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S&P 500 Trading System

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Hi Michael…

Thank you for your comments on the S&P500 in podcast 271. Very good insight into the nature of the index and how it is used (or misused). As one of your guests said, buying and holding is like getting in a car with no brakes. I quote that to my clients frequently. When clients ask me what I think the market is going to do I always reply: “I have no clue what the market is going to do. But I know exactly what we are going to do in response to whatever the market does and that will make all the difference.” Once a client asked me, “Doesn’t the market just always go up?” I replied “Yes, the market always goes up. Sometimes.” This summer I made some road trips with my wife and daughter and I listened to about 2 dozen of the podcasts in the car. I am pleased that my 13-year old daughter got to absorb wisdom from the likes of Walter Williams and others. Your podcasts are a priceless gift to investors. An important benefit that I receive from them is confirmation that I am on the right track. Being a trend follower in a world brainwashed by Modern Portfolio Theory can be lonely. I have attached the first 20 months performance report from trading the S&P leveraged index funds using a trend following strategy.

Thanks for all you do.
[Name]

You are welcome.

Ep. 271: The S&P 500 Trading System with Michael Covel on Trend Following Radio

The S&P 500 Trading System with Michael Covel on Trend Following Radio
The S&P 500 Trading System with Michael Covel on Trend Following Radio

Michael Covel starts off today’s podcast by playing “Soothe Me”, a classic song. There’s no doubt about it: it’s soothing to have all-time highs in the equity market. Today, Covel wants a different perspective from what is out there in mainstream media. First, Covel talks about the S&P 500 index. The S&P is a trading system. It is a specific grouping of stocks put together with certain weightings and certain rules, and it trades in a certain way. And it has to stick to those rules. Covel talks about how the S&P is a system despite most people not knowing that it is one. Covel compares this system to a trend following system (and notes how trend following is applicable to stocks too). Covel talks about the dangers of correlation if you apply your trend following strategy to only equities, and the importance of diversification across different markets. Next, Covel looks at the S&P system vs. trend following systems in the context of crisis, and questions where the S&P would be without zero interest rate policy and Fed intervention. Is the S&P trading system that good that it will be at all time highs forever? Covel moves on to talk about black swans and anti-fragility in the context of the S&P trading system. Finishing up, Covel discusses absolute risk and relative risk.

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