We developed an Economic Composite to monitor the business cycle. Monitoring the business cycle is of paramount importance. Since 1965, two-year rolling losses of 20% or more have always been preceded by a business cycle peak. Equity markets tend to be more volatile following business cycle peaks than during periods of economic expansion.
Market Risk Analysis
Market drawdowns can occur outside the natural ebb and flow of the business cycle. The Relative Indicator of Momentum (TRIMTM) is an algorithm we have developed that combines market volatility and momentum to model transition points that forewarn of a potential shift from a bull market to a bear market (a market decline greater than 20%). We use TRIMTM to monitor numerous global markets and commodities.
We may employ short positions, option positions, or other strategies, for risk management, in an effort to reduce volatility, lower drawdowns, moderate correlation to the overall market, or opportunistically to increase returns.