A Quarter to Remember

The downturn in the market that occurred in late July coincided with the final adjustment that was made to CMI 3.0. This adjustment is slowly morphing it into the CMI 'Final Version' or CMI 4.0, or maybe another cooler sounding name yet to be revealed.

Although the year-to-date performance for the CMI 3.0 is hovering around the zero line at the moment, the new version ( occasionally tracked in the sidebar under AlphaMonkey) is holding a 21% gain for the year back-tested though June and forward-tested since then.

The chart below illustrates the two-month performance of the CMI 3.0 versus the S&P 500. Even with the wild swings, the action of the green line representing the CMI is doing what it has always been intended to do, which is to make gains (times two using QID or QLD leverage) while the market trends up or down, or plummets in this case.



Can you see when the CMI switched over to the QLD for a short time about two-thirds into the chart? This is where the green CMI line and the red S&P line move in the same direction. Not quite perfection but not too bad either, even with the poor transition that occurred between the last QLD to QID trade when the market gapped down while the CMI was still holding the QLD, tacking on a quick 5% loss overnight.

While the retirement savings may have taken a beating for some during the previous quarter, the CMI gained back 15% and held on tight during an unusually volatile, trend system killing period. The two month chart illustrates why the CMI was developed way back in 2008, which was to exploit market trends in either direction rather than allowing the negative trend to exploit market participants.

Even with all of the trial and error since 2008, the CMI has finished every year with strong gains. The year of CMI 3.0 (2011) may not follow that trend. On the other hand, 3.0 may have led to a market direction indicator that will establish a new benchmark for other trend-following systems.