Joined Nov 11, 2007
1,458 Blog Posts

Charting the Ups and Downs of RSI2: IWM Edition

This post demonstrates historical performance generated from buying IWM anytime its RSI2<10 and holding the trade for 5 days. Also included are the previously published graphs of SPY and QQQ, for the sake of comparison.

Click on the graphs to enlarge…

I have created a rolling 10, 20, and 50 trade average and plotted them according to the dates each trade was closed.

Until 2007, this setup worked well using IWM. The rolling averages were above 0.0% most of the time. That all changed after the bear market of 2008.

Let’s compare IWM to SPY and QQQ.

SPY Graph:

QQQ Graph:

These graphs demonstrate that SPY is the only ETF of the three that isn’t showing a breakdown when using RSI2<10 to initiate short-term swing trades. QQQ should not even be considered while IWM has suffered since the 2008 bear market.

For these reasons, future RSI2 tests will focus on SPY. The next round of tests will examine various exit strategies. I seek to determine if there is any particular RSI2 strategy that has not shown signs of breaking down.

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$VIX Climbs Above its 200 Day Average. Bullish or Bearish?

On Friday, $VIX closed above its 200 day moving average. The last day it traded above this average was December 14, 2011. With volatility seemingly entering a bullish phase, is this a bullish or bearish setup for buying SPY?

The Rules:

Buy SPY at the close if $VIX closes above its 200 day moving average, and $VIX was not above the 200MA the previous day.

The Results:

Using all SPY history, there were 60 occurrences of this setup. After 50 days, 60.38% of trades were winners.

The win rate combined with the higher average winning trade has resulted in SPY averaging just over 2% after 50 days.

The market has a bullish bias. While this test reflects that, it also demonstrates that a climbing $VIX does not necessarily signify a death knell for the markets.

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ROC System Closes SPY Short, Goes Long

The system was short for one week, Friday to Friday, and racked up almost a 3% gain. Is it now long again as of Friday’s close.

If the market makes another quick bounce, the system is likely to go short again. Note there is only 0.60% difference between the ROC252 and the ROC5. Looks like there will be more whipsawing ahead.


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After 5 Months, Fidelity Select Funds Rotational Strategy Beating Buy-N-Hold

The Fidelity Select Funds Rotational strategy was developed over 2 years ago. I have been trading it since February of 2012. Here is a quick update of 2012 performance.

All tests are from 1.3.2012 to 5.31.2012. There are no commissions or slippage incurred from trading Fidelity Select Funds, so none have been included. I did not include any commissions or slippage in the SPY buy-n-hold results. All trades for Version 1 are verifiable in real-time.

Version 1, which goes to cash when $SPX closes beneath the 50 day average (assuming the funds 30 day minimum hold time has been satisfied) has benefited from liquidating early. It closed all trades on 5.14.2012 and has been in cash since.

  • Net Profit = 3.85%
  • All Trades = 8
  • Avg. % Profit / Loss = 1.57%
  • Winning % = 37.50
  • Avg. Winner Profit = 9.75%
  • Avg. Loser Profit = -3.34%
  • Max System Drawdown = -7.98%

Version 2, which I am still evaluating and not yet trading live, goes to 50% cash when $SPX closes beneath the 50 day average and 100% cash when $SPX closes beneath the 100 day average. It has not done very well as it is still holding positions. The upside to this is it will catch any move back up earlier than Version 1.

  • Net Profit = -7.29%
  • All Trades = 15
  • Avg. % Profit / Loss = -2.19%
  • Winning % = 26.67%
  • Avg. Winner Profit =2.29%
  • Avg. Loser Profit = -3.81%
  • Max System Drawdown = -10.04%

SPY Buy-n-Hold

  • Net Profit = 3.10%
  • Max Drawdown = -8.49%

Version 1 Equity Curve:

The current top three ranked Fidelity Select Funds, according to Version 1, are as follows:

  1. FSRPX (Retailing)
  2. FSUTX (Utilities)
  3. FIUIX (Telecom and Utilities)

Version 2 top ranked funds:

  1. FSVLX (Consumer Finance)
  2. FSRBX (Banking)
  3. FSRPX (Retailing)

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Varadi’s AggM Indicator Suggesting a Move to Cash

Read all about DV’s AggM indicator here. The indicator has been profitable in out-of-sample testing (he first published it in 2009) and is very near to crossing a threshold which would indicate a move to cash.

The Aggregate M indicator is based on the concept that in the long term the market trends, while in the short-term the market is  noisy, and has a tendency to mean-revert. Why not combine the two concepts to keep life simple?  The Aggregate M  is supposed to reflect an adjusted median that is filtered for short term noise. The median is a far more accurate measure of central tendency than a simple average especially with noisy data.  Taking a superior measure of trend and filtering out some of the noise by adjusting for short-term mean reversion creates an even better median. The Aggregate M is now both trend and mean-reversion rolled into one.

Tuesday’s close found the AggM dipping briefly below 50. The indicator did manage a slight reversal to close back above the 50 mark on Wednesday.

A very simple of use of the indicator is to be long above 50 and to be in cash beneath 50.

Based on my testing of the indicator, it has outperformed buy-n-hold with compound annual gains of 7.88% and a max drawdown of approximately -20%. The win rate is also high, averaging 67% winners. I tested it using all SPY history but did not include commissions or slippage.

AggM Equity Curve

In my humble opinion, if the AggM does cross, with everything going on in Europe, moving to cash seems to be a reasonable response.

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In Memory of Those Who Gave Everything for Our Country

A hero is someone who has given his or her life to something bigger than oneself. -Joseph Campbell

The patriot’s blood is the seed of Freedom’s tree. -Thomas Campbell

But the freedom that they fought for, and the country grand they wrought for,
Is their monument to-day, and for aye. -Thomas Dunn English

For love of country they accepted death… -James A. Garfield

The greatest glory of a free-born people is to transmit that freedom to their children. -William Havard

The brave die never, though they sleep in dust:
Their courage nerves a thousand living men. -Minot J. Savage

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