US Securities Market Research and Medium-Term Trading Strategy Design

As of: Monday, January 26, 2026

Portfolio Parameters

Portfolio Size $700,000

Risk Tolerance High

Instruments ETFs

Time Horizon Medium term (weeks to months)

I. Research Phase - Current State

A. Macroeconomic Conditions (US)

1) Inflation (trend + composition)

CPI (Dec 2025): Headline +2.7% YoY; Core CPI +2.6% YoY.

PCE (Nov 2025): Headline +2.8% YoY; Core PCE +2.8% YoY.

                        Interpretation: Inflation is well below peak, but still sticky above 2%, particularly on the core measures (PCE and CPI). Market implication: inflation is not low enough to justify aggressive easing; the bar for sustained long-duration bond rallies is higher unless growth slows.
                    

2) Growth (nowcasting + last official)

Real GDP (Q3 2025, updated): +4.4% SAAR.

GDPNow (Q4 2025, Jan 26 update): ~+5.4% SAAR nowcast (model estimate).

                        Interpretation: Growth momentum remains strong, which is typically equity-supportive but a headwind for duration unless inflation collapses or policy turns clearly dovish.
                    

3) Employment (tight-ish, but slowing)

Unemployment (Dec 2025): 4.4%; Nonfarm payrolls +50,000.

Wages: Avg hourly earnings +0.3% MoM, +3.8% YoY.

Participation: 62.4%; employment-population ratio 59.7%.

                        Interpretation: Labor market is not collapsing, but job gains are subdued. This is consistent with a late-cycle/slowdown feel rather than recession.
                    

4) Manufacturing & services activity

ISM Manufacturing PMI (Dec 2025): 49.3 (contraction).

ISM Services PMI (Dec 2025): 55.4 (expansion).

                        Interpretation: The economy remains services-led. For equities, that tends to support large-cap, quality, and secular growers; for bonds, it argues against a "hard landing" duration bid.
                    

5) Consumer and housing (high level)

Consumer spending (Oct/Nov 2025): solid (+0.5% MoM for both months per BEA reporting coverage).

Housing remains rate-sensitive; direction depends heavily on long-end yields and mortgage rates (no single decisive print here changes the macro regime in isolation).

6) Policy stance (Fed + forward guidance)

The data mix (sticky inflation + strong growth nowcast + unemployment mid-4s) is consistent with a "hold restrictive longer" bias, with easing contingent on clearer inflation progress. This is reinforced by PCE dynamics staying near 2.8% YoY.

B. Broad Market Index (proxy: SPY / S&P 500)

1) Trend (multi-horizon framing)

The strategy uses price-based regime filters (50D/200D slope) and breakout/failed-breakout logic rather than hard-coded level guesses.

2) Volatility (VIX)

VIX recently ~13–14 (low / complacent regime).

                        Implication: equity trend can persist, but tail risk is often underpriced; stops must be respected.
                    

3) Support/resistance framework to use now

Primary: 200-day MA (institutional trend line), then 50-day MA (tactical trend line).

Actionable levels: prior 20-day high/low and 63-day high/low (about 1 and 3 months), which you can compute from daily closes.

C. Market Sentiment (US)

1) Investor survey (AAII)

AAII readings remain a useful contrarian input when extreme; current levels matter less than momentum + extremes. Use it as a filter, not a trigger.

2) Options market (Put/Call)

Use CBOE total put/call as a risk-on/off throttle: elevated ratios can be a washout signal; suppressed ratios are complacency.

3) Narrative scan

                        Macro backdrop implies a "soft-landing / no-recession" narrative is plausible (growth strong, inflation sticky but contained). That usually favors buying breakouts rather than mean reversion—until inflation re-accelerates.
                    

D. Yield Curve (Treasuries)

1) Current yields (latest available)

From FRED (latest observations around Jan 21–22):

3M: ~3.71% (Jan 22)
2Y: 3.61% (Jan 22)
5Y: ~3.83% (Jan 21)
10Y: ~4.26% (Jan 21)
30Y: ~4.55% (normal curve characterization)

2) Shape + implication

The curve is no longer deeply inverted across the belly; 10Y is above 2Y on these snapshots (a steepening tendency).

                        With growth still strong and inflation sticky, the base case is range-bound yields with event-driven breakouts (CPI/PCE surprises, FOMC, or sudden risk-off).
                    

