Sunday, January 29, 2012

State of the World Markets via Country ETF's


All world markets have had a good run in 2012 so far, some a lot better than others. This table should put some of the returns in perspective. It is interesting to note that more than half of these country ETF's are still below their respective 200 day moving averages. Many people refer to that line as the bull/bear divider.  Look at the top 10 returns for 2012 and compare them to the 2011 returns. The dogs are leading. The markets have done great, but lets not get ahead of ourselves here. Most of these returns are not sustainable for the entire year, but it is hard not to deny the current strength.


Saturday, September 10, 2011

9 to 1 Days Used to be Rare


A "9 to 1 day" refers to the up or down volume of all NYSE-listed stocks, expressed as a percentage of the total volume of all stocks that went up or down on the day. If total up volume equaled down volume, then the ratio would be 50%. This measure of breadth used be a be a serious indicator of positive or negative momentum. Major bull or bear moves could trigger off 9 to 1 days. They've been happening so much lately, so I'm not sure how significant they are anymore.

9 to 1 Up or Down Days:

Year
Up
Down
Total
2003
3
2
5
2004
2
1
3
2005
0
1
1
2006
4
1
5
2007
9
14
23
2008
9
26
35
2009
14
19
33
2010
20
19
39
2011
7
18
25


I believe 9 to 1 days are sign of correlation in the market. When stocks move, they move in big bunches. I'm not really sure what it means or why it's happening; it's just an observation I've made. My only explanation is high frequency trading and in the introduction of computer trading algorithms. These computers are all seeing the same patterns and making trades on them within mili-seconds. They pile into a crowded trade that just just feeds on itself. Lately, there have been many "30 to 1" days, which used to be unheard. Below is a graphic I got from Ritholtz's blog showing a timeline of HFT. The increase in "9 to 1 days" seems to correlate with advancements in computerized algorithmic and HF trading.






Anyone have any other ideas or thoughts?

Monday, August 22, 2011

State of World Markets via Country Fund ETF's: Unpleasantries

Captain obvious here, but things are pretty ugly around the world markets. Over 90% of these country ETF's are below their 200 day moving averages, indicating bear market territory. Only three of these ETF's are even up on the year. The market is now (and has been for a few weeks) guilty until proven innocent. If the market starts to rise on bad news, then I'd take notice for potential longs. Otherwise, it's bear time.


Ticker
Date/Time
Fullname
Close
% Above/Below
 200 SMA
YTD Change
TUR
8/22/2011
  Turkey Investable Market Index
44.58
-40.7
-32.67
EWI
8/22/2011
  Italy Index 
12.89
-34.47
-21.31
VNM
8/22/2011
Market Vectors Viam  
18.18
-29.43
-30.56
EIS
8/22/2011
  Israel Capped Investable Market
43.76
-28.65
-27.69
EWG
8/22/2011
  Germany Index 
19.62
-28.62
-18.05
EWO
8/22/2011
  Austria Investable Market Index
17.07
-28.41
-23.56
EWD
8/22/2011
  Sweden Index 
24.49
-27.35
-21.58
RSX
8/22/2011
Market Vectors Russia Trust Sbi 
30.47
-25.57
-19.63
EPOL
8/22/2011
  Poland Investable Market Index
27.9
-24.7
-16.94
EWN
8/22/2011
  Netherlands Investable Market I
17.33
-23.46
-17.83
EWQ
8/22/2011
  France Index 
20.96
-22.97
-14.27
EWY
8/22/2011
  South Korea Index 
50.31
-22.23
-17.78
EWZ
8/22/2011
  Brazil (Free) Index 
60.15
-22.21
-22.29
FXI
8/22/2011
 FTSE China 25 Index 
35.67
-20.68
-17.22
EPI
8/22/2011
Wisdomtree India Earnings 
19.94
-20.15
-24.44
EWP
8/22/2011
  Spain Index 
33.75
-18.95
-8.14
AFK
8/22/2011
Market Vectors Africa 
28.18
-16.84
-19.9
EWT
8/22/2011
  Taiwan Index 
12.93
-16.01
-17.22
ECH
8/22/2011
  Chile Investable Market Index 
63.46
-15.61
-20.28
EWK
8/22/2011
  Belgium Ivestable Market Index
11.91
-15.09
-9.29
EIRL
8/22/2011
  Ireland Capped Investable Market
18.44
-15.04
-9.21
SPY
8/22/2011
SPDR S&P 500 
112.73
-14.12
-10.35
EWH
8/22/2011
  Hong Kong Index 
16.52
-13.99
-12.68
EWA
8/22/2011
  Australia Index 
22.36
-13.8
-12.11
EWU
8/22/2011
  United Kingdom Index 
15.61
-13.19
-10.13
EWC
8/22/2011
  Canada Index 
27.9
-13.02
-10
MES
8/22/2011
Market Vectors Gulf Shares 
19.98
-12.35
-15.55
EWJ
8/22/2011
  Japan Index 
9.45
-11.42
-13.38
EWS
8/22/2011
  Singapore (Free) Index 
12.31
-11.01
-11.12
EWW
8/22/2011
  Mexico Investable Market Index
54.96
-10.56
-11.24
EZA
8/22/2011
  South Africa Index 
63.55
-10.04
-14.9
EWL
8/22/2011
  Switzerland Index 
23.26
-9.56
-7.26
EWM
8/22/2011
  Malaysia (Free) Index 
14.29
-1.85
-0.63
EPHE
8/22/2011
  Philippines Investable Market 
24.25
0.75
-2.73
THD
8/22/2011
  Thailand Investable Market Index
65.93
0.97
2.04
ENZL
8/22/2011
  New Zealand Investable Market 
31.15
2.12
6.02
EIDO
8/22/2011
  Indonesia Investable Market Index
31.24
4.13
7.35

