This week saw equity markets swoon about six percent all over the world. Entering this week, ZYX Long Short Equities Allocation Model was 44% long and 56% short. Followers of this model clearly profited from the market drop.
Our ZYX Multi-Asset Global Allocation Model was net 3% short on equities ahead of the downturn. Majority of the open individual positions have also been short correctly forecasting a swoon.
We expect a short term rally as the market is very oversold. Aggressive accounts should use tight trailing stops on short positions to protect the profits from this week, exit them or fully hedge them. In the event of a rally, we recommend using technicals to get short again at the swing top. Those accounts interested in less turnover should maintain core short positions, but fully hedge all short positions including those in both allocation models with futures. Please see the update on the Allocation Model page.
Long only accounts may want to generate extra returns by adding to positions right here and on rallies selling not only the new positions but also reducing long equities exposure in the very short time frame. The eventual low of this cycle may be an excellent opportunity to increase long exposure for the intermediate term.
The fore mentioned likely pattern is only a guidepost for the purpose of rough advance planning. We suggest taking actual trading actions based on the screens of the ZYX Change method with up-to-date data.
At this time, we issue an official update to our allocation models and individual trades to fully hedge all short positions for the purpose of tracking our performance. Results of all exits will be added to the cash positions.
