DMI analysis

In this first test we will apply the Double Momentum Strategy on the combination of the Nasdaq and the Physical gold and silver trust. This combination is a good illustration of the power of this strategy, because there is little correlation between both.

For the Physical gold and silver trust, we have data going back to 1986. We’ll start our analysis with the optimal intervals we calculated for the complete 34-year period from 1986 till 2020. In this combination and for this period, the optimal interval for the Nasdaq is 295 market days, for the Physical gold and silver Trust it is 110 market days

Summary of the strategy

  • Double Momentum
  • Underlying ETF/fund and interval used
    • Nasdaq with interval 295
    • Physical gold and silver Trust with interval 110 market days

Results

Analysis

Returns with this strategy are excellent. The CAGR for this period is 13.8%. This is much higher than the 10.5% CAGR of the Nasdaq in the same period.

We see the strategy has had an important breakdown in both bear markets in this period, but much less pronounced than the Nasdaq. Let’s zoom in on these bear markets.

Top and bottom Nasdaq after dotcombubble
Top and bottom DM after dotcombubble

From a top at 1214 on March 10, 2000 we see the Nasdaq going down to the bottom at 267.9 on October 9, 2002. A breakdown of 77.9%.

The Double Momentum strategy also reaches a top on March 10, 2000, at a value of 1135. It reaches the bottom on December 15, 2000 at 521.7. A breakdown of 55.4%. Still a terrible experience for investers. But by limiting the breakdown in this terrifying period, the strategy lays the foundation for its outperformance over time.

Top and bottom of Nasdaq and DM during financial crisis bear market

When looking at the charts during the financial crisis, we see the strategy does an even better job. The Nasdaq goes down from 687.5 on October 31, 2007 to 305 on March 9, 2009. A breakdown of 55.6%.

The Double Momentum strategy is at 1135 on October 31, 2007 and reaches a bottom afterwards at 922.3 on January 22, 2008. The breakdown is limited to 18.7%. Again the Double Momentum strategy demonstrates its value during a bear market.

Now, finally, let’s look back at what happened with this strategy in 2020.

DM and Nasdaq during correction at the beginning of the COVIDpandemic

During the Pandemic-correction in the first half of 2020, the Double Momentum strategy had a breakdown of 29.7% from Februari 2 till March 16. This is almost the same as what happened to the Nasdaq: -30.11% between Februari 2 and March 23. The Nasdaq as well as the Double Momentum strategy recovered very rapidly and similarly: on June 5 and June 3 respectively, the losses were erased.

DMI analysis part 2