The Model. Fueled by this year’s tech rally, our Trend Model remains positive. Full exposure to US equities.
When we implement the exposure recommendations of the KP Trend Model over several years, we are likely to experience risk-adjusted investment returns significantly higher than those achieved by passive investors.
While our annualized investment returns are likely improve modestly, there will invariably be a huge reduction in portfolio volatility and drawdown. This will especially be true with popular index ETFs such as SPY, QQQ, or IWM.
The current position of the KP Model can be monitored at the following link:
Status of the KP Trend Model
From the Trading Room. Since the Model only issues signals about six times a year, we will sometimes try to “look around the corner” to envision what might happen next.
The Intermediate-Term Model has risen sharply in recent weeks, so today we’ll take a look at other times when the red indicator line “spiked.” As we see in the chart below, since 2020 many (not all) of these spike events have signaled a nearby correction or pause.
What we are really observing here is that the red model line not only suggests trend direction, defined by the position of the red model line versus the blue neutral “buy/sell” line, but it can also serve as a slow-moving oscillator, calling attention to overbought and oversold market conditions,
Certainly, none of this is done perfectly, but the overall context is worth keeping in the back of our minds.
