TACTICAL ASSET CLASS ROTATION MODELdocs3.hedgeye.com/macroria/TACRM_08312015.pdfsample of observations in its respective trailing n-month period. Easy To Interpret Standardization:

DARIUS DALE: MACRO TEAM

TACTICAL ASSET CLASS ROTATION MODEL

AUGUST 31, 2015

HEDGEYE 2

DISCLAIMER Hedgeye Risk Management is a registered investment advisor, registered with the State of Connecticut. Hedgeye Risk Management is not a broker dealer and does not provide investment advice to individuals. This research does not constitute an offer to sell, or a solicitation of an offer to buy any security. This research is presented without regard to individual investment preferences or risk parameters; it is general information and does not constitute specific investment advice. This presentation is based on information from sources believed to be reliable. Hedgeye Risk Management is not responsible for errors, inaccuracies or omissions of information. The opinions and conclusions contained in this report are those of Hedgeye Risk Management, and are intended solely for the use of Hedgeye Risk Management’s clients and subscribers. In reaching these opinions and conclusions, Hedgeye Risk Management and its employees have relied upon research conducted by Hedgeye Risk Management’s employees, which is based upon sources considered credible and reliable within the industry. Hedgeye Risk Management is not responsible for the validity or authenticity of the information upon which it has relied. TERMS OF USE This report is intended solely for the use of its recipient. Re-distribution or republication of this report and its contents are prohibited. For more detail please refer to the appropriate sections of the Hedgeye Services Agreement and the Terms of Use at www.hedgeye.com.

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HEDGEYE 3

The primary function of TACRM is to provide investors with an unparalleled degree of advanced market color across the liquid global macro investment universe (i.e. asset classes, regions,

countries, style factors and sectors).

TACRM is especially useful in alerting investors to critical breakouts and breakdowns at the individual factor exposure levels and collating those signals in a manner that significantly enhances one’s ability to identify existing or developing fundamental investment themes.

TACRM uses a robust proprietary quantitative methodology to transform a myriad of individual momentum signals at the factor exposure level into amalgamated risk management signals at the primary asset class level. This is especially helpful in quantifying the risk to increasing or

reducing one’s allocation to a particular asset class, at the margin(s).

WHY TACRM?

HEDGEYE 4

Multi-Factor Price, Volume and Volatility: TACRM uses volume-weighted average price (VWAP) data rather than single factor price data to infer the market’s conviction in a directional trend (or lack thereof).

Multi-Duration Short-term (1-3 months), Intermediate-term (3-6 months) and Long-term (6-12 months): TACRM applies a volatility overlay to account for the existence of developing and/or trending fundamental narratives. Specifically, if cross-asset volatility* is rising on a trending basis, TACRM records observations in the smaller of the two sample sizes (across each duration) and, conversely, if cross-asset volatility* is falling on a trending basis, TACRM records observations in the larger of the two sample sizes (across each duration).

Intuitive Z-Scores: For every liquid factor exposure in the world (roughly 200 in aggregate), TACRM computes a standalone Z-Score for each of the three aforementioned observation periods. The baseline assumption is that deviations from the mean in each sample of VWAP data represents the existence of positive or negative momentum. Specifically, a positive value on a specified date indicates that the associated price is n-standard deviations greater than the mean of the sample of observations in its respective trailing n-month period.

Easy To Interpret Standardization: For each date in the model, TACRM computes a simple average of the three aforementioned Z-Scores for each factor exposure. This composite Z-Score is the VAMDMI metric that TACRM analyzes in various manners to produce actionable risk management signals. Moreover, because TACRM’s VAMDMI metric uses a Z-Score methodology to transform VWAP data, it’s signals are agnostic to an individual factor exposure’s historical beta and volatility – thus effectively normalizing the degree to which investors in different asset classes are observing momentum.

TACRM = MULTI-FACTOR, MULTI-DURATION OUR VOLATILITY-ADJUSTED MULTI-DURATION MOMENTUM INDICATOR (VAMDMI) METRIC IS THE KEY DIFFERENTIATOR BETWEEN TACRM AND OTHER QUANTITATIVE RISK MANAGEMENT TOOLS. SPECIFICALLY, THIS CALCULATION OF MOMENTUM COMBINES MULTIPLE FACTORS ACROSS MULTIPLE DURATIONS AND DISPLAYS THE OUTPUT IN A MANNER THAT IS BOTH INTUITIVE AND EASY TO INTERPRET.