II. Strategy Design Phase (Medium Term)

A. Trading Strategy 1 — US Broad Market Index (SPY)

1) Market outlook (next weeks–months)

Bias: Moderately Bullish / Pro-risk, with tight risk controls.

Rationale: strong growth prints/nowcasts and subdued volatility suggest the path of least resistance remains up, but sticky inflation keeps policy risk alive.

2) Strategy type

Trend-following breakout with a risk-off fail-safe ("breakout / breakdown switch").

This works best when: volatility is low-to-mid, growth is not collapsing, the market is in an "uptrend with dips" regime.

3) Trade setup (rules are quantifiable)

Definitions (compute on daily closes):

MA50, MA200: 50- and 200-day simple moving averages
RSI14: 14-day RSI
HH20 / LL20: 20-day highest close / lowest close
ATR20: 20-day ATR (optional; improves stops)

4) Entry conditions

Long entry (primary)

Enter long SPY at next day's open (or via limit near close) when all are true:

Close > HH20 (20-day closing breakout), AND
MA50 is rising (MA50 today > MA50 5 trading days ago), AND
Close > MA200, AND
RSI14 between 55 and 75 (avoid chasing blow-off >75).

Short entry (risk-off regime switch)

Enter short SPY (or move to cash; your choice) when:

Close < LL20, AND
Close < MA200, AND
RSI14 < 45.

5) Exit conditions (profit-taking)

Use a 2-layer exit so you can harvest trends without being shaken out early:

Take-profit A (scale-out):

Sell 1/2 when RSI14 > 75 or SPY gains +6% from entry (whichever first).

Take-profit B (trend exit):

Sell remaining when Close < MA50 for 2 consecutive sessions, or a weekly close falls below MA50.

6) Stop-loss conditions (loss-limiting)

Preferred: ATR-based stop

Initial stop = Entry − (2.0 × ATR20)
Trailing stop (after +3% gain): Entry + (0.5 × ATR20), then trail at (Highest Close since entry − 2.0 × ATR20).

Simpler: percent + technical

Initial stop = min(Entry − 3.0%, LL20)
If stopped, no re-entry until a new HH20 forms.

7) Position sizing (risk-based; high tolerance but controlled)

Risk budget per SPY trade: 2.0% of portfolio (high risk tolerance, medium-term).

Risk dollars = 0.02 × $700,000 = $14,000

Shares calculation:

Shares = Risk Dollars / (Entry Price − Stop Price)

Hard caps (to avoid over-concentration):

Max SPY notional at entry: 85% of portfolio ($595,000).
If signals are very strong and you want more aggression, scale in only after the trade is +2% and the stop is at breakeven.

Example: If stop distance is 3.0%, max notional by risk is: 14,000 / 0.03 ≈ $466,667

So you would allocate ~$467k notional, subject to the 85% cap.

8) Time horizon

Typical holding: 3–12 weeks, occasionally longer if MA50/MA200 trend persists.

9) Why this strategy fits now

                        Strong growth backdrop and low volatility favor breakout continuation, while inflation stickiness requires disciplined stops and a clear "risk-off switch."
                    

B. Trading Strategy 2 — US Treasury Market (TLT / IEF)

1) Market outlook (bonds; next weeks–months)

Base case: Range-bound yields with event-driven bursts; mild bearish bias for long duration unless inflation cools decisively.

Rationale: headline/core PCE at ~2.8% YoY plus strong growth nowcasts restrain the case for a sustained rally in long duration.

2) Strategy type

10Y-yield breakout strategy expressed through duration ETFs (TLT primary, IEF secondary) with a curve confirmation filter.

Use TLT for larger convexity (higher volatility, higher payoff on yield drops).
Use IEF for "lower beta" expression when signals are weaker.

3) Core signals (quantifiable)

Definitions:

Y10: 10-year Treasury yield (daily close; FRED DGS10)
Y2: 2-year yield (FRED DGS2)
2s10s = Y10 − Y2 (curve steepness proxy)
TLT_MA50 / TLT_MA200, IEF_MA50 / IEF_MA200

4) Entry conditions

Long bonds (long TLT) — "yields breaking down"

Enter long TLT when all are true:

Y10 falls below its 20-day low (yield breakdown), AND
TLT closes above its MA50, AND
Core PCE YoY is not accelerating versus prior release (i.e., current ≤ prior).

