Eyeing the quants in S&P500 futures - buy strong, sell weak

2021년 8월 25일

We have upside trend resistance drawn from the April highs, while the upper Bollinger Band (not shown) has also been a good guide on daily upside limits. This should limit the movement in the near term and increases the prospect of a grind than an explosive move up, although Jackson Hole has the potential to change sentiment where I suspect the risks are skewed to the downside to an extent.

What is also interesting is to see how the market performs when we close above the 30-day high, which we can see from the Donchian channel. Using the logic of buying the S&P500 futures on the following open after a daily close above the prior 30-day high and exiting on the close on that same day. Since January 2020 there have been 48 occurrences, and we see a strike rate of 63%. Granted the average loss is 0.7x greater than the average win, but this test has no stop loss built-in and is purely defined by calendar basis.

The point being is that selling strength on a daily timeframe has been a poor trade. In fact, even if we go back to 2010 and capture different cycles the strike rate is 56%.

It throws weight to the belief that when trading equity indices that buying strong and selling weak tends to be a great starting point.