Small Cap Power Period for 2016 $IWM $TNA $RUT

This is getting to be a broken record isn't it? I know I haven't posted at all in the past year, so I will just call this my annual post on the Small Cap Power Period and hope for the best. The good news is I am changing jobs and have accepted a position with a fintech start-up company in the Silicon Valley that is making tools for traders, so I am pretty excited about that.   I should be around more in the trading blogosphere with my new focus, but enough of my babbling. Without any further ado, The Small Cap Power Period for 2015 2016.

I have been writing about this fourth quarter seasonal trading for many years now and I have attained excellent results applying it to my strategy. Tomorrow, Friday, October 28, is the first day to buy in the first of three sub-periods of this year's Small Cap Power Period.  These "sub 'power' periods are especially potent and consistently positive. They are:

Power Period #1: The last two trading days of October and first two trading days of November

Power Period #2: The last six trading days of November and first three trading days of December

Power Period #3: The last seven trading days of December"

I first read about this some years ago as it is described by AlphaIM for their Alpha Bonds Strategy. They use index funds that give them a beta of 1.5. Quotes/italics in this post is the work of Alpha Investment Management. There are plenty of ETF's out there that track the small cap index fund - The Russel 2000 or the RUT. The directly correlated index fund that can be traded is $IWM. I have previously used $TNA successfully which gives a beta of 3x. This strategy can also be played by finding bullish patterns of small cap stocks that are likely to have a stronger edge during this period. In my experience, it is best played with all three sub-periods.

"These three periods exploit other lesser known 'seasonal factors' in addition to small cap dominance at year end. For example, it is well established that the market does better during the month-end and month beginning period than other times. Also, the market tends to produce above-average returns around holiday periods (Thanksgiving and Christmas).

AlphaIM has been tracking these statistics since 1979. Over the past 36 years, "the 1.5 Beta Statistics shows that the two historical losses have been minor while the average trade has generated gains of 3.2%. Overall, the three power periods have produced an average gain of 9.6% per quarter while exposing assets to market risk just 8% of the time each year.

We know of no other market-based factors which come close to delivering this kind of return with such unerring consistency.

Disclosure: Past performance is not a guarantee of future performance. The Russell 2000 is an index and cannot be used in actual investing. Index funds which replicate the index may not produce returns exactly matching the index. The data presented does not take into consideration fees, expenses or trading costs. Hypothetical or model portfolios also cannot reflect management decisions which may deviate from the methodology presented."

Here is the IWM chart which has certain taken a dip just in time for an entry.


2 Responses for "Small Cap Power Period for 2016 $IWM $TNA $RUT"

  1. Vimal says:

    The strategy hasn't really performed well since 2009 strangely when alpha published their article!

    I think the no of days for each power period is clearly curve fitted

    • Peter says:

      Hi Vimal,

      Thanks for your comment!

      Actually, this is the first year it hasn't worked for me as long I trade all three periods. It worked quite well in the years preceding, so I am not sure if you are not looking at the correct dates or where you are getting this info. In fact, I only started doing it since 2009 and have posted publicly my entries and exits and I always use TNA which is 3x. Since I had a group of folks following me in, we did acknowledge that at least one of the sub-periods often doesn't work so if you don't trade all three, the odds are lower. This year the dates were completely flubbed up but the 4th quarter has been quite strong so I have been trading it according to the charts with regards to the dates. This is the first year it has not worked according to the dates and I believe it is an outlier due to the Trump election. Good luck!

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