*BANK OF AMERICA/MERRILL LYNCH GLOBAL FINANCIAL STRESS INDEX

TOP-DOWN RISK MANAGEMENT SIGNALS

HEDGEYE 6

ASSET CLASS SUMMARY TABLE KEY TAKEAWAYS: OUR TACTICAL ASSET CLASS ROTATION MODEL (TACRM) CONTINUES TO BE DYNAMITE AT PROSPECTIVELY SIGNALING MEANINGFUL INFLECTIONS IN PERFORMANCE AT THE PRIMARY ASSET CLASS LEVEL. IT’S LATEST TWO SIGNALS (SELL U.S. EQUITIES AND SELL INTERNATIONAL EQUITIES) CONTINUE TO APPEAR APPROPRIATE IN SPITE OF LAST WEEK’S SHORT SQUEEZE ACROSS GLOBAL EQUITY MARKETS. THE SIGNALS PRIOR TO THAT – SPECIFICALLY SELL FOREIGN EXCHANGE, SELL COMMODITIES AND SELL EMERGING MARKET EQUITIES – APPEAR EQUALLY AS PRESCIENT. WITH TACRM SIGNALING TO REDUCE EXPOSURE TO ALL SIX PRIMARY ASSET CLASSES, THE ONLY THING FOR INVESTORS TO DO IS RAISE CASH – ALTHOUGH THE “SELL” SIGNAL ON DOMESTIC FIXED INCOME, CREDIT & EQUITY YIELD PLAYS COULD BE SIDESTEPPED BY DEFT FACTOR EXPOSURE SELECTION (I.E. LONG LONG-DURATION TREASURIES VS. SHORT CREDIT – PARTICULARLY JUNK BONDS – AS THE FED RISKS PERPETUATING DEFLATION INTO A #LATECYCLE SLOWDOWN). AS KEITH HIGHLIGHTED ON TODAY’S RTA LIVE PRESENTATION, WE’D BE “SELLERS OF PRETTY MUCH ANYTHING U.S. EQUITIES UNTIL WE GET THE RIGHT FLUSH TO THE DOWNSIDE”. TACRM IS CONFIRMING THAT BEARISH SENTIMENT, WITH NO FACTOR EXPOSURE REGISTERING AS A BUY WITHIN THE ASSET CLASS.

DATA SOURCE: BLOOMBERG

HEDGEYE 7

U.S. EQUITIES


600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

0

1

2

3

4

5

6

7

8

9

U.S. Equities - Cumulative 1-week Forward Return of "INCREASE Exposure" Signal: 66.9%)

U.S. Equities - Cumulative 1-week Forward Return of "DECREASE Exposure" Signal: -23.1%)

S&P 500 Index (Current Signal: DECREASE Exposure)

HEDGEYE 8

INTERNATIONAL EQUITIES


900

1,100

1,300

1,500

1,700

1,900

2,100

2,300

0

1

2

3

4

5

6

7

8

9

International Equities - Cumulative 1-week Forward Return of "INCREASE Exposure" Signal: 34.4%)

International Equities - Cumulative 1-week Forward Return of "DECREASE Exposure" Signal: -38.8%)

MSCI World Excluding United States Index (Current Signal: DECREASE Exposure)

HEDGEYE 9

EMERGING MARKET EQUITIES


400

500

600

700

800

900

1,000

1,100

1,200

1,300

0

1

2

3

4

5

6

7

8

9

Emerging Market Equities - Cumulative 1-week Forward Return of "INCREASE Exposure" Signal: 19.1%)

Emerging Market Equities - Cumulative 1-week Forward Return of "DECREASE Exposure" Signal: -33.9%)

MSCI Emerging Markets Index (Current Signal: DECREASE Exposure)

HEDGEYE 10

DOMESTIC FIXED INCOME, CREDIT & EQUITY INCOME


1,300

1,400

1,500

1,600

1,700

1,800

1,900

2,000

0

1

2

3

4

5

6

7

8

9

Domestic Fixed Income, Credit and Equity Income Plays - Cumulative 1-week Forward Return of "INCREASE Exposure" Signal: 25.6%)

