03-18-2020: Keep Your Arms and Legs Inside the Vehicle at All Times

The market hit another circuit breaker today as the S&P 500 dropped 7%+ in mid-day action. If you are a client of mine, you had a very good day. Our inverse ETFs worked to perfection, which is to say they moved up (in some cases, 2x times up) as the market moved down. After today's carnage, the S&P 500 dropped well over -6% and blew through the 'hoped-for' support level of the December 24, 2018 low. The S&P closed at the lowest level since May 2017.


I went to cash today, about an hour before the closing bell, in all strategies except for ULTRA-MAX. In that strategy, I sold half of our holdings. This was done to lock in our great profits of today and get out of the way of a potentially strong up-day tomorrow (more on this, below).


The market (S&P 500) is down -28% for the year, and it looks like this down-trend is nowhere near changing course. I would not want to be holding mutual funds or any stock that is getting crushed in this market. The market will recover at some point. I'm just glad that my clients will not have to waste the bulk of the next bull market (and there is one coming at some point) trying to get back to even. How is this possible? My best client portfolio is up more than +18%, year-to-date. That's 46% better than the market. Of course, there is no guarantee that this rate of performance will continue into the future, but this is a good example of how quant-driven, market-directional strategies can benefit investor portfolios by keeping them on the right side of major market trends. By the way... my worst performing portfolio is beating the market this year by over 19%.


So... where do we go from here... My data continue to be very, very bearish. Tomorrow may be an up-day (if the current saw-tooth market pattern continues) and if it is, I plan to sell into the rally by moving to 100% invested in ULTRA-MAX (in inverse ETFs) and a small fraction invested in inverse ETFs in the other strategies.


With the exception of ULTRA-MAX, my objective is to keep risk pretty much off the table. My clients have made it clear that they prefer to not have capital at risk in a bear market even if that means missing out on some decent down-trends that can (potentially) produce good results via inverse ETFs. Most (not all) clients prefer capital preservation in a bear market. So, for all strategies except ULTRA-MAX, I will put only a small fraction of capital at any risk via inverse ETFs. The balance of capital will be kept in a money market.


ULTRA-MAX is a different story... It is a much higher-risk strategy and, as such, I will be putting 100% of capital to work in our 2x inverse ETFs tomorrow if the market looks to be bouncing higher.


Tomorrow may be an up-day, but the overall market trajectory is still bearish, according to my data.


Stay safe and have a great evening...