Wednesday, May 21, 2008

Thursday - RIG and IBD updates

The XLE component update shows some interesting developments. Most obviously, there's a lot of red in the open P/L column reflecting yesterday's decline in the sector. Remember, we're only looking back 500 bars, so in the case of the 5 minute bars, that's a little more than 6 days. RIG continues to hold top slot on the 5 minute, but has fallen to last place on the 10 minute, clearly a change in trend. (I'm not trying to mimic AdvancedGet dashboard).
OXY and DVN continue to show strength and XLE also keeps a top slot. If you think I'm working towards favoring the XLE over the component stocks from a R/R perspective, you might be right.
Just a footnote to yesterday's Qs fade trade. After I closed my position shortly after 11, the Qs rallied nicely and then plunged. It's been my experience that drops like that from 13:30
to 14:15 are very hard to catch, especially since the drop blew through S2 so quickly with a continued weakness down to almost S4 (not shown). You've got to have the reactions of a F16 pilot or nerves of steel to play those falls and I have neither. My hats off to anyone who managed to catch the afternoon drop. . I was happy to be slapping my new driver at Eagle Crest on a wonderfully cool day here in SoCal.
(My belief is that the best way to play those falls is with a system approach and autotrading, hence another reason for my current attention to the possibilities of system trading.)
For the IBD20 update BIDU has suddenly collapsed to last place, while HES TNH DRYS DNR hold strong. The idea of trading the top 10 as a basket with a culling factor to eliminate those that fall off the list (with no replacement) is gaining some traction. Again, this is a short term trading model with week to week adjustment as the IBD20 changes composition. At the end of the week, there may only be a few of the top 10 left, or there may be 10. It's like that box of chocolates. Next week I'll start following this concept in a systematic manner and post the results.
There is also the dark side which I haven't delved into yet and that is the idea of shorting the IBD20 as overextended, overbought candidates. This too is a work in progress, with the premise that once IBD20 components start to fall off the list, there may be significant downside potential. Whether such retracements can be captured on a short term basis remains to be explored.
So many ideas, such little time.


bhh said...

I will be very interested to see how subsections of the IBD100 perform. I track the full index at IBDindex and have often considered testing subsets of it or applying some sort of relative strength selection criteria to it to narrow a rotating portfolio to 10-20 rather than the full 100.

bzbtrader said...

Thanks to Rob I now know of your site and the excellent studies you have posted. The IBD idea is something I've been working on for a while. . .whether it can actually be compliled into a consistently profitable trading system remains to be seen.