Domestic Fixed Income, Credit and Equity Income Plays - Cumulative 1-week Forward Return of "DECREASE Exposure" Signal: 8.9%)

Barclays US Agg Total Return Value Unhedged USD (Current Signal: DECREASE Exposure)

HEDGEYE 11

FOREIGN EXCHANGE


20

21

22

23

24

25

26

27

28

29

30

0

1

2

3

4

5

6

7

8

9

Foreign Exchange - Cumulative 1-week Forward Return of "INCREASE Exposure" Signal: 7.3%)

Foreign Exchange - Cumulative 1-week Forward Return of "DECREASE Exposure" Signal: -25%)

PowerShares DB US Dollar Index Bearish Fund (Current Signal: DECREASE Exposure)

HEDGEYE 12

COMMODITIES


180

230

280

330

380

430

480

0

1

2

3

4

5

6

7

8

9

Commodities - Cumulative 1-week Forward Return of "INCREASE Exposure" Signal: 33.3%)

Commodities - Cumulative 1-week Forward Return of "DECREASE Exposure" Signal: -74.6%)

Thomson Reuters/CoreCommodity CRB Commodity Index (Current Signal: DECREASE Exposure)

HEDGEYE 13

INT’L FIXED INCOME, CREDIT & EQUITY INCOME


380

400

420

440

460

480

500

520

540

560

580

0

1

2

3

4

5

6

7

8

9

Int'l Fixed Income, Credit and Equity Income Plays (Unhedged) - Cumulative 1-week Forward Return of "INCREASE Exposure" Signal: 19%)

Int'l Fixed Income, Credit and Equity Income Plays (Unhedged) - Cumulative 1-week Forward Return of "DECREASE Exposure" Signal: 8%)

JPM Global Aggregate Bond Index - Total Return Unhedged USD (Current Signal: DECREASE Exposure)

BOTTOM-UP RISK MANAGEMENT SIGNALS

HEDGEYE 15

FACTOR EXPOSURE SUMMARY TABLE


HEDGEYE 16

BUY SIGNAL: THE ADJUSTED VAMDMI READING IS GREATER THAN +1. SELL SIGNAL: THE ADJUSTED VAMDMI READING IS LESS THAN (1).

GLOBAL MACRO This chart highlights the top-10 and

bottom-10 Adjusted VAMDMI readings across the universe of liquid global macro factor exposures. This

snapshot is helpful to investors in two ways:

First, it consistently identifies which

markets are breaking out or breaking down by identifying where last price is within the context of a

multi-duration view of volume-weighted average price data, as well

as the directional deviation within that prism. For example, an Adjusted

VAMDMI reading of ≥ +1x would represent a factor exposure that is decidedly bullish across multiple

durations and getting more bullish on the margin. The opposite is true for Adjusted VAMDMI readings ≤ (1x).

Secondly, the composition of the top

and bottom Adjusted VAMDMI readings helps investors confirm

existing trends at the primary asset class level OR helps to

prospectively signal a bullish-to-bearish or bearish-to-bullish

rotation in any of the six primary asset classes tracked by TACRM.


