There’s been a lot of buzz these past few days inside The PPT, with regards to our new trading system, using the Overall Hybrid Overbought/Oversold signals to place long and short sale trades. Those who are familiar, the results convey a picture of mathematical brilliance, something I’ve been alluding to for several years.
The rules are very simple. For example, when the algorithm says “oversold” a buy order representing 1/3rd of a position is executed. Another tranche is not executed unless the system flags oversold again. Should the algo go straight to overbought, due to a sharp market reversal, then the buyer will have to suffice with just 33% of his assets invested. No matter what, upon an overbought signal, the entirety of the account must be liquidated and a short sale placed.
In other words, on both the long and the short side, money is allocated in three tranches and liquidated in its entirety upon receiving an OB or OS signal, depending on whether you are long or short.
Here are the results since inception or 2009.
2009: SPY +32.3%, DIG +76.35%, ROM +148.61%, OIH +101.5%, IJR +32.3%, XLB +52.9%, ERX +155%, TNA +84.9%, UYG +28.5%
2010: SPY +18.34%, DIG +56.4%, ROM +84.01%, OIH +61.5%, IJR +29.48%, XLB +39.6%, ERX +97.8%, TNA +123.3%, UYG +31.4%
2011: SPY +12.79%, DIG +52.72%, ROM +18.66%, OIH +16.75%, IJR +24.76%, XLB +23.6%, ERX +71.6%, TNA +65.6%, UYG +12.5%
This is a brand new study and we will be building upon this framework to include highly correlated equities. We have data on stocks like FCX and EXK and the results are similar. When gazing upon this data one thought comes to mind: “Sublime Harmony of Mathematical Precision (SHOMP)”. By the way, that UYG (financials) data is about +50% in outperformance versus the year to date returns of the buy and hold crowd. Indeud.
Spread sheets with details are provided inside The PPT.
In other news, Europe is disappointing again. The Italian meatball at the ECB said, and I am paraphrasing here “we don’ta knowa what the fucka yous a talkin’ abouts. The ECB isn’t doing a shit.”
Get to cash.