Monday, September 15, 2008

Weekly Pivots Update

Above is the rolling update of the weekly pivots study. As predicted in last week's post, a contraction in the Qs range developed, and in a dramatic way.
As mentioned in a previous post, I've added some metrics to the pivot charts in order to get a better view of whether each ETF is experiencing range expansion or contraction. Our goal is to develop some objective criteria that will determine if that contraction or expansion is in mean reversion mode or if a trending mode is building.
To those ends I've added a data row that defines the absolute vale of the R1-S1 range, a data row that calculates that range as a percent of the PP in order to equalize the magnitude of the range relative to the price of the underlying, and a % delta row that expresses the % change in range from the previous week. Keep in mind that these values are percentages, so 100% equals no change, and 50 equals a reduction by 50%.
Looking forward to the coming week, the lowest volatility (% delta) is now the Qs, which stands at only 47% of last week.
Last week saw the Qs R1-S1 range increase by 324% to 4.40, but this weeks range is only 2.05, thereby opening the possibility for renewed expansion.
At the same time, the IWM % delta has fallen from 135 to 83. . . a substantial decline.
While XLE and XLF also continue to display mean reversion behavior, the events of IKE and Lehman are likely to sponsor volatility expansion in those 2 ETFs this week.
The weekly pivot study is an ongoing work in progress and I plan to collect data for at least 2 more weeks before initiating the tracking module. This time lag will give me time to develop and test the background TS code and, hopefully, produce a preliminary working model by early to mid October.

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