Category Archives for "Mean Reversion"
As of Friday’s close, the SPX has closed above its 10 day moving average for 17 days. What does the market do when it finally closes below the MA10? Which S&P500 stocks do we want to focus on when it finally does?
My article on “Is mean-reversion dead?” produced lots of suggestions from readers on other tests to try. We will jump right in and look at what these research suggestions produced.
My great friend and expert trader Steven Gabriel often pushes me to answer this question; and prove it. We, perhaps too fondly, remember the great mean reversion trading years of 2005, 2006, 2008, 2009, 2010. We discussed this topic often in 2011 and 2012. Steven Gabriel would often call me on days when in the past, we would both be making 5+% on a day that our stocks would be mean reverting, but now we would be making a mere 1%.
My theory is that mean reversion is in hibernation waiting to come back; or said another way, mean reversion is simply mean reverting. I think that when too many people trade mean reversion, the space gets crowded and we see fewer winning trades and smaller returns. However, this has always been conjecture never backed up with numbers. Are we really seeing fewer trades? Smaller returns? Time to do the research and see what the numbers tell us.