Using a Regime Filter

A regime filter or a market regime filter is a tool to help us conceptually understand the kind of market we are in. As a systematic investor, we can increase our odds of success by adding a regime filter to our arsenal. It tells us, based on how we have defined it if we are in a bull market or a bear market. We would think differently about market risk in different market scenarios.

A simple example of a regime filter is using the 200 day moving average. If the index of your choice is above the 200 day moving average, then you define it as a bull market and below it as a bear market. You can design your portfolio strategy to hold full allocations in stocks if you are in a bull market and 50% allocated in a bear market.
So, with that basic logic you can start constructing a slightly more realistic and slightly more nuanced regime filter.

First, define the market conditions you want to address – superbull, bull, bear, superbear. The reason for doing that is you want to be cautious in the market extremes of superbear and superbull conditions and aggressive in the bear and bull conditions (for long-short strategies). Then use a combination of indicators like RSI and 50 & 200 day moving average to define the selected conditions. For example, above 200 dma and 70 RSI you define as superbull and above 200 dma and above 50 RSI as bull phase.

Another trick that can be used is to use multiple indices. For example, you can use the average of Nifty, Nifty Next 50 and Nifty 500 in equal proportions to define your market. For a long-only investor, it may increase the odds of success to be buyer only when the regime filter is indicating a bull market.

Note: For exploring quantitative systems, check out www.quantamental.in, a quant-based newsletter. 

Weekly Reading - Some Interesting Stuff

A beautiful glimpse into the Bombay Plan, a powerful planning document created by the most powerful businessmen and technocrats of India in 1944, and what it wanted to achieve.

The Bombay Plan’s targets were overwhelmingly more ambitious than anything the Planning Commission of the government of India ever attempted. It had envisaged the doubling of per capita income over fifteen years and proposed appropriate sources of finance for that ambitious target. 

https://qz.com/india/1464869/the-story-of-jrd-tata-gd-birlas-bombay-plan-for-india/

Brian Acton, the founder of WhatsApp, walked away from $850m when he resigned and moved out of Facebook. He speaks at length about that and other aspects. Paints a very poor picture of Facebook as a company. Fascinating read.

http://www.forbesindia.com/article/cross-border/whats-up-with-brian-acton/51841/1

Google employees have renewed their public protests against “Project Dragonfly,” a censored and surveillance-enabling search app that Google is reportedly building for the Chinese market.  oogle has said little about Dragonfly, but numerous reports have detailed its planned features, which reportedly range from blocking specific keywords like “human rights” to linking searches with users’ phone numbers.

https://www.theverge.com/2018/11/27/18114285/google-employee-china-censorship-protest-project-dragonfly-search-engine-letter

Verily Life Sciences, a research organisation run by Alphabet, Google's parent company, plans to infect thousands of male Aedes aegypti mosquitoes with Wolbachia, a common bacterium, and release them out in the open. This breed of genetically altered male mosquitoes, which don't bite humans, would then mate with the females, and pass on Wolbachia. Now, if the female mosquitoes lay eggs, those eggs will not hatch!

https://www.businesstoday.in/technology/news/google-plans-to-wipe-mosquitoes-off-the-face-of-the-earth/story/295671.html

Food-delivery sites can, in the long run, switch customer loyalty from restaurants to the platform itself. A Swiggy user, for instance, may go for the cheapest or closest option rather than picking a restaurant deliberately. “Once the platforms have enough clout, they can dictate prices or even set up their own kitchens".

https://qz.com/india/1476477/keralas-restaurants-oppose-zomato-swiggy-foodpanda-uber-eats/

This is something which is very concerning and scary for the country, and unfortunately is not getting the importance it deserves from both policymakers and the media.

Employability across education domains are less than 50% across board.

https://qz.com/india/1473437/indian-mba-graduates-get-less-employable-engineers-improving/