Tactical Asset Allocation – April 2023

Tactical Adaptive Strategies Update


Adaptive Global finished the month with a gain of 0.72% and a YTD gain of 3.20%.  Adaptive Global is our most broadly diversified “go anywhere” strategy with a 22+ year CAGR of 14.3%, a very modest maximum monthly drawdown of 7.7%, and a low 9.4% standard deviation of monthly returns.

Adaptive Income finished the month with a gain of 0.32% and shows a YTD gain of 1.60%. With a 22+ year CAGR of 9.2%, this strategy captures $6 dollars of gain for every $1 in loss. Adaptive Income sports our lowest maximum monthly drawdown of 3.9% and our lowest volatility with a monthly standard deviation of just 4.2%.

The S&P 500 finished with a gain of 1.60% for the month and a YTD gain of 9.18%. It has a 22+ year CAGR of 6.5%, maximum monthly drawdown of 50.8%, and monthly standard deviation of 15.4%.

The iShares Aggregate US Bond Fund  (entirely investment grade) finished the month with a gain of 0.57% and a YTD gain of 3.82%. It has a 22+ year CAGR of 3.0%, maximum monthly drawdown of 17.1%, and monthly standard deviation of 4.2%.

For details, see the links below to strategy descriptions, charts, and tables or the Insights page.



April, during which both stocks and bonds have wandered up and down, has been a microcosm of the past five months. The Adaptive Global and Adaptive Income strategies, which experienced several reversals in direction during April, are having a challenging time dealing with the absence of a trend. I suspect we are getting close to seeing an end to the sideways chop.

Market Conditions Model

Several years ago, I invested a good deal of time in researching and testing improvements to our Market Conditions Model but was unable to come up with anything which works as well as the second generation model we’ve been using since 2018.

Of the 280 months since January 1, 2000, 108 have been Favorable with 24%+ CAGR, 90 have been Balanced with 9.3% CAGR, and 82 have been Hostile with 7.3% CAGR. Improved identification of Favorable conditions would contribute meaningfully to overall strategy performance. I have spent much of April researching potential improvements to the Market Conditions Model which I hope to begin testing in May.

What Do Our Models See?

Market Conditions Model: The Market Conditions Model, which has been oscillating between Hostile and Balanced conditions appears to be more reflective of indecision than a firm trend.

Tactical Model: The Tactical Model calculates TrendScores for both short and intermediate trends for all 27 of the funds we use. The current environment is marked by a great deal of uncertainty. 17 funds show positive trends; however only 3 of these rank “high” in confidence for trend persistence. Again, this is most reflective of indecision.

Subscription Change (reminder)

We are shifting from one-time annual subscriptions to recurring quarterly. While this entails some additional effort and costs, we trust that subscribers will find it a bit easier on the wallet.

Market Monitor

Note: Market Monitor is a structured weekly process of compiling and analyzing critical information about the health of the markets. I've been doing this for nearly four decades. These are personal observations which have no effect on the TAAStrategies.

From the April 28th Market Monitor

The major market indexes were mixed for the week. Big caps and Housing advanced while small caps, mid caps, Broker Dealer and Banking declined. Both intermediate and short term trends remain neutral. Equity market valuations remain extremely elevated, especially considering the steep rise in interest rates.

Back In February I wrote that I expected the S&P 500 to trade in a range of 3900 to 4200 and nothing has happened yet to move price decisively one way or the other. The S&P 500 targets 4205. The odds favor an eventual range breakout to the downside unless we see a reversal in the Fed balance sheet.

Cumulative Advancing Declining Volume remains decidedly negative. The divergences to price action on an intermediate term basis point to a likely rally failure.

The Credit Markets Index has improved significantly although it remains a negative -13%. Spreads to Treasuries are flattening and the trend of rising yields is flattening somewhat. It is becoming difficult to identify a trend here as many are range bound. The improvement is supportive to both equity and debt markets. That said, there is considerable evidence of much tighter credit for small and mid cap companies.

The 10 year Treasury fell this week by 12 basis points to 3.45%. The downside target at 3.20% held support. 3.7% should provide resistance on the upside but would prove worrisome if broken.

Across other metrics:

  • The ValueLine Weekly Model moved to a Buy signal on March 31 (signals generally last several weeks/months); however it is diverging from the most recent rally leg.
  • Both VIX Models moved to Buy signals on March 31.
  • The Short Term Breadth Model is negative for both issues and volume (risk off)
  • The switch from consumer discretionary to staples continued this week  (risk off)
  • The growth/value ratio is favoring growth (risk on)
  • The Speculation Index continues to fall (risk off)
  • 5 of 7 former big tech market leaders are showing accumulation (risk on)
  • Inflation expectations are moving down (risk on)
  • Precious metals and petroleum have turned bullish
  • The 10 year/3 month Treasury spread remains at a historically negative level of -1.47%, continuing to indicate severe risk of recession

The underlying story in equities is a half dozen stocks driving the big cap indexes higher while small and mid cap stocks have languished. This is not a healthy market; however it is possible that the few favorite mega cap stocks will drive the big cap indexes higher. We saw this happen for an extended period in the late 90’s; however the interest rate environment was nothing like what we are currently experiencing.

Overall, the credit and equity markets appear to have stretched quite far on optimism. The significant pullback in equities I expected into month-end did not occur; however the S&P 500 is approaching the upper end of its range and there are strong signs that the optimism is overdone, not the least of which is the extremely poor breadth.

Thank you for reading.

Earl Adamy

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Exceptional results are due entirely to the complementary strengths of our Market Conditions Model and our Tactical Model.