Home Sick and Bored Edition of Fun With Statistics

So I’m still sick. Still running a fever. This is getting a little ridiculous.

Nothing better to do than to play around with some statistics.

I’ve been hearing some chatter about the indices being extended above their moving averages for longer than is normal, so I decided to take a look at this.

• As of 2.4.2011, the $SPX (S&P 500) is above its 50 day moving average for the 108th day.
• The record for this metric was set on 1.9.1996 when the $SPX was above its 50dma for the 257th day.
• The 2nd highest number of days above the 50dma was set on 2.26.2007 with 149 days.
• The 3rd highest was set on 6.6.1961 with 145 days above the average.

To look at the stats from another angle, I created a buy rule where we buy the close when the $SPX has been trading above the 50dma for the 100th day. This trade is then held for 50 trading days.

Results:

• 13 trades
• Average trade of 1.55%
• 61.54% winners

But we need to compare these results against a buy and hold of the $SPX.

Rules for the Buy and Hold: Buy if the close is above the 50dma. Hold for 50 days.

Results:

• 220 trades
• Average trade of 1.37%
• 59.09% winners

Summary:

Although the sample size is small, it appears there is still some meat left on the rally bone, even after trading above the 50dma for 100 days.

At currently 108 days above the average, the $SPX is getting close to record setting territory.

Like Mr. Cain Thaler, I am laid up with a serious bout of the Flu, or Bronchitis, or something.

All I know is it feels like I’m going to cough up my lungs and my head is splitting. Did I mention the fever? I can’t remember the last time I was sick like this.

Anyway, the good news of the day was that I closed out (market-on-close orders, of course, executed perfectly while I was sleeping) a couple of profitable trades today, with ADM being sold for a +6.7% gain. At 1/5 of my account balance, it was a nice trade!

Tomorrow I will close GENE. It was up +21.33% today.

All these stocks were PDS 2.0 picks. And if you are a working stiff like me, or just don’t have 2 hours a night to put into the market, this system may work well for you. It is easy to execute all PDS trades and never spend more than 10 minutes a night doing so.

Good evening to all. Wash your hands after reading this post.

I was visiting David Varadi’s blog and came across his recent post about the importance of using volume exhaustion as a guide to shorting. With POMO and QE running roughshod over the backs of short-sellers, any little edge can help, and DV seems to be on to something. Here is the core of his idea:

Curiously, one of the filters that seems to improve entries considerably is the concept of volume exhaustion: when volume reaches a short-term high over the past week or two weeks on short-term market strength, it is likely that buying is close to some peak, and hence is exhausted.

I took his idea, and paired it with his trademark indicator, the DV2, or DVB, to see what would happen.

Here are the rules.¹ No commissions or slippage were included.

• Go long at the close when DVB crosses beneath 20.

• Go short at the close when DVB crosses above 80.

Then I add the volume filter, using the same short rule but requiring volume to be higher than an X day high in order to go short.

Results:

While requiring volume to be greater than a 10 day high in order to short did improve results significantly, I’m concerned that the sample size may be too small to draw any meaningful conclusions. It is hard to tell whether the filter has an edge in this scenario or whether it just limited the system to taking a few lucky shorts.

If nothing else, requiring a volume surge before getting short does certainly limit opportunity, and while The Ben Bernanke is in charge, limiting opportunities to get short is probably a wise decision.

I like DV’s idea and intend to explore it further in the future.

¹Often DV uses this indicator to go short above 50 and long beneath 50. I have altered these parameters a bit.

PDS 2.0 is off to a great start for the year.

10% Equity Per Trade Model: +2.24%

20% Equity Per Trade Model: +4.30%

3ATR, 2% Risk¹ Model: +4.53%

The trades for each model, as well as some other relevant statistics are below. Click to enlarge each spreadsheet.

10% Equity Per Trade Model-

20% Equity Per Trade Model-

3ATR, 2% Risk Model-

¹ 2% risk is only used for position-sizing. As stops are not used, there are no guarantees on risk.

Normally I would not write about such political / pop culture absurdities as The Donald, but in this case, I believe the situation warrants comment, especially with every trader and his brother getting ready to get long oil.

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“Trump has a surprising response to speculation that the turmoil in Egypt and other countries in the Middle East could push oil prices to as high as $200 a barrel.

“It also could go the other way. Frankly, the Middle East is a tinderbox. It’s going to explode. OPEC will probably be destroyed if it explodes, and oil prices could go the other way.

“I understand economics. You break up what would normally be an illegal monopoly, OPEC, and break it up very strongly. The Middle East is exploding, and I’m saying that could have a positive impact on oil prices.

“If you look at oil right now, it’s soon going to be $100 a barrel. Far too high. It’s set by OPEC. I think OPEC would explode with the Middle East and that wouldn’t be the worst thing in the world.”

Trump has especially harsh words for OPEC and its grip on oil prices.

“I think it’s unfair. I think it’s illegal,” he declares. “If you have a store and I have a store and we collude and set prices, we go to jail.

“Here you have 12 men, in this case all men, they sit around a table and they set the price of oil.

“We have so much oil. There’s so much oil out at sea. I see $3.50 for a gallon of gas. Cars are lined up trying to get it, and at $3.50. It’s a shame. It’s a ridiculous shame.

“Plus we don’t use our natural gas. We have more natural gas than anybody. Why we not using it is an amazing thing.

“Abu Dhabi, which has plenty of oil, just went to all natural gas for transportation because they want to sell us the oil at exorbitant prices. When you tell me about Obama and what he’s doing in the Middle East, I don’t think he’s doing anything in the Middle East.”

Trump warns of the dangers to the United States posed by OPEC and high oil prices.

“We have to do something about OPEC because that’s the life blood of the country. Right now, until we get on natural gas and other things, they really have us, and they’re sitting around inflating the price.

“When we had our problem not so long ago, a few years ago, oil was almost $150 a barrel. They’re blaming the banks, and the banks were terrible, and lots of other things were terrible, but I give a lot of the credit for the almost collapse of this country to the price of oil. It’s going to be up there again very soon and you’re going to have another catastrophic problem.

“By the way, any time a country comes up with oil they invite them in. Join OPEC. The United States is stupid, the people who represent the United States are really stupid, so join us and we’ll take advantage of the United States, sell them oil at inflated prices. They’re draining our life blood. We cannot allow that to continue. What kind of power do we have over OPEC? They wouldn’t even exist if it weren’t for us.”

Asked where he thinks the price of oil is headed, Trump responds: “I think it could go, with proper leadership, down to $40 a barrel. I think if we continue the way it is, it’s going to go up to $150 a barrel.”

Click on the chart to enlarge.

From 1987 to 2010. Calculations start at the open of the first trading day of the month and end on the close of the last trading day.

February Statistics:

• Average Monthly Profit/Loss = +0.74%
• Winning Months= 58.33%
• Worst February = 2006 loss of -6.96%
• Best February = 2008 gain of +11.70%

Profit Distributions:

With the influence of the unrest in Egypt adding to an already positive seasonality, it looks like February may be a good month to add exposure from commodities.

Click on the chart to enlarge.

From 1960 to 2010. Calculations start at the open of the first trading day of the month and end on the close of the last trading day.

February Statistics:

• Average Monthly Profit/Loss = -0.19%
• Winning Months= 52.94%
• Worst February = 2009 loss of -10.1%
• Best February = 1986 gain of +7.1%

Profit Distributions:

From 2000-2010

February seasonality has been consistently negative throughout the last decade. These results are heavily influenced by February of 2001 and 2009, both of which were big losing months.