectorSurfer's
performance to Betterment and the S&P500, a
Strategy was constructed holding only six
ordinary largecap and midcap ETFs (SPY, SPYV,
SPYG, MDY, MDYV, MDYG) along with the aggregate
bond ETF AGG. The Strategy for owning only the
trend leader has StormGuard disabled and the
algorithm simply selects the best trending of
the seven ETFs at the start of each month. When
StormGuard-Armor is enabled, the Strategy is
restricted to owning AGG during bear markets.
While the 60/40 stocks/bonds split helps reduce
Betterment's Max Drawdown and marginally
improves its Sharpe Ratio (a measure of average
return/volatility), it does so at the cost of
Additional Bear Market Strategy Performance
In the table and charts
below, the performance of seven market direction
indicators is evaluated for each
of three major classifications of ETFs (broadly
diversified, US sectors and world regions). The market
direction indicator determines whether it is a bull
market (risk-on) or a bear market (risk-off). During a
bull market the Strategy
selects the trend leader to own at the end of each month from among the
ETFs. During a bear market, the Strategy will either
move to the safety of CASH or alternatively own a
long-term treasury ETF, depending on its configuration.
Performance for both of these Bear Market Strategy
configurations is detailed below. Please review the
Strategies page for a discussion on how
hindsight selection bias can be avoided during bear
markets using a well-designed Strategy that selects from
a diverse set of asset classes that often (but not
always) do well during a market crash. Protect your assets in the next market
crash with StormGuard-Armor — it sets the standard for
market crash protection!
• US Diversified ETFs Strategy
True Sector Rotation Strategy using IVE, IVV,
IVW, IWB, IWV, RSP, SPY, SPYG, MDYG and MDY.
(TLH bear symbol)
• ETF SPDR Sectors Strategy
True Sector Rotation Strategy using XLE, XLF, XLK,
XLI, XLP, XLV, XLY, XRT, XHB, XPH, MDY and SPY.
(UST bear symbol)
• ETF World Regions Strategy
True Sector Rotation Strategy using DGT, EEM,
EFA, EPP, FEZ, IEV, ILF, IOO, MDD, MDY, SPY and QQQ.
(TYD bear symbol)