Over the long-term, auction markets are driven primarily by fundamental forces. Corporate earnings, economic shifts and even demographics determine the ultimate direction of stock, bond and commodity prices.
In time frames of less than one year, however, those same forces have much less impact. More technical factors, such as supply and demand, have a greater influence over whether prices will temporarily rise or fall within the context of the larger fundamentally-driven trends.
As prices make a prolonged move in one direction, there is a strong tendency for participants to expect that move to continue. In the case of the broader stock and bond markets, that tendency rarely persists as prices revert to a moving mean. The Behavioral Advantage Managed Account attempts to capitalize on those times when it becomes apparent that a mean-reversion is most likely to begin.
The tools we use for those determinations are primarily breadth and sentiment based. We use a collection of rigorously tested measures that have a history of successfully identifying periods of behavioral extremes, at which time we look to go the other way.
This is a contrarian mindset, but that can get investors into trouble easily. Because of that, we take the overriding trend into consideration before trying to swim against the tide. Historically, the very best buying opportunities arise when we observe conditions of excessive pessimism in an environment where the longer-term forces are driving prices up.
The Exclusive ETF Program utilizes leveraged and un-leveraged exchange-traded funds, primarily concentrated among the major equity indices. It is a higher-frequency program that attempts to capitalize on the short and intermediate term gyrations that trigger breadth and sentiment based extremes.
To learn more about the sentiment extremes that trigger market moves please visit www.sentimentrader.com. Jason Goepfert publishes daily information and analysis for subscribers to his publications.