From the publishing of the first signal, a green on April 9, 2018 through June 30, 2019 period, the Bull & Bear Tracker (BBT) produced a gain of 32.2% versus the S&P 500’s 13.2%. Even though the BBT’s performance was impressive, there was room to improve the algorithm’s accuracy while reducing its risk. After increasing by a cumulative 64.6% on December 26th, as compared to April 9th, the date of the first signal, the Bull & Bear Tracker underperformed the S&P 500 through June 30, 2019. For the nearly 15-month period; only 46.3% of BBT’s 54 signals were winners. Finally, the red signal’s 10 consecutive signal losing streak in early 2019, vaporized the more than 20% of gains which it had produced from market crashes during the fourth quarter of 2018.
To improve performance, research is conducted on each of the 18 signals which had a loss of 2% or greater. After the findings are back tested, the adjustments to the formula are made. The research has resulted in significant breakthroughs:
- Number of signals from back test of April 2018 to June 2019 period increased to 92 as compared to the original 54 published signals
- Ratio of back tested winning signals increased to 56.5% as compared to 46.3% for published signals
- Ratio of back tested winning red signals doubled to 56.2% as compared to 28.5% for published signals
- For the April 2018 to June 2019 period the back tested signals produced an unleveraged gain of 54.6% compared to 13.2% for the S&P 500 and 32.2% for the leveraged published signals
The chart below illustrates the performance of the Bull & Bear Tracker’s back tested and published signals vs. the S&P 500 from April 9, 2018 to June 30, 2019.
The back tested and published signals in the table below which shared the same signal change dates are good examples of this dramatic change. Had the algorithm’s formula been adjusted prior to the original signals (in the table below) being published, the result would have been a cumulative gain of 21.84% as compared to a loss of 35.48%.
The changes to the algorithm’s formula reduced the risk by 66% since leveraged ETFs are no longer recommended. To achieve returns at a multiple of the S&P 500’s, triple leveraged long and short ETFs (symbols SPXL and SPXS) were originally recommended from when the first signal was published on April 9, 2018 to June 30, 2019. The return of 54.6% for the April 2018 to June 2019 period was achieved by utilizing the Bull & Bear Tracker’s back tested signals for trades in the S&P 500’s unleveraged ETFs (symbols SPY and SH).
The adjustments that were made to enable the Bull & Bear Tracker’s back tested or new signals to outperform its original or published signals are beyond significant. Leverage cuts both ways. Had non leveraged ETFs instead of triple leveraged ETFs been utilized the two 11% losses in the table above would have each been reduced to 3.6%.
The chart below compares Bull & Bear Tracker’s back tested signals with BBT’s published signals from April 9, 2017 through June 30, 2019. The chart depicts that the foundation for the algorithm’s original structure has been maintained. The diversion of the back tested from the published signals at the end of 2018 along with the ensuing reduction in volatility for the published signals illustrate the substantial progress made to refine the algorithm. The ongoing refinement will continue until the back tested signals and the signals which are published in the future match.
To further enhance the performance of the algorithm, the January 2, 2018 through April 8, 2018 period was added for the purpose of conducting 18-month back tests. The 18-months, ended June 2019, provided the ideal conditions to tweak and back test the algorithm’s formula. The time frame covered two quarters, the first and fourth of 2018, for which the S&P 500 experienced significant declines. It also included two 6-month periods, March through September of 2018 and the first half of 2019, which rank among the S&P 500’s best-ever for gains.
For the 18-month back tested period ended June 30, 2019 the utilizing of the Bull & Bear Tracker’s 115 signals for trading the unleveraged ETFs; SPY and its inverse, the SH produced a net gain of 68.1%. This compared to the bought and held SPY’s increase of 9.2%.
The win ratio for January 2018 through June 2019 period’s 115 signals was 57.3%. A breakdown for the signals is contained in the table below.
The Bull & Bear Tracker’s back tested signals outperformed the S&P 500 for ten of the 18 months. For the S&P 500’s two worst months, declines of 6.96% for October 2018 and 9.29% for December 2018, the Bull & Bear Tracker’s signals generated monthly gains of 9.88% and 21.57% respectively.
The S&P 500 out-performed the Bull & Bear Tracker’s back tested signals for four of the six calendar quarters from January 2018 to end of June 2019. However, an investor utilizing a minimum of a six-month time horizon would not have suffered a loss from trading the Bull & Bear Tracker’s signals. Those who invested in the S&P 500 in the six months ended December 31, 2018 and March 31, 2019 suffered losses. An investor who utilized a calendar year time horizon to invest in the S&P 500 incurred a loss for 2018.
The Bull & Bear Tracker’s back tested signals performed extremely well for the S&P 500’s most volatile or best and worst days during the 18 months. There were 16 days in which the S&P 500 declined by greater than 2% and the BBT had a red or sell signal in place for all but one of them. There were seven days in which the S&P 500 increased by more than 2% and again the Bull & Bear Tracker’s green signal missed only one of them.
The only argument which could be made against the Bull & Bear Tracker’s performance from January of 2018 through June of 2019 is that it was based on back tests and not live trading. However, the performance of the BBT’s published signals for the S&P 500’s two worst months, October and December 2018, also coincided with the back tested signals.
The Bull & Bear Tracker’s back tested and published signals substantially outperformed the S&P 500 for the 18 months ended June 30, 2019. Additionally, the volatility of the back tested signals was significantly lower than the S&P 500. The outperformance is based on the algorithm’s ability to monitor and analyze the trading patterns of the other algorithms which are being utilized by professionals to trade the markets. Algorithmic trading represents an ever-increasing percentage of stock trading volume. Most professionals utilize the same S&P 500 derivatives including Futures and the ETFs which the Bull and Bear Tracker trades. See Bloomberg, “Wall Street Fights Stock Machines with Trend-Chasing on Steroids”, July 8, 2019.