Jan

25

Looking at the S&P 500 Index monthly through 2000 to present, I separated the monthly maximums and minimums by “Large Moves Up” and “Large Moves Down”..

Each month I calculated the “Max Move Up”  =  (Max of Inter-day max for month – Open for month)/ Open for Month.

Likewise:

“Min Move Down”  =  (Minimum of Inter-day min for  month- Open for month)/ Open for Month.

And then sorted them by size.

The Highest 12 (90th Percentile) Max Moves Up the following stats:

    Concurrent Month

         Returns:

         All Positive
         Max+ 9.2%   3/00
         Min +0.28
         Avg. +6.9%

         Range:
         1st biggest Max Move Up = 13.7%
         12th  Max Move Up = 6.6%

    Next Month’s Returns:

        10 of 12 Positive Next Month Return
         Max  +9.0%  3/09
         Min  -5.5%  8/00
         Avg: +2.5%

However, doing a little data mining it looks like this positive “trend” disappears if the Max Move Up is less than 6.5% the 13th highest move up . Under this Up range the next month returns start having some large down months. I will leave it to the reader to determine how much.

The Biggest 12 Min Moves Down has the following stats:

 Concurrent Month

          Returns:
         All Negative
         Max  -18.6%   10/08
         Min   -3.1%    4/00
         Avg.  -9.6%

         Range:
         1st biggest Min Move Down = -28.0%  10/08
         12th  Min Move Down = -9.4%
        

(The 13th Min Move Down was -9.3% and overlapped the 2nd biggest move up occurring on 3/09 with a 9.0% next month return)

    Next Month’s Returns

         6 of 12 Positive Next Month Return
         Max  +8.3%  9/02
         Min  -18.6%  9/08
         Avg: -2.5%

So it appears that negative volatility can have positive next months, but they are overwhelmed by the much larger relative size of negative next months. Again doing some data mining it would appear that this negative signal continues until the negative -6.5% Min Move Down.. Again I will leave it to the reader to determine how much.

This suggest the strategy of simply getting out of the market and staying out when a Min Move Down is < - 6.50% and then getting back in when the all clear signal is given by the months Max Move Up > 6.5%.

Even with staying out in 04/09 since 03/09 first was both first < - 6.50 and then > 6.50 for the Move Down and Move up: This strategy would have placed you in the right position for the 4 major trends in 2003 up and in, 11/2007 to 04/2009 out and 5/09 to now in. Again I will leave it to the reader to count the gains of this strategy. But obviously this assumes the trends up or down will be long and steady one direction for it to work.


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