The Covestor Technical Swing Investment Model

Technical Swing Is the Stock Market Efficient? if it would be, nobody could beat the markets a realtivly new field of academic research is behvioral economics a theory in behavioral economics is called the overreaction hypothesis overreaction hypothesis = crowd tends to overreact to good and bad news the covestor technical swing model tries to profit from both anomalies another one is the momentum anomaly momentum anomaly = assets, which performed well over the last 6 - 12 months tend to perform well the next 6 - 12 months is the stock market efficient? if it would be, nobody could outperform the markets over time the covestor investment model according to efficient market hypothesis asset bubbles and market crashes shouldn't happen well, obviously they do with behavioral economics bubbles and crashes make perfectly sense behavioral economics behavioral economics tries to answer that question the technical swing model uses price action information and various quantitative sentiment indicators to determine if investors are too optimistic or too fearful and then takes the opposite side of the trade exploits anomalies, which usually last only for a couple of days; that's why holding periods of the model are relatively short Momentum mean reversion mean reversion buy buy sell sell the goal is to trade the short term mean reverting price swings of momentum assets this is an eight month price chart of a stock it is showing certain momentum and mean reversion characteristics these are the points where the technical swing strategy would buy and sell example note that i'm not interested in things like company balance sheets, PE ratios or book values i'm interested in knowing if the crowd is excited or fearful about balance sheets, PE ratios or book values as of November 25 2011, the Technical Swing Model is the #1 performing strategy over a 48 months period on covestor.com over 48 months, the strategy returned 59.76% (after trading commissions) while the S&P 500 lost 19.11% during that period, the strategy executed over 1500 trades some numbers want to know more? http://www.signallake.com/innovation/DremanLufkin2000.pdf paper discussing the overreaction hypthesis: article in The Economist discussing the momentum effect: http://www.economist.com/node/17848665 the Technical Swing Covestor model portfolio: http://covestor.com/michael-arold/technical-swing email michaelarold@gmail.com blog http://www.michaelarold.com Disclaimer The information in this presentation is not to be construed as investment advice; it is for educational purposes only. Mr. Arold’s opinions are based upon information he considers reliable, but he does not warrant its completeness or accuracy, and it should not be relied upon as such. Past performance is not indicative of future results. Investments or strategies mentioned may not be suitable for you. Before acting on information in this document, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own financial or investment advisor. this results in the mean reversion anomaly that's a totally different analysis process is a relatively young field of academic research in behavioral economics, analysts believe that small market inefficiencies exist due to emotional bias of the crowd herd behavior, greed and fear lead to occational asset mispricings