Weathering global selloff

Four trades to gain from the global rout with peace of mind:

Intraday Alpha

I got an idea of Intraday Alpha instead of Market Timing while meeting with equity derivative research team from a broker. Here is the performance of the intraday alpha before, during, and after the Fed announcement of rate lift:

Ultimate timing system

Signals from different strategies and securities have been aggregated and integrated. It's now fast and accurate:

Long bias in the equity market, any selloff is short live

Two-day selloff is stopped by the strong job report. This is another evidence that news can always cause unpredictable outcomes. Last strong job report caused a selloff, this time comes with a strong rebound.

Anyway, our pairs trading model has been proved to be able to pick up the market directions. It promptly suggests to close the previous positions and open "long NDX and short Dow", or simply buy in SPX, or short VIX.

It's also very interesting that during the strong selloff, the previous "short NDX long Dow" still lost 20 bps, while short position in SPX gained 0.76% in 4 days.

The uptrend is fading

YTD the average holding period is about 13 days. Since last uptrend signal appeared on Nov 16, it has been 14 days. It's not surprised that in this morning, the model gives us a downtrend signal. Pairs trading (long NDX short DOW) gained 1.1%, while buying S&P 500 Index would net 3% in last two weeks.

2015 YTD Live performance

While we still have one more month to end the year of 2015, we can celebrate the wonderful live performance of the Index Pairs Trading and Its Implied Timing Ability.

Well predicted urgly week

The S&P 500 Index dropped 3.6% in the week of November 9 - 13. Well, this selloff is well expected and predicted by our models.

The pairs trading model suggested to short NDX and long INDU on October 30, which implied that the equity market was likely to drop in the near future.

The index timing model showed a sell signal on Novermber 5. Even though there was a short-live buy signal before the market close of Novermber 11, a strong sell signal followed the market open on Novermber 12.

When both models point to the same direction, the market is very hard not to follow the trend.

The rally is continuing

The S&P 500 Index has climbed up by 100 points since the current UP signal appeared before the close on September 30. The emerging markets have also followed with more than 9% rally. The Hang Seng China Enterprises Index reopened on Oct 2 with an UP signal, and has since incresed by 800 points, or 8.3% by the close of October 9.

Investors are wondering whether the rally will continue. Interestingly, while the pairs model sucessfully predicted the rally at the open of Sept 29, the NASDAQ 100 Index (NDX) has lagged the Dow Jones during the last few days. However, the model still maintains the UP trend. The S&P 500 Index has got support at 2010. The rally is likely to continue if the index doesn't drop below this level.

Market finally turns to long NDX and Short INDU: on the rise

Smallcap and growth stocks have been oversold. Markets are on the rise

QTD Performance

Recent performance update

Pairs trading continues to perform well.

Live performance of the flagship model

Up to today at 11:30 Mountain Time.

Please also note that market-neutral returns are uncorrelated with the timing returns.

Flagship models says: Short NDX long INDU, market will fall

Perfect entry point at 10am on August 31, 2015:

Choose better entry points with trend following systems

While the market rally continues, Signals of the long NDX short DOW and the implied long SPX appeared on August 20 are still in negative territory. This suggests us that entry points are very important.

Fortunately, we have the trend following system both for indices and pairs.

The above chart shows the system that combines the pairs trading model shown on this blog and a trend following system. Instead of opening the pairs position at 12:30 on August 20, we could wait until the system shows a buy signal at 12:45 on August 24. As a result, instead of making 0.5%, the pairs would make 1.5% so far.

For the SPX timing, we also have a trend following system:

We won't buy SPX until 9:55 on August 27. The result? Trading on SPX would up over 1% instead of still down 3.38%.

Another note, the FX signal system is also online.

The sell off is over. Smallcap and growth stocks are oversold. Long NDX and short Dow, market is likely up

The previous sell signal (short NDX long Dow) from July 31 gained 2.44% in S&P 500, 0.5% in ETF pairs trading and 2.5% in futures trading. The YTD timing win ratio is 88.9% on S&P 500 Index.

Expanding the model and idea

I recently have applied the same idea in trading between NDX and Dow Jones to Hong Kong future market and FX market.

In Hong Kong market, pairs can be formed with HSI and HSCEI, both indexes have regular future and mini-size futures. Following are results:

The current signal is to long HSCEI and short HSI, also implying HK market is likely to go up.

In FX market, commodity currencies such as AUD and CAD are paired with safe heaven currencies including CHF and JPY. We choose CADJPY to trade.  The leverage is 5.

The current signal is to long CAD and short JPY. Does this mean the crude oil price is going to go up?

It's earning season. Market is changing fast. Short NDX and long INDU. SPX is likely to drop.

The previous signal (Long NDX short INDU, SPX up) only lasted 3 days. SPX was uup 1.62%, pairs trading made 0.5%. YTD, paris trading has made 8.6% in ETF trading, and 34.9% in future trading. Timing on SPX has generated 18.7% return. The wining ratio of the timing is 88.2%.

Sell off is over: Long NDX and Short INDU. The market especially S&P 500 is likely to go up

The previous signal made 2.15% on shorting S&P 500 future. YTD, the timing successful rate is 14 out of 16, or 87.5%, leading to 16.8% return in trading S&P 500 Index.

The pairs trade has -2.5% in the just closed signal.

There is still a long way to drop

The S&P 500 Index has dropped more than 2% since the short signal on July 16. However, the spread between INDU and NDX is still near -3%. It will be a long way for the spread to turn positive so that the market can be stable.

Rally is over: Short NDX and long Dow Jones -- Market will drop

The previous signal (long NDX and short Dow Jones, market up) lasted for two weeks. ETF trading made 1.4%, S&P 500 Index was up 3.52%, and future trading made 5.2%. YTD the timing winning ratio is 86.7%, or 13 out of 15. Great work, my dear model.