Market Regime Filtering with Strong Industries and Momentum Stock Selection

Summary

This strategy estimates whether the equity market is entering a bear phase by measuring the share of industries whose recent average price exceeds a longer-period average. If that share falls below a chosen threshold, it treats the market as bearish, sells all holdings, and stops buying. In other conditions, it ranks stocks by relative price strength, then filters candidates for price and moving-average momentum before retaining the strongest names. The method combines a market-wide regime filter with cross-sectional momentum selection.

The article reports backtests across a 2015–2016 bull-to-bear transition, comparing use of the regime filter, industry index definitions, lookback periods, and threshold settings. It says the filter reduced drawdowns and improved returns in those tests, with selected settings performing best among the limited values tried. These findings are specific to the reported period and backtest setup; the article notes that parameter testing was sparse and that longer averaging periods may respond more slowly.

Key ideas

• A declining share of industries with positive price trends is used as a signal of a possible bear market.
• The strategy exits all positions and suspends new purchases when the strong-industry share falls below a threshold.
• In bullish conditions, stocks are ranked by relative price strength and filtered using short and longer moving averages.
• The reported backtests compare market filters, industry measures, and parameter choices, but cover a limited historical episode.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.