This system goes to cash anytime the S&P 500 is trading beneath its 50 day simple moving average. However, since the Fidelity sector funds must be held for 30 days lest a .75% penalty be incurred, the system doesn’t always go to cash exactly on the day that the S&P 500 closes beneath its 50 day average. This is indeed the current state of affairs. One of the funds held by the system was purchased on June 19th, and is thus still being held. The other two funds were sold on the close of June 21st, which is the day after the close beneath the 50 day average. The system takes end-of-day signals and acts on them at the next close.
Fidelity Sector Funds Rotational System: 9.9%
$SPY Buy and Hold: 11.3%
If the market continues to correct, it is possible that the system’s underperformance will be mitigated, and the system may even catch up or get ahead of the S&P, since it is 66% in cash. If the S&P takes off from here and re-takes its 50 day average, the system will be even farther behind.
The max drawdown year-to-date for the system is at 5.25% while the $SPY max drawdown year-to-date is 6%.
Top Ranked Fidelity Sector Funds
The top five funds, as ranked by the system, are as follows:
- FSPHX (Healthcare)
- FSPCX (Insurance)
- FBIOX (Biotechnology)
- FPHAX (Pharmaceuticals)
- FSDAX (Defense and Aerospace)
My Gut Feeling
Of course I am biased as I trade the system in a Fidelity 401K, but I believe the S&P goes lower which will give the system a chance to catch up. The wild card may be a squeaker close above the 50 day average before a reversal lower. If this happens, the system will once again be 100% long and will catch any downside while having missed the previous move back up to the 50 day average. That is the worst-case scenario.