After shedding 153 points yesterday SPY came roaring back with a 227 point gain today and a new high. Tentative volume may reveal a lot of short covering responsible for today’s pop…most politicos (and traders) were surprised by Russia’s apparent quick retreat on the Ukrainian situation.
As the markets climb the Ukrainian wall of worry this seemed like a good time to review how our old commodities model was holding up. In this case we look at the weekly model going back 7 years and the results are clearly better than SPY from a variety of perspectives.
Note the severe drawdown periods in 08 and 10….following the simple P6 equity curve stop would have avoided a temporary 20% drawdown in each case.
March is here and it has had an interesting history from an overnight perspective. Below is a graphical look at all nights following days that ended in March since 2000. Read the rest of this entry »
In the last post on Probabilistic Momentum we introduced a simple method to transform a standard momentum strategy to a probability distribution to create confidence thresholds for trading. The spreadsheet used to replicate this method can be found here. This framework is intellectually superior to a binary comparison between two assets because the tracking error of choosing one versus the other is not symmetric across momentum opportunities.
There are certainly some areas of froth in this market, but plenty of stocks and sectors are doing well. Home construction ETF (ITB) broke out to 7-year highs and the retail etf (XRT) which broke back above its 50-day average are just a few. Even with the violent drop late Friday due to the Ukraine/Russia news, we still managed to close the day, the week, the month at all time highs. We can look for divergences everywhere and we will always find some, but closing at all time highs is bullish. There is massive 185 puts building and coincides with Friday’s low, a good pivot to put on the radar.