The new recommendations for SMI's Dynamic Asset Allocation (DAA) strategy will follow later in a separate post. But first, I want to discuss the performance of DAA over the past month.

The market's volatility over the past two weeks caught some investors off-guard, coming as it did after nearly four years without any substantial declines. Some who have been relying on DAA to protect their portfolios against the next bear market were surprised that the strategy didn't afford more protection during this sharp, sudden correction. So it's a good time to walk through exactly what we can and can't expect from DAA. Knowing that, individual readers can adjust their holdings as they feel is appropriate.

We know from our historical back-testing that DAA would have done an outstanding job of protecting against significant market declines over the past 40 years or so. However, that doesn’t mean it is without vulnerabilities, and it doesn’t mean that it protects against every short-term burst of volatility.

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