In and Out | Status and Heat -Update
TL; DR
Soooo close to being OUT…the InAndOut Heat Signal is on FIRE!
After 457 days of being IN, it is close to being OUT.
Let’s update the data in this article as of 08/07/2024.
Here is the current 50 day graph of the component signals, from Telegram. When the signals simultaneously fall below the 0.95 threshold, that is the Out signal, and the portfolio, be it SPY or 75% SPY + 25% BTC goes to a risk-free ETF, like SHV or cash.
BOTTOM LINE: Out Signal is on Fire, due to fall of SLV/GLD ratio. The previous fall of the XLI/XLU ratio a while ago set the stage, a a small downward movement of the SLV/GLD ration will put the In-And-Out signal at Out for the first time in about 457 days!
Here is today’s signal:
Here are the updated detailed heat graphs. Heat is a measure that tells you how close to being OUT the strategy is.
The SLV/GLD ratio has to move just a tad downward to get it to the OUT level(0.95), and the Heat has to move 0.013 units downward to get it to the OUT level (0.00)
This can happen any day now, so be ready to dump your SPY and add SHV or some other Cash Equivalent ETF.
Once the InAndOut strategy goes OUT, it cannot return to IN for a number of days. This is to prevent oscillations.
Alan & Jeff
It’s been 6 months since we last looked at the In and Out the strategy.
Last time we reported about the In and Out strategy was August 14, 2023, and the results were for August 7, 2023. So let’s look at what happened since August until February 7, 2024.
| Start: 2023–08–07 | End: 2024–02–07 |
| Annual Return | 25.388% |
| Cumulative Returns | 12.178%
| Annual Volatility | 11.738%
| Sharpe Ratio | 1.99
| Max Drawdown | -8.474% | |
It’s been In since August 7, and even ~200 days before that, so this portfolio has simply tracked the SPY for more than a year. That is the beauty of long-term investments, when the momentum is up and to the right. Yet, this algorithmic driven strategy is not a buy and hold strategy, so each week, a check should be made to see if a rebalance instruction has been issued.
FYI, here is a copy of the latest signals and portfolio long term performance, which you can access at the Telegram link: InvestIt Now Channel
And here is the last 50 days of the component signals defined below:
Finally, here are the statistics reported for the past 5 years backtest.
The In and Out strategy by InvestItNow has now been In(SPY) for over 16 months.
Measuring Closeness
We present the research on a new heat map measurement as to how close the signal is to being Out. This measure of closeness is purely empirical, as there is no way to absolutely predict what the signals will do tomorrow, yet you can get a sense of what is eminent, historically speaking, and take action accordingly.
The signal to move this strategy to the Out state is that the rolling average of the price ratio of a utilities ETF (XLU) to an industrial ETF (XLI) and the rolling average of the price ratio of a gold ETF (GLD) to a silver ETF (SLV) must simultaneously be below a threshold, which is empirically estimated to be 0.95.
Here is the chart for the values of those ratios over the last 350 days. notice that when it goes from In to Out, both component signals are below the Threshold of 0.95. Going back in is a bit more complicated, as there is a minimum delay to get back in, and at that time only one of the signals has to get above the threshold.
The heat measure we will use is based on the fact that the Signal is Out when both the Gold/Sliver(GS) ratio and the Industrials/Utilities(IU) ratio both get to a Threshold (Thr = 0.95). So, essentially, how close the pair (GS, IU) gets to the pair (Threshold, Threshold), without going under it. We use the equation
Clip(Value, Thr) = (Value > Thr : Value, Thr)
to clip the signal to the threshold.
And finally the Heat value is the Euclidean distance between, where
n=2, p=(Thr, Thr), q=(Clip(GS, Thr), Clip(IU, Thr))
The diagram below is a graphical representation of that over the past 5 years. Notice the high intensity yellow as the distance gets closer to 0, which is where we switch from In(Thr) to Out(0).
So, we’ve made a Heat rubic, relating the values to words. The idea here is to let you know how close we are to going .
The interval ordering is:
0<= Out < 0.0001 <= Fire < 0.025 <= Hot < 0.05
<= Warm < 0.10<= Cold < 0.15 <= Frozen < 1.0
The heat map for the past 5 years looks like:
Notice that on December 15, 2023, it was closest to 0 since it was last Out(gray), hence close to moving to the Out state. Henceforth, we’ll annotate our signal with the Heat variable, to better inform and aid decisions as to transitioning from In to Out.
Execution Instructions
Our algorithm generates a signal, which you can currently publicly access on our InvestItNow Telegram channel, that tells you when to get “OUT” of the market, and when to get back “IN”. The beauty? You only have to trade between two ETFs: SPY and SHV. You’re either “IN” or “OUT,” making it incredibly straightforward and low maintenance.
For access to much more detailed data about this and other strategies, see our Substack.
Futures
We’ll be embracing our love of research and practicality by offering a free Research paywall of articles that explain our research into algorithmic portfolio creation, analysis and trading. That will be followed by a Trader paywall that’ll allow access to both manually and automatically tracking and trading our signals using our dashboard, while also being able to create the signals from the information given. Finally, we’ll have a Maker paywall that’ll give access to the tools and code that will allow full customization and extension to your own system.
In the future, we’ll have more portfolios we’ll track, first in our free Research paywall of all long-term long-only portfolios. The next two will be a “Fundamental Winners” portfolio, and an “InAndOut-Crypto” portfolio.
The “Fundamental Winners” portfolio signal scans over 8K assets, using fundamental ratios factors, combines the factors into one alpha factor, choses the top ranked assets, then performs a state-of-the-art portfolio optimization for the final portfolio signal asset distribution, on a weekly or monthly basis.
The “InAndOut-Crypto” portfolio signal will follow closely the InAndOut portfolio reported on in this article yet will replace SPY by Bitcoin (BTC). We are excited to be both constructing and presenting long term investment vehicle signals for the crypto space.
Follow along with us to both learn about and participate in this new investment space!
InvestItNow — Alan & Jeff
Originally published at https://investitnow.substack.com.
