Tuesday, June 9, 2015

1 Month Low Signal

After reviewing past similar signals to today's bottom reversal signal in the S&P 500 there is not enough of a positive forward skew for me to suggest speculating on the long side at this point. 

During the 2009-2015 bull market these signals did produce a positive skew in forward return compared to random.  These are the stats for the current bull market.

The first 3 days after the signal showed only a tiny positive skew in max gain versus max loss.

The first 2 weeks after the signal showed a ~1.5:1 max gain to max loss.

At 1 and 2 months out from the signal, the max gain was 1.7 and 1.8 times the max loss, respectively.  Given that some signals that my system flags may show or 3 times greater max gains than losses in the trade direction, there are much better opportunities to wait for.

At this point, I think a probable scenario would be for a 1-3 day rebound followed by a move to new corrective lows.  Most signals that failed to produce substantial rallies had 3 day or less rallies before topping.

Such a rebound may back test the underside of the lower boundary of the rising wedge.

These are just ideas, without a clear cut trading indication here.


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