We are in Micro Quad1, Summer Doldrums...

So here we are, the pullback was extremely shallow!

Still Micro Quad1!

Again it is based by timing the following factors:

The micro quad model is a good model because it concentrates on factors that signal and trend well!

This is a constructive market, we are now 10 weeks in Micro Quad 1-2, volatility on the SPY came back to bull market levels. Breakouts are working, positive rotation to cycs. everywhere.

I get a lot of questions about the micro quads. Are they perfect? No! If you want to be right this is the wrong business! The key is: is to correct fast if you are wrong and your stop is hit or the micro quad changes!

On the side: Micro Quad 0 = everything is strong, or nothing is strong = breakdown in correlations —> very bad, worse than Quad4, get the hell out signal!

See above markers (two white lines) that show you two wrong signals on 9/9/2022 and 3/3/2023. Not perfect of all.

But ;-)

First: build your longs step by step.

Second a week later (!) the call from 9/9/2022 was recalled with a Micro Quad4 and if we go long 25% with your portfolio at the first turning point of a Micro Quad that does not cost us much!

In the case of 3/3/2023 the exposures that have been strong on 3/3/2023 stayed strong (and kept the Micro Quads in 1 the whole drawdown of the SPY).

Also, the micro quads work very well with my strategy, here is the situation from 9/9/2022:

A week later was the hedge signal (Quad4):

So not a big deal.

Same with 3/3/2023, yes, the micro quads gave a false signal, but it resulted only in a 5% drawdown.

Look at strong exposures that where strong before (and therefore defined the Quad1 on 3/3/2023) the false signal on 3/3/2023, they did not budge much!

And on 9/9/2022 (remember Quad 4 signal hit 1 week later, a get the f… out signal!).

Nothing is perfect, but one week of being wrong I think is a very, very good starting point.

My trading this week:

I was too cautious this week and hedged my book almost to net neutral.

Reason:

My small cap value momentum strategy book is showing some weakness + it raised 30% Cash.

So basically, I need to look for a situation when to lift the hedges. If I am lucky, I get a summer doldrum market from here, we pull back and the Quads stay in 1-2. Then I will lift the hedges (Or we pull back hard, and we turn to a Quad4, and I will stay the course). Not a perfect week, the hedge cost me about 1.5% performance, but I learned (a little bit) to be not too hard on me.

Have a great 4th of July and remember #secularbullmarketUSA!!!

By the way we do not celebrate that in Europe (got that question from an US based friend and it cracked me up :-))

All the best and best regards.

Andreas

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