SSO: The Uptrend Since The October Bottom Continues (Technical And Intermarket Analysis)

Thesis

SPX is in an uptrend for the reason that October low. Though the market suffered a considerable decline in February and a Financial institution disaster in March, to date the uptrend is unbroken. I’ll help the thesis with two arguments, one with Technical Evaluation of the SPY value chart, and one other with Intermarket Evaluation utilizing a Market Threat Indicator.

Technical Evaluation – Bullish Cross

The SPY chart reveals that the 50-day MA made a bullish cross above the 200-day MA within the final week of January. Presently, the worth of SPY is above each the 50-day and the 200-day MA.

Intermarket Evaluation – Momentum Market Threat Indicator is ON

To find out the market state, we consider the entire return of some belongings over an analysis interval. The next 4 circumstances are indicative of a risk-on market:

1. r(DBB) – r(UUP) > TH1
2. r(RCD) – r(RHS) > TH2
3. r(XLI) – r(XLU) > TH3
4. r(SLV) – r(GLD) > TH4

Based mostly on the returns of the eight ETFs proven above, the market state is assessed as (1) risk-on, (2) risk-off, and (3) risk-neutral.

Presently, the primary three circumstances are at present glad and the indicator is risk-on. This indicator has been risk-on since December 2.

AMI Technique

The Market Threat Indicator is utilized in my “Adaptive Momentum Investing” market service.

When the markets are risk-on, the technique is invested 100% in dangerous belongings.

When the markets are risk-off, the technique invests all of the funds within the high one or two ETF from the next listing.

[‘IEI’,’IEF’,’TLT’,’DBC’,’UUP’]

When the markets are risk-NEUTRAL, the technique invests all of the funds equally divided within the belongings of the next listing.

[‘XLP’,’XLV’]

Purposes

The thesis of this text is that when the markets are in risk-on state, it’s extra worthwhile to put money into leveraged funds than in non-leveraged. We’ll present simulation outcomes made with the Portfolio Visualizer utility on two portfolio variants, one investing in SPY, one other within the corresponding 2X leveraged fund SSO.

The Single SPY Portfolio

Right here I’ll present the simulation of the technique in managing a easy broad market portfolio, known as “Single SPY”.

When the markets are risk-on, the technique is invested 100% in SPY.

The desk under reveals the abstract efficiency of the portfolios for simulations from 11/1/2007 to three/31/2023.

Click on to enlarge

Extra particulars of the efficiency will be seen within the following PDF report generated by the Portfolio Visualizer utility.

SingleSPY.pdf

Under are three charts: (1) portfolio development, (2) the chart bar of annual returns and (3) the chart of drawdowns.

SingleSPY portfolio development:

SingleSPY annual returns:

SingleSPY drawdowns:

The Single SSO Leveraged Portfolio

Precisely the identical technique is utilized to a portfolio that invests 100% in SSO, the 2X leveraged ETF of the S&P 500 index. This portfolio invests equally in XLP and XLV throughout risk-NEUTRAL states, and in the identical high risk-OFF asset because the Single SPY portfolio.

The desk under reveals the abstract efficiency of the portfolios for simulations from 11/1/2007 to three/31/2023.

Click on to enlarge

Extra particulars of the efficiency will be seen within the following PDF report generated by the Portfolio Visualizer utility.

SingleSSO.pdf

Under are three charts: (1) portfolio development, (2) the chart bar of annual returns and (3) the chart of drawdowns.

SingleSSO portfolio development:

SingleSSO annual returns:

SingleSSO drawdowns:

Observations

The 2 portfolios, non-leveraged SPY and leveraged SSO carry out equally higher than their buy-and-hold counterparts. Each obtain considerably increased returns at considerably decrease drawdowns.

Moreover, their risk-adjusted returns as proven by their Sharpe and Sortino ratios are virtually similar.

Conclusion

The S&P500 index made a bear market backside in October and is in an uptrend since then.

SPY and SSO are rated as BUY.

Threat Warning

The next warning is supplied by ProShares.

ProShares Extremely SSO seeks a return that’s 2x the return of its index (goal) for a single day, as measured from one NAV calculation to the following. Because of the compounding of each day returns, holding intervals of better than sooner or later can lead to returns which might be considerably totally different than the goal return and ProShares’ returns over intervals aside from sooner or later will probably differ in quantity and presumably course from the goal return for a similar interval. These results could also be extra pronounced in funds with bigger or inverse multiples and in funds with risky benchmarks. Traders ought to monitor their holdings as regularly as each day. Traders ought to seek the advice of the prospectus for additional particulars on the calculation of the returns and the dangers related to investing on this product.

Here’s a detailed message from the SEC on the dangers inherent in leveraged ETFs.