Current core PCE is 2.8% vs 2.7% prior month (so this filter is currently not supportive until it stabilizes/declines).

If (3) fails but (1) and (2) are true, trade IEF instead of TLT (lower duration).

Short bonds (short TLT) — "yields breaking out"

Enter short TLT (or long an inverse Treasury ETF, if you prefer) when:

Y10 rises above its 20-day high, AND
TLT closes below its MA50, AND
Core PCE YoY ≥ prior release or CPI core is sticky (consistent with current environment).

5) Exit conditions (profit-taking)

For long TLT/IEF:

Take profit when Y10 reverts to its 50-day moving average or TLT/IEF gains +4% (TLT) / +2% (IEF), whichever first.
Exit remainder if TLT closes below MA50 for 2 days.

For short TLT:

Take profit when Y10 falls back below its 50-day moving average or TLT drops −4% from entry.
Cover remainder if TLT closes above MA50 for 2 days.

6) Stop-loss conditions

Stops should be yield-linked (primary) and price-linked (secondary).

Long TLT stop:

Hard stop if Y10 rises to above the breakdown level by +20 bps (i.e., “failed breakdown”), OR
TLT price stop at −2.5% from entry (tight because TLT can gap).

Short TLT stop:

Hard stop if Y10 falls below the breakout level by −20 bps, OR
TLT price stop at +2.5% against you.

7) Position sizing (risk-based; bonds lower vol, but TLT is not “low vol”)

Risk budget per Treasury trade:

TLT: 1.25% of portfolio = $8,750
IEF: 1.00% of portfolio = $7,000

Sizing formula:

Shares = Risk Dollars / Stop Distance in $ per share

Practical cap:

Max notional: 35% portfolio for TLT
Max notional: 45% for IEF (you do not want duration to dominate your total risk unless you are making a macro bet).

Example (TLT)

If using a 2.5% price stop, notional by risk is roughly:

8,750 / 0.025 = 350,000

Apply the notional cap: max $245,000 (35% of $700k).

8) Time horizon

Typical holding: 2–10 weeks, concentrated around macro catalysts (CPI/PCE/FOMC).

9) Why this strategy fits now

    The yield curve and inflation backdrop argue for breakout-driven duration trades, not “set-and-forget” bond longs. The rules explicitly avoid catching falling knives in yields when inflation is re-accelerating.

III. Portfolio-Level Risk Controls (Recommended)

Concurrent exposure limits

Given high risk tolerance, the goal is not to reduce activity; it’s to prevent one macro shock from dominating P&L.

If SPY is long, cap Treasury duration risk (TLT) to ≤25% notional unless Y10 breakdown is confirmed for 3 sessions.
Prefer to add duration when equity risk is being reduced, not when both are maxed simultaneously.

Loss limits

Max loss per trade: as defined (2.0% SPY; 1.25% TLT; 1.0% IEF).
Weekly loss stop: if portfolio drawdown hits −4% in a week, cut new risk by 50% the following week (position sizes halved).

Event risk

Reduce size by 25–40% ahead of major releases if already near stops (CPI/PCE/FOMC).
Avoid adding new risk within 24 hours of such events unless explicitly event-driven with tight stops.

IV. Quick Reference Tables

SPY Strategy (Trend Breakout)

Component	Rule
Long Entry	Close > HH20 AND MA50 rising AND Close > MA200 AND RSI14 55–75
Short Entry	Close < LL20 AND Close < MA200 AND RSI14 < 45
Profit Take	1/2 at RSI > 75 or +6%; rest on 2-day close < MA50 or weekly close < MA50
Stop	Entry − 2×ATR20 (preferred) OR min(Entry − 3%, LL20)
Risk	2.0% per trade ($14,000)
Notional Cap	85% of portfolio

Treasury Strategy (Yield Breakout via TLT/IEF)

Component	Rule
Long TLT	Y10 < 20-day low AND TLT > MA50 AND core PCE not accelerating (else use IEF if only first two conditions are true)
Short TLT	Y10 > 20-day high AND TLT < MA50 AND inflation not cooling
Profit Take	+4% TLT / +2% IEF or Y10 to 50DMA; remainder on MA50 failure
Stop	Yield fail by 20 bps OR ±2.5% price
Risk	1.25% TLT ($8,750) / 1.0% IEF ($7,000)
Notional Cap	35% TLT / 45% IEF