Please scroll down for links to all weekly real-time reports.
We began the year in cash.
The market’s steep falls
in the first few weeks of the year (a time when our model had correctly kept us in cash) seemed to traumatise many market
participants and this again provided the perfect launch pad for yet another successful contrarian trade.
On 18th January the
model spiked up to a 71% reading (see report) prompting us to set up orders to scale into a new LONG position with plenty
of confidence:
http://www.market-timing-signals.com/SQ Bulletin
18Jan08.pdf
We were filled mostly on
22nd January at close to the intraday lows and then again for a final limit order on 6th February, deploying
our full capital LONG. The average entry price was 2230.
The following reports document our trade entries:
http://www.market-timing-signals.com/SQ Bulletin
25Jan08.pdf
http://www.market-timing-signals.com/SQ Bulletin
1Feb08.pdf
http://www.market-timing-signals.com/SQ Bulletin
8Feb08.pdf
The market did not move immediately
in our favour as the model reading went above 80% in March (a rare occurrence). However,
due to our favourable entry level and persistent signs of excessive pessimism, this was once again a high-conviction trade.
For example in the report of
22nd February we stated that “we expect a significant market rally over the coming weeks and months…”.
Follow this link for the full report:
http://www.market-timing-signals.com/SQ Bulletin
22Feb08.pdf
Then again on 7th
March we reiterated that “It remains the ideal time to be LONG”:
http://www.market-timing-signals.com/SQ Bulletin
7Mar08.pdf
Pessimistic
sentiment was going to further extremes as the model hit 83% on 14th March:
http://www.market-timing-signals.com/SQ Bulletin
14Mar08.pdf
Then, as expected by the model,
the market began moving up strongly in April. By
16th May the model had turned perfectly neutral at 50% and so we set up a tight trailing stop, filled on
20th May at 2502. The following reports document this:
http://www.market-timing-signals.com/SQ Bulletin
16May08.pdf
http://www.market-timing-signals.com/SQ Bulletin
23May08.pdf
This captured a profit of 12.2%
on the trade – deploying all our available and accumulated capital – and was the model's 9th
consecutive profitable closed position.
Our exit was also proven to
be timely as the market then fell sharply in June. Once again our model kept us safely on the sidelines while many market
participants panicked.
As pessimism spiralled our model
identified a further opportunity to go LONG in the report of 11th July as follows:
http://www.market-timing-signals.com/SQ Bulletin
11Jul08.pdf
This was confirmed in the report
of 18th July, which proves that we got filled close to NASDAQ Composite multi-month lows, at an average level of 2237
on 14th and 15th July:
http://www.market-timing-signals.com/SQ Bulletin
18Jul08.pdf
This trade then moved very nicely into profit almost immediately.
The bounce expected from the highly pervasive pessimism of mainstream forecasters materialised, as precisely forecast
by the model.
Then by mid-August, as the market shot up to above 2400, the model signalled
a short-term overbought or neutral reading and instructed us to close positions.
This is documented in the 15th August report, in which we thereby opened
a trailing stop and limit order to close the LONG trade:
This was indeed
filled on Monday 18th August as our stop at 2417 was hit. This bagged us 180 NASDAQ points of profit in little over
a month, the 10th consecutive successful trade.
The aftermath of this trade closure is logged here:
This was the second time in 2008 that we impeccably timed both the
opening and closure of a trade to coincide with intermediate bottoms and tops.
Unfortunately, performance turned sour from mid-September onwards, when
a further LONG trade was entered. There were significant falls in the market over the following weeks and our trade
was unfortunately closed at a loss (stop-loss hit) on 7th October.
This was the model's first-ever losing signal since inception in May 2004.
This loss more than wiped out the profits which had been accumulated earlier
in the year. It is little consolation that the ContraQuant strategy remains ahead of most hedge fund indices for
the year.
Since by mid-October the model was giving an even more bullish reading
(its highest ever) we re-established our LONG position at a level of 1735 on 13th October.
The latter trade was carried over into 2009.
If you qualify to receive
our model's signals in real time, then please proceed to the Contact page (professional investors only).
Scroll down to read all the
weekly reports for 2008 in further detail.
Key learnings for 2008
2008 ended up being a difficult
year for our model, in common with most other hedge funds and mutual funds.
Although our performance was
ahead of the market, it was still disappointing that we did not hold onto the gains we had accumulated up to around September.
Further work is clearly needed
to optimise the model's money management as we were not able to sidestep the market's savage drop in the last quarter.
We ended the year with a disappointing
-13.4% return. It will be interesting to see if the re-entered LONG trade carried over into early 2009 bears fruit.
