### Review of the Quantified Market Psychology Strategy

**December 21, 2023** - Strategic Allocation

At the suggestion of one of his subscribers, Willi Bambach requested independent review of his 1g QMP [Quantified Market Psychology] strategy, tracked since December 2007 on TimerTrac. To facilitate a review, he provided a brief description of the strategy and a medallion (https://timertrac.com/private/medallion.asp?mlid={CDD4AEE6-2A1D-4917-A571-DF23C884D1D3}) to enable public access to the strategy on TimerTrac (very slow to load and may no longer work). The strategy has asset universe, asset allocation and position leverage components as follows:

- Asset universe:
- Cash in a money market fund (with assumed 2% fixed yield).
- SPDR S&P 500 ETF Trust (SPY)
- iShares 20+ Year Treasury Bond ETF (TLT).

- Allocations as signaled mostly per the following three steps:
- Examine differences between FactSet consensus analyst earnings forecasts and actual earnings for S&P 500 stocks.
- Relate these differences to earnings release price reactions of respective stocks.
- Translate this relationship into a sentiment signal that specifies allocations for Cash, SPY and TLT.

- Leverage (with assumed 0.5% fixed financing cost) for SPY and TLT positions added in 0.5 increments as long as three conditions hold for inception-to-date data (as the sample grew, this approach evolved to constant 2X leverage over the last five years):
- Standard deviation of 1g QMP returns is lower than than that for the S&P 500 Index.
- Downside standard deviation of 1g QMP returns is lower than that for the S&P 500 Index.
- 1g QMP Ulcer Index is lower than that for the S&P 500 Index.

Data available via this medallion include a list of 1g QMP allocation changes by date (see the table at the end). For testing 1g QMP, we do not attempt to replicate allocations. Instead, we apply a set of tractable assumptions to them and test versions of 1g QMP with 1X (no leverage) and 2X leverage. We use SPDR Bloomberg 1-3 Month T-Bill ETF (BIL) for cash to approximate money market yields and avoid estimating settlement delays. We supply 2X leverage by substituting ProShares Ultra S&P500 (SSO) for SPY and ProShares Ultra 20+ Year Treasury (UBT) for TLT. We focus on net average daily return, standard deviation of daily returns, daily return/risk (average divided by standard deviation), compound annual growth rate (CAGR), maximum drawdown and annual Sharpe ratio. We use average end-of-month 3-month U.S. Treasury bill (T-bill) yield during a year as the risk-free rate for that year in Sharpe ratio calculations. We do not include partial years in Sharpe ratio calculations. Using the list of strategy allocation changes and daily dividend-adjusted prices of BIL, SPY, TLT, SSO and UBT during 1/25/2008 through 11/30/2023, *we find that:*