1.26x

0.74x

0.40x

0.34x

0.29x

0.23x

0.11x

0.09x

0.05x

-0.01x

-1.86x

-1.87x

-1.87x

-1.88x

-1.90x

-1.92x

-1.93x

-1.97x

-2.08x

-2.10x

-3.0x -2.0x -1.0x 0.0x 1.0x 2.0x 3.0x

(FXY) CurrencyShares Japanese Yen Trust

(FXE) CurrencyShares Euro Trust

(UDN) Powershares DB US Dollar Index Bearish Fund

(FLAT) iPath US Treasury Flattener ETN

(FXS) CurrencyShares Swedish Krone Trust

(EIRL) iShares MSCI Ireland Capped ETF

(IBND) SPDR Barclays International Investment Grade Bond ETF

(USO) United States Oil Fund LP

(BNO) United States Brent Oil Fund

(OIL) iPath S&P GSCI Crude Oil Total Return ETN

(IWV) iShares Russell 3000 ETF

(IUSG) iShares Russell 3000 Growth ETF

(IWF) iShares Russell 1000 Growth ETF

(IWB) iShares Russell 1000 ETF

(SPY) SPDR S&P 500 ETF Trust

(XLF) Financial Select Sector SPDR Fund

(IWP) iShares Russell Mid-Cap Growth ETF

(USMV) iShares MSCI USA Minimum Volatility ETF

(VXX) iPath S&P 500 VIX Short-Term Futures ETN

(XLV) Health Care Select Sector SPDR Fund

Global Macro Top/Bottom 10 Adjusted VAMDMI*** Rankings

***The Adjusted VAMDMI reading is a weighted average of the current VAMDMI reading (75%) and the current delta from its trailing six-month average (25%).

HEDGEYE 17


U.S. EQUITIES

This chart highlights the top-10 and bottom-10 Adjusted VAMDMI

readings across the universe of broadly investable U.S. equity sector

and style factor exposures. This snapshot is helpful to investors in

two ways:

First, it consistently identifies which sectors and/or style factors are

breaking out or breaking down by identifying where last price is within the context of a multi-duration view of volume-weighted average price

data, as well as the directional deviation within that prism. For example, an Adjusted VAMDMI

reading of ≥ +1x would represent a factor exposure that is decidedly

bullish across multiple durations and getting more bullish on the margin. The opposite is true for Adjusted

VAMDMI readings ≤ (1x).

Secondly, the composition of the top and bottom Adjusted VAMDMI

readings helps investors confirm or dispel existing fundamental

narratives OR prospectively signal new ones.


-0.24x

-0.33x

-0.42x

-0.81x

-0.84x

-0.89x

-1.04x

-1.15x

-1.20x

-1.22x

-1.86x

-1.87x

-1.87x

-1.88x

-1.90x

-1.92x

-1.93x

-1.97x

-2.08x

-2.10x

-3.0x -2.0x -1.0x 0.0x 1.0x 2.0x 3.0x

(ITB) iShares U.S. Home Construction ETF

(IEZ) iShares U.S. Oil Equipment & Services ETF

(XOP) SPDR S&P Oil & Gas Exploration & Production ETF

(XLE) Energy Select Sector SPDR Fund

(GDX) Market Vectors Gold Miners ETF

(SMH) Market Vectors Semiconductor ETF

(PFF) iShares US Preferred Stock ETF

(PBW) Powershares Wilderhill Clean Energy Portfolio

(KIE) SPDR Insurance ETF

(IYT) iShares Transportation Average ETF

(IWV) iShares Russell 3000 ETF

(IUSG) iShares Russell 3000 Growth ETF

(IWF) iShares Russell 1000 Growth ETF

(IWB) iShares Russell 1000 ETF

(SPY) SPDR S&P 500 ETF Trust

(XLF) Financial Select Sector SPDR Fund

(IWP) iShares Russell Mid-Cap Growth ETF

(USMV) iShares MSCI USA Minimum Volatility ETF

(VXX) iPath S&P 500 VIX Short-Term Futures ETN

(XLV) Health Care Select Sector SPDR Fund

U.S. Equities Top/Bottom 10 Adjusted VAMDMI*** Rankings


HEDGEYE 18


INTERNATIONAL EQUITIES


readings across the universe of broadly investable international

equity country and regional exposures. This snapshot is helpful

to investors in two ways:

First, it consistently identifies which countries and/or regions are










0.23x

-0.68x

-0.90x

-0.94x

-0.95x

-0.96x

-0.96x

-0.97x

-1.00x

-1.08x

-1.55x

-1.57x

-1.59x

-1.63x

-1.64x

-1.64x

-1.65x

-1.66x

-1.80x

-1.85x

-3.0x -2.0x -1.0x 0.0x 1.0x 2.0x 3.0x

(EIRL) iShares MSCI Ireland Capped ETF

(EWGS) iShares MSCI Germany Small-Cap ETF

(FILL) iShares MSCI Global Energy Producers ETF

(PICK) iShares MSCI Global Metals & Mining Producers ETF

(EDEN) iShares MSCI Denmark Capped ETF

(EWCS) iShares MSCI Canada Small-Cap ETF

(EWC) iShares MSCI Canada ETF

(EWAS) iShares MSCI Australia Small-Cap ETF

(ENOR) iShares MSCI Norway Capped ETF

(EWUS) iShares MSCI United Kingdom Small-Cap ETF

(EWP) iShares MSCI Spain Capped ETF

(EWN) iShares MSCI Netherlands ETF

(EWU) iShares MSCI United Kingdom ETF

(EWQ) iShares MSCI France ETF

(EWL) iShares MSCI Switzerland Capped ETF

(EZU) iShares MSCI EMU ETF

(EIS) iShares MSCI Israel Capped ETF

(EUFN) iShares MSCI Europe Financials ETF

(EWJ) iShares MSCI Japan ETF

(DXJ) WisdomTree Japan Hedged Equity Fund

International Equities Top/Bottom 10 Adjusted VAMDMI*** Rankings


HEDGEYE 19


EMERGING MARKET EQUITIES


readings across the universe of broadly investable emerging market

equity country and regional exposures. This snapshot is helpful


First, it consistently identifies which countries and/or regions are










-0.22x

-0.48x

-0.50x

-0.57x

-0.87x

-0.87x

-0.88x

-0.91x

-0.94x

-0.95x

-1.44x

-1.47x

-1.48x

-1.51x

-1.52x

-1.55x

-1.57x

-1.60x

-1.62x

-1.66x

-3.0x -2.0x -1.0x 0.0x 1.0x 2.0x 3.0x

(RSX) Market Vectors Russia ETF

(NGE) Global X Nigeria Index ETF

(ECH) iShares MSCI Chile Capped ETF

(GUR) SPDR S&P Emerging Europe ETF

(UAE) iShares MSCI UAE Capped ETF

(ICOL) iShares MSCI Colombia Capped ETF

(EPOL) iShares MSCI Poland Capped ETF

(THD) iShares MSCI Thailand Capped ETF

(EGPT) Market Vectors Egypt Index ETF

(ARGT) Global X FTSE Argentina 20 ETF

(EPHE) iShares MSCI Philippines ETF

(GMF) SPDR S&P Emerging Asia Pacific ETF

(FXI) iShares China Large-Cap ETF

(CQQQ) Guggenheim China Technology ETF

(CHIX) Global X China Financials ETF

(CAF) Morgan Stanley China A Share Fund Inc.

(EPI) India Earnings Fund

(ECNS) iShares MSCI China Small-Cap ETF

(CHIQ) Global X China Consumer ETF

(EWH) iShares MSCI Hong Kong ETF

Emerging Market Equities Top/Bottom 10 Adjusted VAMDMI*** Rankings


HEDGEYE 20


DOMESTIC FIXED INCOME, CREDIT & EQUITY INCOME


readings across the universe of broadly investable domestic fixed income, credit and equity income

exposures. This snapshot is helpful to investors in two ways:


markets are breaking out or breaking down by identifying where last price is within the context of a






and bottom Adjusted VAMDMI readings helps investors confirm or

dispel existing fundamental narratives OR prospectively signal

new ones.


0.34x

-0.21x

-0.28x

-0.28x

-0.30x

-1.00x

-1.03x

-1.11x

-1.68x

-1.71x

-3.0x -2.0x -1.0x 0.0x 1.0x 2.0x 3.0x

(FLAT) iPath US Treasury Flattener ETN

(EDV) Vanguard Extended Duration Treasury ETF

(ZROZ) PIMCO 25+ Year Zero Coupon US Treasury Bond ETF

(STPP) iPath US Treasury Steepener ETN

(MUB) iShares National AMT-Free Muni Bond ETF

(JNK) SPDR Barclays High Yield Bond ETF

(XLU) Utilities Select Sector SPDR Fund

(BKLN) Senior Loan Portfolio ETF

(VNQ) Vanguard REIT ETF

(IYR) iShares US Real Estate ETF

Domestic Fixed Income, Credit and Equity Income Plays Top/Bottom 5 Adjusted VAMDMI*** Rankings


HEDGEYE 21


FOREIGN EXCHANGE


readings across the universe of broadly investable currencies. This snapshot is helpful to investors in

two ways:

First, it consistently identifies which currencies are breaking out or

breaking down by identifying where last price is within the context of a








new ones.


