7/12/2015 Summary of the Model

Strategy Description

The “Mousetrap” selects industries that appear to be experiencing panic washouts, which would cause their representative stocks or ETFs to be selling at a discount to their growth potential.

Rather than timing market momentum, then, the model looks for mean reversion. It is primarily a defensive model which performs with greater alpha in bear markets than in bull markets.

The one weakness appears to be at the end of a major market trend, when mean reversion gives way to euphoria at a market top or despair at a market bottom. There can be no exit strategy for these events, since the terminal ranges for trends are far shorter than the typical lifetime of the trend itself. In other words, by the time someone would exit, the model would be ready to recover.

Methodology

Breadth, Volume, and Price tend to work in parallel.  The technical aspects of the model measure long term discrepancies between volume, breadth, and price. When the median return rate of an industry is significantly underperforming breadth and volume, the model selects an ETF or stock that is likely to track that industry.

Since stock selection cannot be back-tested, the technical ETF version will be used to compare back-test and live trade returns (since 5/31/2011).

Yearly Returns
	Sector	S&P	Alpha
2014	36.12%	11.39%	24.73%
2013	42.36%	29.60%	12.75%
2012	28.95%	13.41%	15.54%
2011	6.23%	0.00%	6.23%
2010	17.54%	12.78%	4.75%
2009	58.07%	23.45%	34.62%
2008	-16.37%	-38.49%	22.12%
2007	21.85%	3.53%	18.32%
2006	17.82%	13.62%	4.20%
2005	-0.49%	3.00%	-3.49%
2004	30.96%	8.99%	21.96%
2003	36.48%	26.38%	10.10%
2002	-7.58%	-23.37%	15.79%
2001	25.68%	-13.04%	38.72%
2000	18.47%	-10.14%	28.61%
1999	35.30%	19.53%	15.78%
Trailing Returns
	Sector	S&P	Alpha
YTD	-9.72%	0.86%	-10.58%
1 Year	0.00%	5.70%	-5.70%
3 Years	103.02%	54.80%	48.22%
5 Years	203.88%	92.64%	111.23%
10 Years	443.16%	69.91%	373.25%