Category Archives for "Rotation"
One of my research goals for this year is to find an intermediate term rotation strategy using S&P500 stocks. Then right on cue, I read the following post Intermediate momentum! which points to research Is momentum really momentum? by Robert Novy-Marx. In that he mentions that “intermediate horizon past performance, measured over the period from 12 to seven months prior, seems to better predict average returns than does recent past performance.” I have never tried an idea like this. In the blog comments, a user says he got great results using the current NDX100 stocks not the historical. This introduces pre-inclusion bias but maybe the results will still be good. What a great way to start the year with ideas I have never tested.
From the “Should You Buy the Best or Worst YTD Stocks” post, several readers made comments if one could make a monthly rotation system from this idea. From that post, buying either the strongest or weakest stocks out-performed the SPX with the weakest giving the best results. Will that be the case again?
Does the percent of S&P500 stocks trading above their 50 day moving average predict future market returns? Over the last several weeks, I have seen several charts of the percent of S&P500 stocks trading above their 50 (or 200) day moving average overlaid on the S&P500. From these charts, it appears one could build a market timing indicator. The concept really looks like it has promise.
Chart from April to November 2013.
Is it better to buy the worst year-to-date performing stocks or the best year-to-date performing stocks for the month of December? Common wisdom would say stay away from the losers because those are the one that people are selling for tax reasons. Are fund managers buying the winners for window dressing?
In the previous post “Which S&P500 stocks to focus on when the SPX has 5 higher closes,” we discovered which stocks (from the S&P 500) produced the best returns when the market closed higher five consecutive days . The results from that work, as often happens, suggested a deeper look; specifically, can those concepts be applied to S&P 500 stocks without having to wait for specific market conditions (e.g. five up days in the SPX)? If so, maybe this is the start of a viable, standalone trading strategy. As indicated, this post builds on the previous post, so please refer as needed.
Rob Hanna had a good post recently; titled What the String of 5 Higher Closes Under These Circumstances is Suggesting . With mean reversion trading, you are expecting stock prices to snap back towards their mean, like a rubber band stretched too far. But, sometimes, that rubber band can be stretched so far that it breaks (and therefore, won’t snapback). For some time, I have been searching for how to tell when that rubber band is stretched so far that it is broken. Rob’s post had several key concepts that might help us to solve this puzzle and possibly even be the foundation of a stock strategy.