A Discounted View

Over the past year, investors have been lulled into a complacent state by the exceptional returns in the market accompanied by low volatility in price action. However, as of Tuesday the S&P 500 (SPX) experienced its largest recent one-day drop of -1.09%. Daily Perspective On the daily chart today’s drop in SPX is clearly defined as it deviates from the uptrend that has formed since the beginning of 2018. While we navigate through earnings season, the gap-down in SPX represents a meaningful difference in sentiment among market participants relative to the rest of January. As constituents of SPX continue reporting earnings, expectations are being repriced into the index. In the meantime, there are some noticeable developments on the daily chart . For example, the gap lower was so pronounced that the daily Relative Strength Index (RSI) finally closed below its overbought level which SPX had maintained throughout all of January 2018. At the very least this sign...

Harry Markowitz, the founder of Modern Portfolio Theory, once said that “diversification is the only free lunch.” Decades since his seminal work in developing mean-variance efficient portfolios that maximize return for a given level of risk, this adage still holds true in most market environments. It is common practice for fund managers to diversify among asset classes based on Markowitz’s findings. However, diversification with his methods can be taken one step further .  While diversifying your account in all suitable asset classes is worthwhile, a trader can also diversify an account with different trading styles which will create uncorrelated return streams. For example, Perry Kaufman suggests that a well-diversified trader has an ideal mix of three, maybe four, unique strategies. Generally speaking, these three trading styles can be categorized as Trend Following , Mean Reversion , or  Pattern Recognition . Furthermore, styles can be differentiated by time horizon....