No. of Recommendations: 14
How robust is it when NH-NL is negative?
Just say'in....


You'd be surprised.

First, apologies, in my last post the futures CAGR when bullish and
bearish for the entire period are wrong.

Here are figures for CAGR Jan 1979 to date on Russell 2000 futures while in each state.
i.e., the rate of return you'd get from a whole year of nothing but days like the signal state specified.

Here it is tested with one of my best NH-NL versions.

Entire period:
Hot 48 bullish: +54.5%
Hot 48 bearish: +0.1%

While NH-NL bullish:
Hot 48 bullish: +43.7%
Hot 48 bearish: +14.3%

While NH-NL bearish:
Hot 48 bullish: +83.5% (the one you asked about)
Hot 48 bearish: -25.7%

Here are all the same figures NOT counting the extraordinary October 2008:
(changed figures in bold)

Entire period:
Hot 48 bullish: +49.4%
Hot 48 bearish: +0.1%

While NH-NL bullish:
Hot 48 bullish: +43.7%
Hot 48 bearish: +14.3%

While NH-NL bearish:
Hot 48 bullish: +63.9% (the one you asked about)
Hot 48 bearish: -25.7%

Testing interactions of different signals is a very dubious activity statistically.
But based on these figures, NH-NL bearish is no reason to stop using the Hot48.

To the extent that you like these figures, a possible strategy would
be to be long if EITHER signal is bullish, not just when both are.
Maybe a tiny pinch of leverage when they are both long? ; )
e.g., say you have have the equity section of your portfolio 100% long
or 100% cash based on the NH-NL signal. You could then add some
portion long with futures with the Hot48 system signal.
NH-NL bullish and Hot48 bearish: 100% long stocks
NH-NL bullish and Hot48 bullish: 100% long stocks + 40% long futures
NH-NL bearish and Hot48 bearish: 0% long stocks + 0% long futures
NH-NL bearish and Hot48 bullish: 0% long stocks + X% (100%? 140%?) long futures
Obviously the numbers could be tuned a bit.
They are intended as a function of your "normal" equity exposure, not your net worth!

This has the advantage that your stock trades per year due to timing signals are
kept low because they are based on the relatively infrequent NH-NL signal.
The variant tested above has only 3.8 signals per year on average--it's
based on "all 5 of my 5 best tuning variations are bullish".
Futures are cheap to trade in and out of (and have no tax consequences
based on hold period for any nationality I know of) so they are
a better match for the month end signal which has lots of changes.

Jim
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