Tuesday, January 11, 2011

We Haven't Suffered a 1% Down Day in a While - So What?

The S&P 500 has made a very impressive run since December 1, 2010, rising about 8% in that time. It's basically been a nice smooth melt-up with very little volatility. In fact, at one point volatility was at 39 year low, which is pretty absurd. It's almost too good to be true, so people turning a bit cautious and defensive. 'We're definitely due for a pullback; we can't sustain this.' -  that's the vibe I'm hearing out in Twitterland.  But is this prolonged melt-up a recipe for an impending pullback/correction?  Looking at the charts, I realized the $SPX has not had a down day greater 1% in 33 trading days [the last instance was 11-23-10]. That seemed like a long time to me, so I got to thinking: when the $SPX goes 30 days without a 1% down day, what has historically happened over the next 3 months?



Buy S&P 500 after it has traded at least 30 days without a down day > 1%; sell 'n' weeks later. $10,000 per trade; 1990 to present.
Exit n
 Weeks
Net Profit
# Trades
# of Winners
% of Winners
Max. Trade % DD
Avg % P/L
W. Avg. Profit
L. Avg. Loss
Profit Factor
Payoff Ratio
1
      3,216.56
118
79
66.95
-3.32
0.27
        99.01
     (118.09)
1.70
0.84
2
      3,768.96
73
47
64.38
-7.05
0.52
      160.07
     (144.39)
2.00
1.11
3
      4,061.88
57
38
66.67
-4.76
0.71
      200.84
     (187.90)
2.14
1.07
4
      3,308.58
47
27
57.45
-6.82
0.70
      265.92
     (193.56)
1.85
1.37
5
      5,836.47
43
30
69.77
-10.64
1.36
      288.53
     (216.88)
3.07
1.33
6
      4,270.21
40
26
65.00
-10.64
1.07
      301.87
     (255.60)
2.19
1.18
7
      5,214.52
35
22
62.86
-12.27
1.49
      410.17
     (293.01)
2.37
1.40
8
      5,888.25
33
24
72.73
-12.27
1.78
      363.02
     (313.80)
3.08
1.16
9
      3,978.82
31
22
70.97
-13.70
1.28
      339.91
     (388.79)
2.14
0.87
10
      5,752.68
31
19
61.29
-13.70
1.86
      467.36
     (260.60)
2.84
1.79
11
      5,472.68
29
19
65.52
-13.70
1.89
      479.31
     (363.41)
2.51
1.32
12
      6,002.53
29
19
65.52
-15.60
2.07
      535.81
     (417.79)
2.44
1.28


Well, it looks like this bullish melt-up trend has some persistency.  There are some tough drawdowns, but the metrics point to a positive bias. I guess when the $SPX goes on a low volatility run like this, it is an indication of a very strong trend. Granted, the study was done in a vacuum and no other factors were considered, but it is something to think about. Also, because so many people are talking about a pullback, the stock gods will probably push us higher just to burn them.

Good trading out there.

1 comments:

Anonymous said...

Greetings from a fellow X-StockBee member.

I would like to get in touch with you.

Could you kindly send me an email?

I am: cognitize at gmail dot com

Post a Comment