1.26x

0.74x

0.40x

0.29x

-0.49x

-1.43x

-1.44x

-1.49x

-1.53x

-1.59x

-3.0x -2.0x -1.0x 0.0x 1.0x 2.0x 3.0x

(FXY) CurrencyShares Japanese Yen Trust

(FXE) CurrencyShares Euro Trust

(UDN) Powershares DB US Dollar Index Bearish Fund

(FXS) CurrencyShares Swedish Krone Trust

(FXF) CurrencyShares Swiss Franc Trust

(FXA) CurrencyShares Australian Dollar Trust

(CYB) WisdomTree Chinese Yuan Strategy Fund

(CCX) WisdomTree Commodity Currency Fund

(BZF) WisdomTree Brazilian Real Fund

(ICN) WisdomTree Indian Rupee Strategy Fund

Foreign Exchange Top/Bottom 5 Adjusted VAMDMI*** Rankings


HEDGEYE 22


COMMODITIES


readings across the universe of broadly investable commodity

markets. This snapshot is helpful to investors in two ways:


commodities are breaking out or breaking down by identifying where last price is within the context of a








new ones.


0.09x

0.05x

-0.01x

-0.04x

-0.17x

-1.16x

-1.19x

-1.20x

-1.24x

-1.50x

-3.0x -2.0x -1.0x 0.0x 1.0x 2.0x 3.0x

(USO) United States Oil Fund LP

(BNO) United States Brent Oil Fund

(OIL) iPath S&P GSCI Crude Oil Total Return ETN

(GLD) SPDR Gold Shares

(COW) iPath Dow Jones-UBS Livestock Total Return Sub-Index ETN

(FOIL) iPath Pure Beta Aluminum

(WEAT) Teucrium Wheat Fund

(DBA) PowerShares DB Agriculture Fund

(UNG) United States Natural Gas Fund

(BAL) iPath Dow Jones AIG Cotton Total Return Sub-Index ETN

Commodities Top/Bottom 5 Adjusted VAMDMI*** Rankings


HEDGEYE 23


INT’L FIXED INCOME, CREDIT & EQUITY INCOME


readings across the universe of broadly investable international fixed

income, credit and equity income exposures. This snapshot is helpful


First, it consistently identifies which markets are breaking out or

breaking down by identifying where last price is within the context of a








new ones.


0.11x

-0.39x

-0.41x

-0.65x

-0.74x

-1.19x

-1.26x

-1.51x

-1.52x

-1.78x

-3.0x -2.0x -1.0x 0.0x 1.0x 2.0x 3.0x

(IBND) SPDR Barclays International Investment Grade Bond ETF

(BWX) SPDR Barclays International Long-term Treasury Bond ETF

(BWZ) SPDR Barclays International Short-term Treasury Bond ETF

(BNDX) Vangaurd Total International Bond Market ETF

(EMB) iShares JP Morgan USD Emerging Markets Bond ETF

(EMLC) Market Vectors Emerging Markets Local Currency Bond ETF

(ALD) WisdomTree Asia Local Debt Fund

(WIP) SPDR DB International Government Inflation-Protected Bond ETF

(EMCB) WisdomTree Emerging Markets Corporate Bond Fund

(RWX) SPDR Dow Jones International Real Estate ETF

Int'l Fixed Income, Credit and Equity Yield Plays Top/Bottom 5 Adjusted VAMDMI*** Rankings


BOTTOM-UP RISK MANAGEMENT BACKTESTS

HEDGEYE 25

AVERAGE RETURNS


0.8%

-1.3%

0.3%

-0.5%

-1.5% -1.0% -0.5% 0.0% 0.5% 1.0%

Average 1-month Forward Return Average 3-months Forward Return

The Adjusted VAMDMI reading is a weighted average of the current VAMDMI reading (75%) and the current delta from its trailing six-month average (25%).

Backtests extend to the start of 2008 across all the individual factor exposures comprising the model; ~20,000 observations in aggregate.

Adjusted VAMDMI readings ≤ (1x).

Adjusted VAMDMI readings ≥ +1x.

HEDGEYE 26

POSITIVE HIT RATE


57%

50%

56%

50%

46% 48% 50% 52% 54% 56% 58% 60%

Cumulative 1-month Forward Hit Rate Cumulative 3-months Forward Hit Rate

The Adjusted VAMDMI reading is a weighted average of the current VAMDMI reading (75%) and the current delta from its trailing six-month average (25%).

