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Market Timing - Late October Edition



October 18, 2011 – Comments (4)

Waded back into the large cap value index at market close but with a new philosophy. I will take the major index moves and buy a factor of 10x and sell a factor of 10x. So for example, with Monday's 2% sell off I moved 20% from cash to large cap value. If we sell off another 2% tomorrow I'll move another 20% of cash into large cap value. The key here is I expect choppy action with no clear bias long or short. I want to limit the downside by averaging down incrementally, but sell into strength if it shows up. If indexes move less than 1%, I reserve the right to stay put. I expect a gross return that is much less spectacular than the previous two month's but is more consistent with the thesis that there is no clear direction for the next 2 weeks, but the bias is down. I deem this strategy the hyper rebalance sideways market timing shall see.

4 Comments – Post Your Own

#1) On October 18, 2011 at 8:36 AM, SultanOfSwing (32.38) wrote:

Interesting.  Have you backtested this?  I guess it wouldn't be too hard with a spreadsheet and years of historical quotes.  Other people use moving averages to do a similar thing but your strategy is worth looking into.

I'd be curious to see the results.

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#2) On October 19, 2011 at 11:33 PM, RallyCry (20.00) wrote:


I have backtested. From 8/15/2002 to today, a 50/50 large cap value and cash allocation that hyper-rebalanced with the factor of ten strategy returned a terrible 5.89%.  A 100% allocation into large cap value with no rebalancing returned 42.3%. A 75/25 allocation between large cap value and cash with hyper-rebalancing returned 118.56%.

One interesting note. The 50/50 blend with hyper-rebalancing returned -11.54% in 2008 while the 100% large cap value w/ no rebal was down -45.72%. The 75/25 with hyper-rebal was off 22.5% in 2008.

I am leaning toward using this backtest to move to 75% large cap value/ 25% cash w/ hyper-rebalance even though I am pessimistic on the market in the short run.

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#3) On October 19, 2011 at 11:37 PM, RallyCry (20.00) wrote:

Just to clarify, I am referring to starting allocation percentages that shift over time.

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#4) On January 03, 2012 at 5:57 PM, RallyCry (20.00) wrote:

I realized that I did not provide final returns for October 2011. I checked my 2011 performance stats against Morningstar for accuracy and some small % changes for Aug - Dec will be detailed in a blog soon.

Total returns for October were destroyed by the larger market.

Rallycry +2.83%

Large Cap Value +11.40% I underperformed by 8.57%

S&P 500 +10.93% I underperformed by 8.10%

Staying parked in cash for the first two weeks of the October cost me about 5%. In August and September cash was my saving grace saving me about 19% . Shifting between a blend of large cap value, cash, mid cap and bond funds were not successful either during October, accounting for the other 3-3.5% of underperformance.

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