Thursday, 13 March 2008

Revised Dow Jones Industrials Setup: Still Bearish

I've slightly revised my Dow Jones industrials trading setup based on the Commitments of Traders reports issued weekly by the U.S. Commodity Futures Trading Commission. These are the reports that detail what large trading firms are doing in the futures and options markets. My new Dow Jones industrials setup is still based on fading the large speculators, but with slightly different parameter values than the previous setup. It still went bearish with the Jan. 29 COTs report. It has slightly lower profit results, a Sharpe ratio of 2.6, which is slightly lower than the old's one score of 2.7, but better confidence intervals for profitability and beating the market. Overall, I think it's more robust. Good luck the rest of this week.


Joe said...

My question is how can the DJ be bearish and the S&P500 and QQQQ be bullish? These indexes are strongly correlated. How to act here; do you really go long S&P500 and short DJ?


Alex Roslin said...

Hi Joe,

Thanks for your question. I look at situations like that as reflecting outperformance by one of those markets over the other. As well, the data may be suggesting it's a good time to be hedged - which indeed it has been! Another twist is that the signals started at different points, and the backtesting is based on holding through the entire signal. So even when they conflict, that doesn't necessarily mean the signals are going to lose money.

That leads me to your last question: How to act here? The results are tested only for entering and exiting on those signals, not now when there is no new signal. So even if in hindsight the DJIA bearish signal was a good one thus far, I've resisted entering a trade recently because I should have done so when the signal first came. (The only reason I didn't do so at the time was because of available funds in various accounts.)


Tom deSabla said...

Um, Alex?

Every time you say your "setup" goes bearish recently, prices seem to go up. Gold is at 1004.00

Maybe you're not taking the interventionals into account.


Alex Roslin said...

Hi Tom,

Thanks for your comment. It's quite interesting how silent the gold bugs got a few days ago when bullion plummeted, but after a few days of upside, you're back! I was starting to miss you!

Regarding the signals of late, my chart shows the DJIA to be down since my DJIA setup turned bearish. What does your say? Also, my gold setup, which just turned bearish, works with a three-week trade delay, which means execution is for March 24. I invite you to read the explanatory links I've provided on this blog to understand better how this system works. Good luck!

Best regards,

ic said...

How are you shorting gold alex? I am planning to do it also with gld.

Alex Roslin said...

Hi Ic,

Still haven't decided between the new 200% bear funds in Toronto from Horizons BetaPro and DZZ.


lhslancers said...

The Horizon betas also carry Canadian risk for Americans. Have you checked out the charts for DGP and DZZ? There doesn't seem to be enough history to trade them yet. They're all over the board esp Friday.

Alex Roslin said...

Hi Lhslancers,

I agree. Liquidity in some of the newer ETFs is important to study before using any of them.