Market Map Model: Using Nasdaq Composite And Nasdaq 100 Index

In our first article, we listed low cost Exchange Traded Funds that could be utilized by the Market Map models during equity allocation periods; one of those ETF’s being the Powershares QQQ Trust ETF (QQQ). We believe that the constituent companies that make up the Nasdaq 100 index represent many of the best growth company investment opportunities available with the advantage of the index having a 27+ year track record and pricing history. In this article, we will input data for the Nasdaq 100 index (NDX) into the Market Map allocation signaling record as it is the underlying proxy for the QQQ ETF. And, in order to achieve more robust testing, we also employed the Nasdaq Composite index from 1962 through 1987 (as the NDX historical price history starts in 1985).

Going forward, in order to avoid redundancy in presenting historical entry and exit data output from the Market Map model, we will only present the applicable statistics tables. Readers can reference the data for MMap models entry and exit tables in the previous articles here seekingalpha.com/article/1725902-market-map-model-1-tactical-asset-allocation-using-low-expense-index-etfs .

Performance Statistics 1962 – 2013:

Model -stats- Nasdaq 1962

2000 – 2013:

NDX stats Map 2000 - 2013

Model NDX SPX 25 yrs 1989 - 2013

 

As expected utilizing the smaller/mid cap growth stock universe in the model, as represented by the Nasdaq Composite and Nasdaq 100 indices, provide the best returns so far, albeit with more volatility. In our next post, we will implement a Fama and French value portfolio into the Market Map model.

 

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Using Market Map Model with “Sell in May”

The “Sell in May and Go Away” strategy, which entails the investor selling his or her stock holdings or index funds on the first trading day of May and entering back into the equity market on the first trading day of November (thus avoiding the “underperformance” of stocks vs. cash in the six-month period commencing in May and ending in October), has been a popular yet controversial strategy over the years (1). We commend the SIM strategy for employing a simple non-subjective empirical approach in its calculation and for using “fixed” dates for asset allocation changes, similar to the Market Map model.

This article examines the results of a study that we conducted which integrates the variables of the Market Map model with the the SIM strategy. For this study, we employ the “Risk” profiles that we presented in the previous post with the rule set as follows: allocate assets towards the S&P500 index on the first trading day in November and stay invested through the May-October period during years that fit the “Favorable Risk” profile. During years that fall in the “Favorable First 6 month”, “Neutral Risk”, or “High Risk” profiles, exit the S&P500 and allocate assets to cash on the first trading day in ay and allocate assets towards the S&P500 on the first trading day of the upcoming November.

The historical results and comparisons are shown in the tables below.

All Sell in May Signals using SP500 Index ( dividends excluded ):

Sell in May all 2 Sell in May all 1

Sell in May Using Market Map Model:

ScreenHunter_233 Nov. 01 13.19

Statistics:

ScreenHunter_234 Nov. 01 13.43

In observing the comparative results, we can see that a basic use of the Market Map model identifies May through October periods in which to stay invested and thus gain advantages ( transaction costs and tax considerations ), compared to the “fixed” Sell in May strategy. Further performance enhancements can be made using additional components of the Market Map model.

Sell in May with Market Map back to 1923 :

Sell in May with Map 1923 - 1 Sell in Maywith Map 1923 - 2

 

(1) “Sell in May and Go Away “Just Won’t Go Away S. Andrade, Chhaochharia, M Fuerst

Financial Analysts Journal  Volume 69 Number 4 2013
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