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I don't follow this site but this switch seems odd as if done mechanically with a relative strength indicator. And likely to be a bad short term switch. Do they ever switch to just cash or to inverse funds?
The small stocks have been beaten up more than large cap recently. First, it seems like very late to switch out of small cqp after taking all that beating just because large caps are losing less.
One of two scenarios will happen:
Market continues its downslide with small caps losing more than large caps or it just moves sideways. In this scenario cash or inverse funds would be better for market/momentum trading.
Market recovers from its small correction and almost always the sector that has been hit hard recovers the most. So small caps will outperform the large caps at that time and unless you catch that bottom early enough to switch back, you lose out on the recovery but may have captured a lot of the small cap drawdown switching now.
Technicals are well and good but sometimes they don't make sense and one has to ensure it isn't a false signal or an artifact of the algorithm.
The only way this switch makes sense is if the decline continues for a while with small caps still losing a lot more and you switch back before it reverses back to where you switched. Why not go to cash or inverse funds if one can time it that well?
Will be interesting to see if this indicator can pull this off when the market bounces back.
Linked below is the site’s historical for it's calls. It appears, at times, a cash position has been taken. I too, questioned this most recent call to SPY. However, I am thinking, large caps should perhaps fair better over small caps in the near term … but, cash might be the place to be.
Comments
The small stocks have been beaten up more than large cap recently. First, it seems like very late to switch out of small cqp after taking all that beating just because large caps are losing less.
One of two scenarios will happen:
Market continues its downslide with small caps losing more than large caps or it just moves sideways. In this scenario cash or inverse funds would be better for market/momentum trading.
Market recovers from its small correction and almost always the sector that has been hit hard recovers the most. So small caps will outperform the large caps at that time and unless you catch that bottom early enough to switch back, you lose out on the recovery but may have captured a lot of the small cap drawdown switching now.
Technicals are well and good but sometimes they don't make sense and one has to ensure it isn't a false signal or an artifact of the algorithm.
The only way this switch makes sense is if the decline continues for a while with small caps still losing a lot more and you switch back before it reverses back to where you switched. Why not go to cash or inverse funds if one can time it that well?
Will be interesting to see if this indicator can pull this off when the market bounces back.
Linked below is the site’s historical for it's calls. It appears, at times, a cash position has been taken. I too, questioned this most recent call to SPY. However, I am thinking, large caps should perhaps fair better over small caps in the near term … but, cash might be the place to be.
http://decisionmoose.com/Moosistory.html
Old_Skeet