Market-Regime Momentum Strategy with ETF Breadth and Small-Cap Stocks

Summary

This strategy uses a market regime filter built from momentum across 11 sector and style ETFs. It measures each ETF against a 25-day moving average and treats the broad market as showing momentum when at least six ETFs qualify. The portfolio buys small-cap stocks trading above their 15-day moving averages only when this market signal is active, rebalances on the second trading day of each month, and moves fully to cash when the regime measure falls below its threshold.

The author says the regime filter is intended to address weaknesses in ordinary momentum strategies and reports having backtested the approach, but gives no numerical performance details. The article notes that the chosen 15-day stock signal performed better than a 25-day signal in past data, while explicitly cautioning that this may not persist. It also reports that small-cap momentum underperformed the broad market over the most recent year discussed, attributing this to post-crash adjustment needs, and acknowledges that a single regime cutoff may be too simple.

Key ideas

• The market regime signal aggregates moving-average momentum across 11 ETFs.
• The strategy holds small-cap stocks above their 15-day moving averages when at least six ETFs show momentum.
• It rebalances monthly and exits to cash when the regime measure falls below one.
• The author reports historical backtesting but provides no numerical performance results.
• Recent small-cap momentum weakness and a simple binary regime threshold are acknowledged limitations.

Tags

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