First, a little background. Amongst the many US Equity models I run, two are simplistic Momentum and Mean-Reversion. They serve as a rough idea of what the market has been favoring.
For a couple of years prior to Aug '07, Mean-Reversion had been a clear winner after which Momentum and Reversion have swung wildly back and forth, jostling for leadership.
Well, today (Monday) we went into uncharted territory in terms of the spread : Mo-Rev! There hasn't been a one day lead of MO over REV of that magnitude in at least 4 yrs.
And each of the last few uncharted territory peaks in the same direction (esp when Mo has been leading for a little while, as is the case now) marked a reversal of that strategy (pun intended) into Mean-Reversion leadership.
Luckily, there's a fairly clear cut signal that confirms the change in tide, and I'll be looking for that during this week. Email me if you'd like to be kept in the loop.
If you're a MO player, and you'll know you are if today has been a terrific day for you, or like me have recently been MO b/c it's what has been working, I hope you had a good time, it's most likely about to change soon.
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