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A directional, multi-dimensional momentum of the U.S. stock market for trend following  Thumbnail

A directional, multi-dimensional momentum of the U.S. stock market for trend following

The Standard & Poor's 500 index rose 1.9% this week, led by the materials sector.

We've been studying and trading momentum for 25 years and always emphasize the basics. 

These charts show the S&P 500 stock index over 12, 9, 6, and 3-month momentum, or rate of change, and the directional trend is labeled with simple trend lines. 

Despite all the conflicting macroeconomic news, the current trend is up, and trend-following systems are long the stock market. 

This isn't to say it's risk-free, it never is. 

Our firm's prime broker and custodian of our managed portfolios, Goldman Sachs, points out a busy calendar of macro-catalysts over the next 4 weeks (payrolls, CPI, Powell, BOJ, ECB, Fed, BoE, China activity data, and Two Sessions) make the markets vulnerable to a downside surprise. 

There is no shortage of uncertainty about the future price of stock trends, so we direct and control our portfolio risks by knowing in advance when we'll exit our positions if they trend against us. 

I shared an idealized example on Twitter on January 7, 2023. 

The trick for asymmetric risk/reward payoffs is predefining the risk and letting it rip for the reward.

Mike Shell is the founder and Chief Investment Officer of Shell Capital Management, LLC, and the portfolio manager of ASYMMETRY® Managed Portfolios. Mike Shell and Shell Capital Management, LLC is a registered investment advisor focused on asymmetric risk-reward and absolute return strategies and provides investment advice and portfolio management only to clients with a signed and executed investment management agreement. The observations shared on this website are for general information only and should not be construed as investment advice to buy or sell any security. This information does not suggest in any way that any graph, chart, or formula offered can solely guide an investor as to which securities to buy or sell, or when to buy or sell them. Securities reflected are not intended to represent any client holdings or recommendations made by the firm. In the event any past specific recommendations are referred to inadvertently, a list of all recommendations made by the company within at least the prior one-year period may be furnished upon request. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities on the list. Any opinions expressed may change as subsequent conditions change. Please do not make any investment decisions based on such information, as it is not advice and is subject to change without notice. Investing involves risk, including the potential loss of principal an investor must be willing to bear. Past performance is no guarantee of future results. All information and data are deemed reliable but are not guaranteed and should be independently verified. The presence of this website on the Internet shall in no direct or indirect way raise an implication that Shell Capital Management, LLC is offering to sell or soliciting to sell advisory services to residents of any state in which the firm is not registered as an investment advisor. The views and opinions expressed in ASYMMETRY® Observations are those of the authors and do not necessarily reflect the position of Shell Capital Management, LLC. The use of this website is subject to its terms and conditions.