Backtests extend to the start of 2008 across all the individual factor exposures comprising the model; ~20,000 observations in aggregate.

Adjusted VAMDMI readings ≤ (1x). Adjusted VAMDMI readings ≥ +1x.

TRADING WITH TACRM

HEDGEYE 28

TACRM = MULTI-FACTOR, MULTI-DURATION

This chart is a summary snapshot of the price, volume and volatility signals TACRM employs for the

purposes of active risk management.

The sign of the black bars indicate whether the specific factor is

signaling BUY (positive reading), SELL (negative reading) or DO

NOTHING (reading of zero) – which in itself is a risk-managed decision. The charts on the following three slides detail how such signals are produced for each specific factor.

The blue line highlights today’s intraday high price, intraday low

price and last and/or closing price, in order from left to right.

The support and resistance levels

indicated by the green and red lines are a function of the 50-day EMA. Specifically, if last price > 50-day EMA, then support = 50-day EMA

and resistance = 50-day EMA + the largest spread between the closing price and the 50-day EMA over the

previous 50-day period. The inverse is true if last price < 50-day EMA.


1986.73

1965.98 1970.70

1852.90

2057.15

1750

1800

1850

1900

1950

2000

2050

2100

-2

-1

-1

0

1

1

2

Price Volume Volatility

Risk Management Decision-Tree: S&P 500 Index (SPX) Last Price Support Resistance

HEDGEYE 29

PRICE BACKTEST RESULTS

BUY SIGNAL: LAST PRICE IS GREATER THAN ITS TRAILING 50-DAY EXPONENTIAL MOVING AVERAGE. SELL SIGNAL: LAST PRICE IS LESS THAN ITS TRAILING 50-DAY EXPONENTIAL MOVING AVERAGE.


1,000

1,200

1,400

1,600

1,800

2,000

2,200

0

1

2

3

4

5

6

7

8

9

Buy S&P 500 Index (Trailing 5yr Cumulative 1D % Change: 150.4%) Sell S&P 500 Index (Trailing 5yr Cumulative 1D % Change: -83%)

S&P 500 Index (SPX)

HEDGEYE 30

VOLUME BACKTEST RESULTS

BUY SIGNAL: THE RESPECTIVE TRAILING 3-WK TRENDS IN PRICE AND VOLUME ARE BOTH POSITIVE. SELL SIGNAL: THE TRAILING 3-WK TREND IN PRICE IS NEGATIVE WHILE THE TRAILING 3-WK TREND IN VOLUME IS POSITIVE.


1,000

1,200

1,400

1,600

1,800

2,000

2,200

0

1

2

3

4

5

6

7

8

9

Buy S&P 500 Index (Trailing 5yr Cumulative 1D % Change: 9.9%) Sell S&P 500 Index (Trailing 5yr Cumulative 1D % Change: 14.4%)

S&P 500 Index (SPX)

HEDGEYE 31

VOLATILITY BACKTEST RESULTS

BUY SIGNAL: THE TREND IN 3-DAY DOWNSIDE VOLATILITY (I.E. THE ANNUALIZED SQUARE ROOT OF SEMIVARIANCE) IS NEGATIVE ACROSS MULTIPLE DURATIONS (I.E. ON AT LEAST TWO OF THE FOLLOWING THREE DURATIONS: 100 DAYS, 150 DAYS AND 200 DAYS). SELL SIGNAL: THE TREND IN 3-DAY DOWNSIDE VOLATILITY IS POSITIVE ACROSS MULTIPLE DURATIONS.


1,000

1,200

1,400

1,600

1,800

2,000

2,200

0

1

2

3

4

5

6

7

8

9

Buy S&P 500 Index (Trailing 5yr Cumulative 1D % Change: 44.1%) Sell S&P 500 Index (Trailing 5yr Cumulative 1D % Change: 23.3%)

S&P 500 Index (SPX)

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Documents

TACTICAL ASSET CLASS ROTATION MODELdocs3.hedgeye.com/macroria/TACRM_08312015.pdfsample of observations in its respective trailing n-month period. Easy To Interpret Standardization: