The iM Standard Market Timer endeavors to signal periods when it may be advantageous to exit the market or hedge one’s portfolio of stocks. For the simulation it was assumed that during the hedging periods the model holds the ProShares Short S&P500 (SH), and when not invested in SH the model switches to cash.
The model was backtested on the web-based portfolio simulation platform Portfolio 123 from Jan-2-2000 onward, as this was the first full year when the algorithm had access to all the indicators it uses:
- Daily closing price of SPY,
- CBOE Volatility Index (VIX ),
- S&P500 Estimated Earnings Current Year, and
- S&P500 Risk Premium –the difference between the Current Estimated Earnings Yield of the S&P500 and the Treasury 10-yr Note Yield.
With the model optimized to keep the number of trades reasonably low, it still provided an average annualized return of about 6.7% from Jan-2000 to the middle of Mar-2016.
Figure-1 shows the performance when only invested in SH during the hedging periods and otherwise in Cash. There were 9 realized trades, all of them winners. Currently (Mar-13) the model holds SH, also showing a positive return. Annualized return would have been higher than the 3.9% return for buy-and-hold SPY.
The prices for transactions were taken to be “Next Close” after a signal was generated, and slippage of 0.1% of the transaction amount plus commission of 1.0 cents/share was assumed for the simulation.
The table below shows all the trades from this model.
Following the Model
The (SH-Cash) Standard Timer can be followed live at iMarketSignals (Gold membership required), where it will be updated weekly to signal start and end of hedging periods.
One should be aware that all results for this system are from a simulation and not from actual trading.
All results are presented for informational and educational purposes only and shall not be construed as advice to invest in any assets. Out-of-sample performance may be much different. Backtesting results should be interpreted in light of differences between simulated performance and actual trading, and an understanding that past performance is no guarantee of future results. We can make no claims about future performance of this model, which may include significant potential for losses. All investors should make investment choices based upon their own analysis of the asset, its expected returns and risks, or consult a financial adviser. The designer of this model is not a registered investment adviser.