The S&P500 model is a short-term LONG-SHORT model which uses the market breadth indicators as well as several technical indicators to generate Buy and Sell Signals on S&P500. I have backtested two different approaches of using the model: 1) Long Only and 2) Long-Short. The following analysis presents the data for both of these approaches.
RECENT MODEL SIGNALS
The chart above shows the S&P500 model signals for the last year. I have backtested the model since January 01, 2017.
One of the ways to use the S&P500 model is to take long positions when the model flips LONG and stay in cash when the model is SHORT.
The results of this approach are shown in the summary table below. The strategy yielded 84% return since 2017 compared to the 104% return of the underlying SPY for the same period. While the win rate is slightly above 50%, the strategy is still profitable because the average winning trade is 2.2% compared to the -0.9% of the average losing trade. The strategy’s profit factor is a solid 2.2. Also, note that the long-only strategy’s maximum drawdown is 11.7% compared to S&P500 -21% drawdown in 2018 and -36% drawdown during the 2020 COVID crash.
The Back-Test Results: Long Only Strategy
The Long-only Strategy Equity Curve
Using the strategy to enter both long and short trades is also profitable, however, generates somewhat lower results compared to the underlying ETF SPY.
The long-short strategy return since January 1, 2017 is 53% compared to the 104% return of the underlying. This is not surprising since the market has been mostly in a bull market since 2017 (2020 crash lasted only 2 months).