Tango5 Members Update                                            051209

New TangoETF Bear Market Strategy 

What's New With the Bear State Signal? 

For years I have been working my way through Bear Markets not being satisfied with the results. I had announced earlier a new Bull State Bear State Risk Management Model allowing a decision to go 50% into Inverse Funds at an opportune time for profiting from a market decline. That is set in place and the next Market Risk Model (tango6x) sell the Sample Portfolio's will go long an Inverse Fund provided we are still in a Bear State at that time. We may not be in a Bear State since the Bear Market risk has improve and we are moving toward a Bull State. But if the markets turn and get worse we will be in a much better position to deal with such an event.

I have made one more change in the Sample Portfolio's strategy which I am announcing today. During the Bear State when the Market Risk Model (tango6x) goes on a buy the Sample Portfolio's will only invest 50% of the capital in the selected Long Funds recommended. This change again comes from a long history in dealing with Bear Markets. The Bull rallies in Bear Markets are mostly created from short covering and therefore are violent up moves and short lived. Thus it is difficult for an Intermediate Term trading system to make a profit. Why not just stay in Money Market during the Bear State? This is an option, but I don't want to miss the first part of the next Bull Market since these are the highest profit times of all markets. Being 50% invested during the Bear State gives us skin in the game when the new Bull Market arrives.

These two changes during the Bear State, using using 50% Inverse and 50% Long based on the Market Risk Model (tango6x) will reduce volatility (Risk) and increase return as compare to the old strategy of 100% Long and 100% Money Market based on tango6x during Bear Markets. Is this perfect? No, but most of the time it will put you in the best position to deal with Bear Markets.

As a user of TangoETF this gives you a great deal of flexibility and several options you can decide on for these Bear Market Periods. If you are very risk averse you can just stay in Money Market through out the Bear State periods and sleep well. Another option during the Bear State, you could use the 50% Inverse during the tango6x sell and stay 100% in Money Market during the tango6x buy. As you can see there are even more options the user can decide on. The Sample Portfolio will use the trading strategies outlined above in the first three paragraphs.

Below are two graphical representations of the Bull State Bear State and Market Risk Model (tango6x) which may help visualize how these signals work together. The first graph shows The Aggressive Model equity curve and below it the bottom green/red bar is the Bull State Bear State signal and green/red bar above that is the Tango6x signal. When the red portions overlap is when the sample portfolio's would use the Inverse Fund.

The second chart shows a longer period. The green chart is the Russell2000 with the Market Risk Model (tango6x) applied and the bottom green/red bars as described above.

I will keep you informed on the Risk Models and have more on this on the web site soon.  

Market Comments

The market has gone to far to fast and is due for a pullback. When this occurs and how far down no one knows, but be ready for it mentally. It is still best to follow the models. Here is an article from DRUDGE Market Head Fake that has some interesting stats.

Following the Models, Don  

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