On Wednesday, 9.21.11, SPY had spent 38 trading days beneath the 50 day moving average. What does this portend for the future?
The Rules:
Buy SPY or $SPX at the close, if:
- They have traded for 35 days beneath the 50 day moving average
- Sell X days later
- No commission or slippage included
- First SPY trade 5.26.1994
- First $SPX trade 11.1.1960
The Results
We are seeing the same phenomenon here that I wrote about yesterday. Over the last 50 years, this setup has produced a mildly bullish move for the next 60 days, but over the full 100 days, the performance is almost neutral.
Over the last 15 years (represented by SPY), results have been moderately bearish. Note the volatility in the blue line. I have been writing about how volatile this market will, and there are still no signs of it ending.
I’m guessing that the longer the market spends beneath the 50 day average, the worse future results are. I will look at that issue and the same setup beneath the 200 day average, this evening.
Wood, Thanks. It would be great if you could also breakout $SPX for the period before $SPY began trading.
The important takeaway is the volatility in returns on the blue line. A short term trader’s dream (I think).
Interesting work as always Woodshedder. Quick question / curiosity – For the SPY numbers is the dividend accounted for? It’s currently about .55% every 90 days. This would effectively halve the average negative performance. I only think of this because I just had to pay a dividend on my SPY short last week. Obviously would not impact the volatility of the chart. Forgive me if this is a stupid question!
Andy, the data should be dividend adjusted.
You gotta play the ying yang – the zig zag here boys – I have a sell on my TZA above 55 and am looking at buying TNA with the proceeds. ZROZ is due a little pullback and TVIX. This sudden spike downward is almost certain to have a snapback soon – maybe try some AGQ too.
Good work as always, Wood.
Someone said that the market has sold off for the last several Fed meetings/announcements so you would buy the bounce here. Hell, the Euros need to print a trillion and give it to their banks to shore them up but the political structure of the Euros is almost impossible.
I do not believe that playing around long here is the right thing to do. The market always bounces, but can you stand the pain until it happens?
I’m not betting the ranch. I sold my TZA above 55 today so I am “nekkid” going into tomorrow. The majority of the move most days is gap up or gap down – must make your bet the previous day. I only made a little silver bet today and I am a little in the red already. Look at TVIX for the last few weeks and RUSS today. WOW! Wild and crazy.
Agreud. Gotta go with your convictions before the close.