Saturday, August 13, 2011

For The History Books: Unprecedented Market Action

The market has been extremely wild to say the least. I will admit, it punished me hard. Going through such challenging period makes you reflect and question some things. I question the trading decisions I've made. I question my trading system and its ability to handle such a volatile period. I question my own sanity at times. But since I am writing this post, it means I am not dead. And since I'm not dead, this experience can only make me STRONGER.

I got slaughtered the past couple weeks, and I wonder: could I have planned or anticipated this better?  At this point, I'm not really sure yet. But when I look at the market stats from the last week, I realize it is hard to plan for things that have never happened before. That's still no excuse, but here are some items to reflect on.

----------------------------------------------------------------------------------------------
- S&P Downgrades US Debt: NEVER HAPPENED! This is what I call a BLACK SWAN.

- Dow Jones Ind. 4 straight days of 4% moves: This has only happened 5 other times in history. November 2008, the 1987 Crash, then the 1929 - 1932 period. Rare indeed!

- Dow Jones Ind. 4 straight days of 400 point moves: NEVER happened. Granted it is all relative to the actual balance of the index. But still...

NYSE McClellan Oscillator (ratio adjusted): On 8/8/11, it hit -142.58. It has only been below -140 7 other times, the last being the 1987 crash.

Nasdaq McCLellan Oscillator (ratio adjusted): On 8/8/11, it hit -118.82 This is the first time it has been below -118 since the 1987 crash period. It hit below -140 on the crash day.

Zweig Breadth Indicator: It hit a low of 27.03 this week. It is a breadth overbought/oversold measure. It hasn't been this low since November 2008, one random day in 1990, then 1987 crash. Pretty rare.

NYSE Advance / Decline Volume: 90% up/down 4 straight days in row. If you take the NYSE volume of advancing issues compared to the volume of declining issues you get this indicator. We have NEVER had 4 90% days (up or down) in row ever. This lets you know how 'one way' the market has been, in either direction.

$SPX down over 13% in 5 days: Last time it happened was Oct/Nov 2008, 1987 crash, then 1940. Not a regular occurrence.

VIX 74% above its 10 day SMA: NEVER been this high. The day after the Flash Crash it was 67% over the 10 SMA.

VIX moved up 105% in 3 days: NEVER happened. The previous 3 day record was 80% in 2007.

VIX up 50% in one day: Only 5 other times in history.

*** Follow Sentiment Trader on Twitter and you will learn more. Here are some of his tweets from this week. Let that perspective soak in:

"Today has seen the widest-ever range in the NYSE TICK indicator (per Bloomberg data). From -1538 to +1560. $$"


"The only other times the a/d line has been this skewed were 5/13/40 and 5/21/40. Yeah, 70 years ago.$$"

"Nasdaq up/down volume on pace for worst reading ever (dating to 1984). The 2nd-worst reading was last Thursday.$$Don't have final figures yet, but this may be the worst-breadth day in history (since '40). 66 stocks down for every 1 up. $$"
"VIX jumps >30% twice in a week. The only one i show is 10/19/87."
----------------------------------------------------------------------------------------------


This was no garden variety pullback. Most indicator extremes can only be compared to previous crash periods (2008, 1987, 1929). When indicators get this extreme, they basically loose all meaning. I think it is safe to say that we just went through one of the craziest periods in market history!

