Our Market Playbook
Whenever we put money to work as investors, we believe it’s essential to understand the type of market environment we’re currently in.
Over the past several years, our Proprietary Model has been invaluable in helping us do just that.
Take a look at the chart below. It compares S&P 500 returns from a plain buy-and-hold approach vs following our model’s signals. While our model hasn’t strictly outperformed the buy-and-hold approach, it has captured almost all of the S&P’s net gains — despite being invested only 62% of the time.
That’s like taking nearly eight years off, parking money in short-term Treasuries, and still ending up ahead of buy-and-hold.
What this really means is our model zeroes in on the sweet spots — periods when risk-adjusted returns are unusually strong — while steering clear of those choppier, high-volatility stretches.
Since full input data is only available from 2005 onward, our assessment focuses on the past 20 years of returns.
Another condition we assess before putting money to work is whether we’re in a Breadth Thrust Regime.
In simple terms, when 55% or more of S&P 500 stocks hit new 20-day highs, it triggers a deGraaf Breadth Thrust, signaling the start of a new bullish regime that typically lasts about a year.
Take a look at the chart below. It compares the S&P 500’s performance under a buy-and-hold strategy vs investing only during Breadth Thrust Regimes. Amazingly, the Breadth Thrust approach has outperformed buy-and-hold while being in the market just 58% of the time — only about 12 years since 2005.
In short, this strategy doesn’t just boost returns; it nails the best risk-adjusted market periods.
Our Market Playbook combines the two strategies.
The rule is simple: if either strategy signals risk-on, we’re in the market. This way, we capture more upside — though it slightly moderates the overall annualized return.
Take a look at the next chart. It shows our combined strategy, alongside the classic buy-and-hold approach. As you can see, this strategy keeps us in the market much longer — around 82% of the time — squeezing out the most net gains while largely avoiding periods of extreme market stress.
In fact, it would have avoided roughly 3.5 years — about 18% of the time — when the market suffered annualized losses of -15.9%, effectively sidestepping the periods that cumulatively cut the market in half!
Compared with plain buy-and-hold, we can see that our Market Playbook returns more than double the return per unit of volatility — in other words, double the bang for your buck in return per unit of risk.
By combining our Proprietary Model with Breadth Thrust Regimes, we essentially get four stages in our Market Playbook.
Three risk-on stages:
Rocket Surge
(Breadth Thrust Regime ✅, Proprietary Model ❌)Prime Alpha
(Breadth Thrust Regime ✅, Proprietary Model ✅)Harvest Grind
(Breadth Thrust Regime ❌, Proprietary Model ✅)
And one risk-off stage:
Timeout
(Breadth Thrust Regime ❌, Proprietary Model ❌)
Each stage does its part, and together they give us a clearer picture of where the opportunities are.
Clearly, our Market Playbook has done a great job identifying sustained rallies that have come with limited drawdowns. In other words, classic bull market conditions.
These are, of course, the times when it makes sense to take on additional risk, favor higher-beta stocks, and position more aggressively. So, to avoid overfitting or selection bias, we designed a portfolio focused on growth and cyclical sectors that have historically outperformed during bull markets.
This is where our Bull Sector Model comes into play. It focuses on the five sectors that typically lead in bull markets: Technology, Financials, Consumer Discretionary, Industrials, and Communication Services. The portfolio is cap-weighted and rebalanced quarterly.
The results speak for themselves: even though the Bull Sector Model invests only during the same risk-on periods as our Market Playbook, it delivers higher annualized returns and even slightly better risk-adjusted performance.
We include the Communication Services sector starting in Q4 2018, when companies such as Google, Facebook (Meta), Netflix, and Disney were reclassified from the Technology sector into the newly defined Communication Services bucket. Prior to this 2018 GICS reshuffle, the old Telecommunication Services sector was considered more defensive, with a profile similar to Utilities and Consumer Staples, though slightly more cyclical than those sectors.
To summarize our approach at Duality Research: everything starts with understanding the market environment through our Proprietary Model — and identifying whether we’re in a Breadth Thrust Regime. That insight lets us clearly distinguish between risk-on and risk-off markets.
When the market is risk-off, we step aside. But when it turns risk-on, we lean into the opportunity — tilting toward the growthier, higher-beta, and more cyclical areas that tend to lead in bull markets.
The chart below shows all our strategies side by side, along with a table that breaks down the key performance figures at a glance.
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