Thursday, September 27, 2007

Overdue for a hiccup

Today's action looked an awful lot like yesterday. The activity was a bit more subdued and the volume somewhat restrained, but both the TICK and the NYAD actually looked more bullish today than yesterday. For the last 5 hours of the day the VIX, NYAD and TICK were in sync. The financials (XLF) look like they might be getting some legs, but the gaming in these stocks is nothing short of notorious, so I have little interest in the sector for now.
I'm continuing to hold on any new positions. Although the last and first trading days of the month are typically bullish, fourth quarter portfolio realignment by the funds may create some selling pressure and I waiting to see how that plays out. I'm also devoting a considerable amount of time to various performance studies, one on the VIX and several on the Qs, not surprisingly.
The VIX is REALLY getting overdue for a turn. Just to prove it to myself I ran a little TradeStation study (optimizied) and found that over the past 64 months, the VIX has crossed 18% below the 12 day moving average 136 times. If you had bought each of those crosses and held till the VIX crossed over the 16 day moving average (average holding time 4 days), you would have been profitable 82% of the time. I think those are pretty good odds.
TS2000i code as follows:
Inputs: Pcntile(.18), Len2(12), Len3(16);
If Currentbar > 1 and Close Crosses Below Percentile(Pcntile,C,Len2)
Then Buy Next Bar at Market;
If Currentbar > 1 and Close Crosses Above Average(Close,Len3)
Then Exitlong This Bar at Close;
I'm sure you smart programmers out there can improve on this simple system by adding stops and/or conditional clauses.

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