There are lessons to be learned. I just need to clearly identify these lessons and create an action plan to address them. I hope you all can do the same.

Good trading.

Sunday, July 24, 2011

Review of a SPY System I Created

Back in December I created a very basic end-of-day mechanical trading system based on the $SPY. The creation of this system served as an experiment in system development for me. At the time, I wondered whether I could trade this system in real time.  The only way to know is to actually trade it; and six months later, I have some thoughts.

How was the performance?

Below is a simple summary. Every trade can be found here.


Historical
Walk Forward Real
Walk Forward Sim
Annualized Return
26.07%
21.22%
18.46%
Win %
63.74%
71.43%
57.14%
Ave Trade
0.45%
0.62%
0.61%
Max Drawdown
-20.89%
-3.67%
-3.78%
Profit Factor
 2.12
3.00
2.52

The walk forward results compare pretty well to the backtested results. This isn't a 'double your money' system.  It is designed to get consistent results that beat the market, all while limiting drawdowns.  I would say the trades were in line with historical expectations.

Why were the real time walk forward results different from the simulated?

I think I got lucky here. I traded the system a little better than the simulation.  The sim results follow the system to a tee, with every trade entered and exited precisely according to the system rules.  Replicating these trades proved difficult at times for a variety of reasons.

-Price Slippage: This is an end-of-day system (EOD), so the majority of the trades were entered market or limit-on-close (MOC/LOC) through Interactive Brokers. Slippage here was usually 1 - 2 cents.  IB couldn't always get the exact closing price. There was some positive slippage, but mostly negative.  It was only a couple cents though, not a very big deal.

-Bad Signal: I'd check 20 minutes before closing; if it was a BUY or SELL, I'd enter the order accordingly.  Sometimes SPY would move in those last 20 minutes, negating the signal.

-Bad Data: I used Yahoo Finance for the signals because I could get delayed intra-day quotes from them.  Norgate only provides (very reliable) EOD data. Yahoo and Norgate didn't always have the same SPY data (dividend adjustments, bad ticks, whatever).  Sometimes the signals were early or late by a day.  The system design was based on data from Norgate, so the signals from them are the accurate ones.

-Random Distractions:
     -Internet down
     -Completely forgot to check the signal
     -Vacation
     -Other parts of life that get in the way
Even with perfect data and an accurate signal, I couldn't always be at the computer to enter the trade.

-Luck: If I missed a signal right at the market close, I would still enter the trade in the after hours, next day pre-market or next day open.  Prices were often favorable to me.  If a buy signal came, I could enter at better prices during the after hours because SPY was selling off.  And vise versa for sell signals.  I think it was just good fortune; prices could easily have gone against me.

Long vs Short

Longs performed better. This makes sense because we're in a bull market. The short trades actually were net losers.  I think some kind of market filter would be appropriate.  Adding a filter is a whole other project, but this is where system design leads you. You refine and adjust until you're comfortable and confident with your product.

Outliers?

None really. I had one trade that lasted longer than any backtested trade.  It just kept dragging out, although the drawdown was minimal. I wasn't sure if my data or scanning software had gone bad.  You begin to question things when the system does something for the first time.  Aside from that, everything went smoothly.

Only Six Months of Testing?

I know, it's not a long time.  I would need real time trading for multiple years through bull/bear and high/low volatility markets to gain supreme confidence in the system.  For my purposes, six months was long enough to 'get a feel'.  

Final Thoughts    

You can backtest and simulate all you want, but to truly get a feel for a system, you need trade it live.  There were times that I questioned the signals. For example: Why am I buying the SPY when Japan is on nuclear meltdown watch? The discretionary part of me would not take some of these trades.  But this a mechanical system; if a signal comes, take it.  Trust your rules.

I will still need refine this strategy but it was a valuable experiment for me.  It made some money and I was happy with how it performed.  For an off-the-cuff creation, no complaints.