Change in our portfolio

I wrote this last weekend:

Once the S&P crosses above its 200 day moving average again, I will cut my position from 67% long SSO to 50% long SSO (and 50% in cash).

With midterm elections just around the corner, I cut my position from 67% long to 50% long today SSO today. That is the position size I’m most comfortable with right now. I will hold 50% long SSO until January 2019, after which I will reduce my position size by 10% per month.

Why not wait

Why not wait until the S&P crosses above its 200 dma to cut my position size from 67% long to 50% long?
Because the S&P is already very close to its 200 dma. It is less than 1% below its 200 dma.
Pushing the envelope (i.e. waiting for an EXACT close above the 200 dma) is not the best idea this late in the bull market. “Close to its 200 dma” is good enough.

I also don’t like the fact that the Medium-Long Term Model only has 1 more factor left before it turns long term bearish.
Besides that, nothing has really changed. Our market outlook remains the same. The only difference is that I’m reducing my position size slightly ahead of schedule.

A look back at position size changes this year

  1. I switched from being 100% long UPRO to 100% long SSO this year on March 13, 2018.
  2. I switched from being 100% long SSO to 67% long SSO on September 12, 2018
  3. I am switching from 67% long SSO to being 50% long SSO right now.

Needless to say, it’s been a challenging year so far. Sticking 100% to the model maximizes long term returns, but deviating from it (in terms of adjusting position size) helps you anchor your trading psychology.
In my mind being 50% long SSO is the perfect position size right now. If the market rallies upwards, no big deal. You are still equivalent to being 100% long $SPY and will fully participate in the rally. But if the market falls significantly (which I think is unlikely), you will have a lot of dry ammunition to deploy and make money from the next bounce.
So no need to panic right now. Slightly reducing my position size is just a precaution.

4 comments add yours

  1. Hi Troy,
    Is there a specific time of day you usually make these medium-term trades? Thanks

  2. Hi Troy,
    Thanks for the updates. Can I ask what’s your capital allocation between the medium-long and the short term model?
    When the medium-long model becomes all cash, would you increase or decrease your allocation to the short term model as well?
    Many thanks,

    • Hi Nathan,
      I only use the Medium-Long Term Model for myself. 100% of my own capital is dedicated to this.
      I use the Short Term Trading Model for managing someone else’s money.

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