Flagship SPX System Signals: The Guide
Essential Links
System Signals: Flagship SPX
Origin and Details
I embarked on creating my Flagship System more than 15 years ago…
The main goals:
Limit draw-downs.
Compound positive returns in good years.
And….Sleep at Night when everyone else is freaking out when Volatility Hits.
Create a Northstar to keep me on right side of Market for Large Trends
Take emotions and stress out of when to exit and enter
Core components of the Algorithm that generates the System Signals:
I went back through all prior big Market draw-downs & Bear markets. I studied them from lots of different angles. This process was not overnight it was over years. I noticed certain risk characteristics that emerged from them.
As Mark twain prophetically stated: “History doesn't repeat itself, but it often rhymes"
The “rhyming” I found was the Volatility structure leading up and inside of market declines. I studied the embedded Volatility 9 ways till Sunday to try to come up with complex math equations that could consistently warn a Hurricane may be coming or you are indeed in one!
Did you know 12 storms are named on average in the Atlantic each year. around 6 get named hurricanes. And 2-3 end up hitting land. But boy when they do hit land it could be catastrophic if you weren’t warned.
My system essentially flags high level alert periods of a market hurricane “potential”. During this hurricane “potential” it simply moves to Cash or what we call Flat.
Sometimes while being Flat those “potential” Volatility Hurricanes hit land. And the system sidestepped a catastrophic draw-down in the market. Sometimes the “potential” volatility hurricanes dissipate and never hit land. Once the “potential” hurricane passes, the System signals will go back to Long.
There are two components to the Long / Flat posture. First is the Volatility component and the second is the momentum/trend/price. And to spare the proprietary details a lot of potential algorithm decisions for those two components. The hardest part of the system signals was actually finding the when to get back in the market, or when flip from a Flat signal back to a Long. Why?
Well the Volatility hurricanes can last awhile mathematically speaking. But when markets are done with their downside, they tend to bounce back decently quickly and some of the initial moves can be pretty powerful. So essentially the easy part was avoiding the draw-downs with the volatility component signals, but by using just the volatility component it took too long to re-enter on the long side.
“I expected the Rocky Mountains to be a little Rockier than this…”.
It was very Rocky!
Enter the Price/Momentum/trend signal component. This took me the longest to figure out. Lots of frustrating weeks, months and years trying to figure out math logic that could be disseminated over varying market cycles. I had multiple different versions that where definitely better in their backtests than using the Volatility component as a standalone.
But the final one used now took the Absolute performance to another level!
So there you have it. The origin and the details.
"Starts with an "S." S- swim, Swamie, S-slippy, Slappy, Slimin, Solmon, Simin, Sal, Swenson, Swanson?
SAMSONITE!
Samsonite story I like to call it.
Details:
All Trades Buy or Sell to Flat are in the S&P 500 (using an ETF or Mutual fund). SPY, VOO, SWPPX, etc.
They are done at the close the day of the trade/transaction. or using closing prices (with the real money trades).
For all backtested numbers in the illustrations are Market on close prices as well.
When the system is Flat - the backtests assume no returns, ie in cash at zero yields. So if in cash for long enough w/ today’s rates a higher positive return could be generated while waiting to re-enter.
Here are the back tested numbers going back to 2015 (I wanted solid 10 years +).
And in late 2023, I started using personal accounts trading the main flagship SPX system signals. So the 12/31/2023 to date numbers are with real accounts of mine that employ the strategy exclusively in them.
Prior to 2024, these are strictly backtested numbers.
10+ year lookback: # of transactions each year, Absolute annual System vs SPX returns, Drawdowns of system and SPX, Standard deviation and Sharpe ratio’s.
*3 month T-bill annual average for year (far right column) was used to calculate risk free rate for Sharpe ratio calculation*
Total Transactions from 12/31/2014 to 4/21/2025 -
Historical lookback:
Worst drawdowns:
surprisingly summer of ‘20 and summer ‘22 for System at -9.59% & -9.22%. that was in the midst of a SPX -9.59% correction in summer of ‘20 and a -16.17% correction, summer of ‘22
SPX worst drawdown was Covid in ‘20 at -33.92% (system was -8.47%) during that particular backdrop
Standard deviation of system and SPX from 12/21/2014 to 12/31/2024
Sharpe ratio’s from 12/31/2014 to 12/31/2024
Visuals of the System at work:
1 year + rolling: 12/31/2023 - 4/21/2025
3+ year Rolling: 12/31/2021 - 4/21/2025
5+ year Rolling: 12/31/2019 - 4/21/2025
10+ year Rolling: 12/31/2014 - 4/21/2025
illustrates the power of avoiding most of the ‘18, ‘20, ‘22 and ‘25 drawdowns…
The power of missing draw-downs is undeniable. It allows compounding at much higher amounts which works astoundingly well. Don’t need to make money back by keeping capital closer to high watermarks.
Combine the lack of crash type draw-downs with a Re-entry Long signal using the price/momentum/trend signal allows the system to maximize risk adjusted returns.
I sincerely hope it helps you stay on the right side of the market and creates that sense of Calm it does for me.
Big Gulps…
PS- I have expressed this Main Flagship system in other markets (some slightly different math due to their inherent characteristics). Those are on the Snapshot screenshot shown regularly. ….Important Info on the other System Signals
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