I've been researching and analyzing a number of rotation / momentum strategies of late (details potentially to follow), which is one reason why I was so interested in the recent GLD / SPY Rotation Strategy posted by Michael Gayed over at The Big Picture. In a nutshell the strategy attempts to follow rolling monthly momentum to allocate between gold and the S&P 500. He concludes:
Of course, past performance is not indicative of future results, but the simple binary decision of being either long SPY or long GLD depending on which is outperforming the others does seem to suggest alpha can be generated.
- The data set is very limited
- The data is from a period in which gold significantly outperformed equities
- Indicates the GLD / SPY index outperformed the S&P 500 because gold in most instances outperformed the S&P 500
- The model actually shows gold and S&P 500 exhibit mean reversion at extreme levels