Daily Commentary - Posted on Thursday, February 9, 2012, 5:16 PM GMT +1

4 Comments


Feb Thursday 9

A Virtually Non-Existent Drawdown

Major market indices worldwide are in rally mode, although US markets are likely to take a short-term breather (probably today) after this big surge. But any breather (or even a setback) may be short-lived (again).

Besides the fact that the SPY (S&P 500 SPDR) is up +5.86% over the trailing month and +7.72% year-to-date, the SPY not only hasn’t had been down -1.0% over the trailing week over a period of 28 sessions now (means the SPY had never been down -1.0% compared to the session one week before), but hasn’t closed -1.0% below the trailing weekly high as well (which is quite a difference, because it means that the drawdown over the trailing week has never exceeded 1.0%) – a virtually non-existent drawdown.

Historically, when the SPY hasn’t closed -1.0% below the trailing weekly high (drawdown over the trailing week < 1.0%) for 28 (or more) sessions, this had intermediate- and long-term bullish implications in the past.

Table I below shows the SPY‘s performance (cumulative returns) 1 and 2 weeks later, at the end of the month, 6 months later  and over the remainder of the year in the event the setup mentioned before had been triggered in the past.

The SPY had closed at an even higher level one week later on 14 out of 19 occurrences (or 75% of the time), up 1.0%+ on 8 occurrences, but had never been down -1.0%+. And the trend over the remainder of the year has almost always been up as well, with the xxx closing at a highe level 2 weeks later, at the end of the month, 6 months later and at the end of the year on at least 15 out of 19 occurrences (closing lower -1.0% at the end of the month and at the end of the year only once).

(click on image to enlarge)


Table I
SPY with virtually no drawdown for 28+ days

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Conclusion(s)

I don’t want to sound like a broken record, but at least for the time being the path of least resistance remains up.

Have a profitable week,

Frank


Disclosure: No position in the securities mentioned in this post at time of writing.

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Remarks: Due to their conceptual scope – and if not explicitly stated otherwise – , all models/setups/strategies do not account for slippage, fees and transaction costs, do not account for return on cash and/or interest on margin, do not use position sizing (e.g. Kelly, optimal f) – they’re always ‘all in‘ – , do not use leverage (e.g. leveraged ETFs), do not utilize any kind of abnormal market filter (e.g. during market phases with extremely elevated volatility), do not use intraday buy/sell stops (end-of-day prices only), and models/setups/strategies are not ‘adaptive‘ (do not adjust to the ongoing changes in market conditions like bull and bear markets). Index data (e.g. S&P 500 cash index) does not account for dividend and cash payments.

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Disclaimer

The information on this site is provided for statistical and informational purposes only. Nothing herein should be interpreted or regarded as personalized investment advice or to state or imply that past results are an indication of future performance. The author of this website is not a licensed financial advisor and will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on the content of this website(s). Under no circumstances does this information represent an advice or recommendation to buy, sell or hold any security.

I may or may not hold positions for myself, my family and/or clients in the securities mentioned here. Actions may have been taken before or after information is presented, and any opinions expressed in this site are subject to change without notice.

(Data courtesy of MetaStock and Pinnacle Data Corp., and for data import, testing, surveys and statistics I use MATLAB from MathWorks)

Comments (4)

 

  1. GT says:

    SPX : Feb10: 1342.64 – 9.31 (-0.69%),
    SPX 1354.32 High Feb09.

    1342.64 (Feb10 close) = 1354.32 (- 11.68)
    or close 0.086% below 3 mo. high, less than 1%

  2. GT says:

    Wed8Feb trigger : $SPY : 135.19 / SPX 1349.96

    Tue14Feb : SPY 135.19 with 1 tommorow’s session = 1 week later.
    Wed close = supposed to be higher than 135.19, at least on 14/19 occurences in the past.

  3. GT says:

    Wed8Feb trigger : $SPY : 135.19 / SPX 1349.96
    Wed15Feb : SPY : 134.56 / SPX 1343.23

    SPY -0.63 or – 0.47% 1 week later
    Only in 1 year where it was down a week later did it add to the losses 2 weeks later post trigger date. In most cases by next Wed Feb 22 close SPY 135.19 / SPX 1349.96 will try to be exceeded?

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