Wednesday, November 17, 2010

McClellan Oscillator and Oversold Levels

Over the last couple days, I've seen a few respected StockTwits contributors mention that the McClellan Oscillator has reached extreme oversold levels, indicating a potential bounce in the short term.  I wonder if there is an validity to these indicators.



Everyone's time frame is different, but I'm looking at a short time frame, say 4 to 5 days. So here is the Simple Study:

When the Nasdaq McClellan Oscillator ($NAMO) hits -50, buy the QQQQ on the close, sell when QQQQ crosses above its 5 day moving average. [You can use any type of exit you want: RSI, moving average, $NYMO levels. I just chose 5 day MA for this example. Either way, using a dynamic exit is better than a static one.]


$NAMO < -50, buy $QQQQ on close; exit close > 5 day MA. $100,000 per trade; 2000 to present.

Net Profit
# Trades
# of winners
% of Winners
Max. Trade % DD
Avg % P/L
W. Avg. Profit
L. Avg. Loss
Profit Factor
Payoff Ratio

 94,540.18
63
51
80.95
-19.51
1.50
 2,333.27
  (2,038.04)
4.87
1.14


Now look at a similar study, except use $NYMO levels below -70 and buy the SPY.


$NYMO < -70, buy $SPY on close; exit close > 5 day MA. $100,000 per trade; 1993 to present.

Net Profit
# Trades
# of winners
% of Winners
Max. Trade % DD
Avg % P/L
W. Avg. Profit
L. Avg. Loss
Profit Factor
Payoff Ratio

 62,894.22
46
35
76.09
-15.49
1.37
 2,231.06
  (1,381.18)
5.14
1.62


It looks like there is some back-tested credibility to this indicator. The maximum drawdown is is kind of high, but if I filter out when the SPY or QQQQ is above its 200 day MA, the drawdown diminishes. The average hold on these tests is about 4 to 5 days.

It should be interesting to see how this plays out over the next few days.

Below are the 2010 QQQQ trades:


Ticker
Date
Price
Ex. date
Ex. Price
Profit
% Profit
Value
Cum. Profit
# bars
QQQQ
1/22/2010
44.16
1/27/2010
   44.70
    1,223
1.22%
 100,000
   86,463
4
QQQQ
1/28/2010
43.55
2/2/2010
   43.65
     230
0.23%
 100,000
   86,692
4
QQQQ
2/4/2010
42.62
2/9/2010
    43.11
    1,150
1.15%
 100,000
   87,842
4
QQQQ
5/5/2010
48.18
5/10/2010
    47.77
    (851)
-0.85%
 100,000
   86,991
4
QQQQ
5/14/2010
46.93
5/27/2010
    45.87
 (2,259)
-2.26%
 100,000
   84,732
10
QQQQ
6/1/2010
45.18
6/2/2010
   46.25
    2,368
2.37%
 100,000
   87,101
2
QQQQ
6/7/2010
44.27
6/10/2010
    45.07
    1,807
1.81%
 100,000
   88,908
4
QQQQ
7/1/2010
42.59
7/7/2010
    43.96
    3,217
3.22%
 100,000
   92,124
4
QQQQ
8/13/2010
44.72
8/17/2010
    45.37
    1,453
1.45%
 100,000
  93,578
3
QQQQ
8/24/2010
43.65
8/27/2010
    44.07
       962
0.96%
 100,000
  94,540
4

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