ROQ Model Transitions To Defensive
Two significant model events occurred this week. The first was the clean close of the inaugural V3.0 leveraged episode. The second was the first activation of the human override module. Together, they illustrate how the ROQ model is designed to work, with mechanical rules and human judgment operating as a system.
The Leveraged Episode — Closed
The Bullish Entry position that opened May 22 ran for six trading days before the signal-based exit stop triggered on Monday, June 1. The stop executed exactly as designed, dropping the portfolio to the unleveraged Bullish Continuation allocation at Tuesday's open.
The final episode results:
May 22: +1.49% vs SPY +0.39%
May 26: +3.40% vs SPY +0.66%
May 27: −0.07% vs SPY −0.02%
May 28: +1.70% vs SPY +0.55%
May 29: +0.50% vs SPY +0.25%
June 1: +0.62% vs SPY +0.27%
Episode total: +7.85% leveraged vs SPY +2.13% — outperformance of +5.72pp in six trading days.
The stop exited the position at a natural top, capturing the gain and stepping aside when the signal deteriorated. That's exactly what it was designed to do.
The Human Override
After the leveraged episode closed, the portfolio held the unleveraged growth allocation through a volatile week that ended with a sharp, broad market selloff on Friday. Based on the internal signal structure and 15+ years of pattern recognition, conditions deteriorated in a way that warranted moving to Defensive ahead of the weekend rather than waiting for the mechanical rules to complete their normal cycle. The mechanical rules would have required one more day of downside to trigger a portfolio shift, but given the nature of what I’m observing, I decided to apply the human override a day earlier.
I activated the human override on Friday. The portfolio transitions to Defensive at Monday's open. As a reminder, Defensive means that we’re still fully invested in the market, just in a portfolio construction that historically minimizes losses during the down cycle of the wave.
The human override isn't a departure from the system… it's part of it. The model specification includes an explicit override module for exactly these situations, where judgment and experience can act faster than the mechanical rules allow. Using it transparently, with documentation, is how it was designed to be used.
Where Things Stand
ROQ Portfolio (inception to date): +14.38%
S&P 500: +7.72%
EW4 Passive Benchmark: +9.91%
Alpha vs SPY: +6.67pp
Friday's selloff trimmed the cumulative return. The Defensive allocation is now in place heading into next week.
Market analysis and this blog post were conducted and written with the assistance of AI analysis under human oversight.
The information provided here is for educational and informational purposes only and should not be considered financial advice. I am not a licensed financial advisor, and my portfolio may not be appropriate for your financial goals or risk tolerance. All investments involve risk, including the potential loss of principal. Historical data and market models are not indicative of future results. Please consult with a licensed financial professional before making any investment decisions.