Apr

4

I defined a Flexion Index as the z score of the price of XLF relative to its 39-week average and standard deviation (for example, a z score of -2 would mean the price was on the lower Bollinger Band). My theory is that flexions are happy when the index is above zero because their stocks are going up and they are getting bonuses. When the index is below -1, the flexions are in distress and likely to clamor for bailouts and accomodative monetary policy.

Regressing the net change in SPY in the next 39 weeks against the z score of XLF, I found a positive correlation with N=16 and t=1.40 (scatter plot below). Too few observations for significance; furthermore, 30 weeks into a 39-week period that started with a z score of -2.37 last September, SPY so far has nearly a 20% gain.

   39-week               Change in SPY
  Date             XLF  average   z score  next 39 weeks
 9/17/1999   22.91  24.84   -1.58     9.6%
 6/16/2000   24.00  23.45    0.33   -21.5%
 3/16/2001   25.95  27.58   -1.11    -1.6%
12/14/2001   25.50  26.64   -0.70   -20.7%
 9/13/2002   22.37  25.35   -1.66    11.0%
 6/13/2003   25.34  22.38    2.16    13.1%
 3/12/2004   29.57  27.03    1.51     6.0%
12/10/2004   30.04  28.66    1.83     4.4%
 9/9/2005   29.87  29.45    0.54     0.6%
 6/9/2006   32.69  31.92    0.58    12.3%
 3/9/2007   35.87  34.92    0.52     7.2%
 12/7/2007   31.20  34.79   -1.50   -17.6%
 9/5/2008   21.74  24.72   -1.00   -24.0%
 6/5/2009   12.32  12.12    0.05    20.8%
 3/5/2010   15.22  14.04    1.07     7.6%
 12/3/2010   15.18  14.90    0.37    -4.1%
 9/2/2011   12.54  15.55   -2.37


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