Strategy 4 revised

I've decided to change Strategy 4 a bit, which will presumably make the equity curve a bit more stable than the current version. If you recall, the current model takes 25% positions in the top 4 asset classes based on their past 90 day, 180 day, and 252 day momentum.

The new version is very similar, but with a twist: each asset class earns model points based on indice/eft's relationship to it's 200 day moving average, 75 day moving average, and 15,9 TRIX. Obviously there is a momentum element to trend indicators, but there is also a directional element.

First, I want to identify the top 4 asset classes for each time period (90,180, & 252). Each asset class with the 4 highest returns will recieve one point. This strategy is based on the findings of numerous well-known research papers asset class and sector momentum, studies that show past winners tend to continue outperforming in subsequent months.

Second, each asset class that is deemed in an uptrend by each trend indicator recieves a point. The concept behind this approach is to insure top sectors are also trending as well or better than the rest of the group.

In the clip below you'll notice Emerging Markets as measured by ishares MSCI Emerging Markets ETF (EEM) is above both it's 75 and 200 day moving average, but still below it's TRIX trigger line. Emerging Markets (EEM) scores 5 for 6 possible points in my model, and is also the top ranked asset class.

You will also notice in the clip below that Agricultural commodities, as measured by the PowerShares DB Multi-Sector Commodity Trust Agriculture Fund (DBA) has zero total points, and ranks last in my model.

I have decided to add money markets as an equal position as part of this strategy, giving each position a 20% weight. There is are a couple reasons for this: 1) reduce the volatility of the overall portfolio AND 2) provide a means to quickly switch into a new asset class without dealing with brokerage settlement delays.

There are a few additional rules I wanted to throw into the mix:

• Asset class ties will be decide by highest momentum scores first, followed by trend score in this order (200dma, 75dma, TRIX). If there is still a tie, the asset class choice for the 4th positon will be subjective.
• Asset classes in the top 4 ranks that fail to signal an uptrend in any of the 3 trend indicators will take a cash position. Theoretically, although highly unlikely, the portfolio can hold 100% cash at any time. This rule will also reduce volatility without having an enormous impact on returns.

Below is a screenshot of my Excel worksheet.