Monday, February 26, 2007

SPX RSI(2) < 5 -

Red Hue mentioned another bit of research on Trading Markets regarding the best time to buy stocks being from the 23rd of the month to the 1st.

I agree with this. I've done similar research and discovered that market, in very large generalities, is lower towards the end of the month and higher in the first couple of weeks. It has to do with supply and demand - demand is higher in the beginning of the month because of the retirement fund money (billions) pouring in and option manipulation money (that's a joke for Jimmy Crack Corn Pone) and when these two things run out the market quiets down, generally, and stocks, in the absence of demand, fall.

I don't think you could design a viable system around time of the month (Ms Market has PMS - run! run!) (that ought to fix me right up with my female fan) (George Clooney has female fans - I've got fan). The reason being too many moving parts - too many economic announcements and earnings announcements and just the world situation in general.

But the idea did get me thinking. What if you designed a method that relied on the market being below 5 on the RSI(2)? So you would only buy when the market, as represented by the SPX or other derivative, was down and you only sold (short) when the market was up.

It makes more sense to go with the flow of the market than go against it. I'm going to try to program that into my filter model and see what happens. Dogwood - if you are reading this might be something more easily done in wealth-lab so maybe you could give it a try.


Red Hue said...

Cool Marlyn...I'll be watching for future posts to see what you fellows come up with...I have done some backtesting (but sloppy eyeball stuff) concerning similar scans seem to work better in general when the spx is "oversold"...but have noticed some stocks take off right before spx bounces back.

Marlyn Trades said...

Of course - the SPX is an index - think about it - without stocks going up the SPX wouldn't go up and vice versa - some stock has to be first and it is usually a jolt not a lurch. Coming down is a different story - they move together and quickly - but going up they go individually and usually by sector - it is why sector analysis is so important for the funds.


Timing is everything.