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Signs of recession are all here

We have pointed out that a recession is quite inevitable for the US economy (see here). A recession is usually joined to a bear market on stocks.

Nevetheless, the HST model is suggesting an "Aggresive Long" position, holding $QQQ / $TQQQ according to risk profile.

Why is that? Why don't we stay OUT (=cash) of this market, since we know the bear market has just started, and it could last for many months?

It is a reasonable position, indeed.

Cash IS a position, and it would put us out of any risk of more drawdowns.

But here's the thing: as you know, the model is pure math. This math has proven to work great in our backtests, and this math is what we offer to members.

Then we have our own opinions about the future. [The backtest of my opinions turned out to be much worse than the HST model's performance]
My current underline opinion is that:

  • The real economy is going to suffer a lot in 2020, maybe also in 2021,
  • A "V-shaped" recovery is just a possibility, not a certainty. I wouldn't bet on it,
  • On the contrary, I think that we haven't seen the "final" bottom of this bear market.

How HST model behaves

But, even in bear markets, there are internal rallies, and the model is designed to try to catch them.

Indeed, economy has influence only on the Fundamental Indicator (which is negative now, and will be for a long time I think), but it does not affect the 2 technical Indicators of the model.
That's how the model is designed. During bear markets the model can jump in and out many times. Sometimes profiting, sometimes, losing.

After some time, economy will turn to recovery, and one bottom will be the LAST bottom. The following rally will be the start of the new bull market, in its most profitable part.

Let's see how HST model worked during bear market 2000-2003:

The HST model jumped in-out many times. Note that - being the Fundamental Indicator NEGATIVE - HST has been alternating only Aggressive Long / CASH positions.
The "Moderate Long" position was out of the table for the whole bear market, as it is now (April 2020).

Was it worthy? See period 2000-2003: after all, the investment made with HST showed no gain, as much as being CASH from 2001 to 2003.

It was worthy: in this way the HST model could catch the final bottom in 2003, and profiting a lot since then.

Bottom line

To a cautious investor, I would say that there is no problem in staying cash despite the HST model.
Our suggestion is to apply the model with reduced sizes of positions.
If proven wrong - let's assume that a new bull market is already starting now - an investor would benefit less of it. Normal.
But he would suffer smaller drawdowns in case of other coming drops, as happened in 2000-2001-2002.

In all our calculations and graphs, we assume that ALL the capital is invested, just because we want to get and to show a clear picture of the performance of HST.
In real life and real money each investor should decide, moment by moment how big is the risk he wanna take.

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Who is Hari Seldon

(from Wikipedia)

Hari Seldon is a fictional character in Isaac Asimov's Foundation series.

In his capacity as mathematics professor on the planet Trantor, Seldon develops psychohistory, an algorithmic science that allows him to predict the future in probabilistic terms. On the basis of his psychohistory he is able to predict the eventual fall of the Galactic Empire and to develop a means to shorten the millennia of chaos to follow. The significance of his discoveries lies behind his nickname "Raven" Seldon.

Our team decided to dedicate this work and this model to this amazing character, creating the even-more-fictional character of "Hari Seldon Trader".