Objective research to aid investing decisions

Value Investing Strategy (Strategy Overview)

Allocations for October 2021 (Final)
Cash TLT LQD SPY

Momentum Investing Strategy (Strategy Overview)

Allocations for October 2021 (Final)
1st ETF 2nd ETF 3rd ETF

Calendar Effects

The time of year affects human activities and moods, both through natural variations in the environment and through artificial customs and laws. Do such calendar effects systematically and significantly influence investor/trader attention and mood, and thereby equity prices? These blog entries relate to calendar effects in the stock market.

Monthly Returns During Presidential and Congressional Election Years

Do hopes and fears of U.S. election outcomes, associated political machinations, alter the “normal” seasonal variation in monthly stock market returns? To check, we compare average returns and variabilities (standard deviations of returns) by calendar month for the S&P 500 Index during years with and without quadrennial U.S. presidential elections and biennial congressional elections. Using monthly S&P 500 Index closes over the period December 1927 through September 2021 (nearly 94 years), we find that: Keep Reading

Simple Tests of Sy Harding’s Seasonal Timing Strategy

Does the technically adjusted Seasonal Timing Strategy popularized some years ago in Sy Harding’s Street Smart Report Online (now unavailable due to Mr. Harding’s death) generate attractive performance? This strategy combines “the market’s best average calendar entry [October 16] and exit [April 20] days with a technical indicator, the Moving Average Convergence Divergence (MACD).” According to Street Smart Report Online, applying this strategy to a Dow Jones Industrial Average (DJIA) index fund generated a cumulative return of 213% during 1999 through 2012, compared to 93% for the DJIA itself. To check over a longer sample period with an alternative market proxy, we apply the strategy to SPDR S&P 500 (SPY) since its inception and consider several alternatives, as follows:

  1. SPY – buy and hold SPY.
  2. Seasonal-MACD – seasonal timing per specified dates with MACD refinement, holding cash when not in SPY.
  3. Seasonal Only – seasonal timing per the same dates without MACD refinement, again holding cash when not in SPY.
  4. SMA200 – hold SPY (cash) when the S&P 500 Index is above (below) its 200-day simple moving average at the prior daily close. 

For all strategies, we use the yield on short-term U.S. Treasury bills (T-bills) as the return on cash. Using daily closes for the S&P 500 Index, dividend-adjusted closes for SPY and T-bill yield during 1/29/93 (SPY inception) through 10/1/21, we find that: Keep Reading

SACEMS, SACEVS and Trading Calendar Updates

We have updated monthly allocations and performance data for the Simple Asset Class ETF Momentum Strategy (SACEMS) and the Simple Asset Class ETF Value Strategy (SACEVS). We have also updated performance data for the Combined Value-Momentum Strategy.

We have updated the Trading Calendar to incorporate data for September 2021.

Bitcoin Day-of-the-Week Effects?

Unlike publicly traded assets generally, investors/speculators can buy and sell bitcoin any day of the week. Do bitcoin returns exhibit anomalies by day of the week, perhaps especially because of weekend trading? To investigate, we calculate (1) average returns and return variabilities for each day of the week; and, (2) gross cumulative returns for holding bitcoin only one specific day of the week. Using daily bitcoin prices from Coindesk during 11/3/2014 (the earliest offered) through September 6, 2021, we find that: Keep Reading

Asset Class ETF Seasonalities?

Do exchange-traded funds (ETF) that track asset classes, such as those used in the Simple Asset Class ETF Momentum Strategy (SACEMS) and the Simple Asset Class ETF Value Strategy (SACEVS), exhibit reliable seasonalities? To check, we look at average return by calendar month for the following nine ETFs:

  • SPDR S&P 500 (SPY)
  • iShares Russell 2000 Index (IWM)
  • iShares MSCI EAFE Index (EFA)
  • iShares MSCI Emerging Markets Index (EEM)
  • iShares Barclays 20+ Year Treasury Bond (TLT)
  • iShares iBoxx $ Investment Grade Corporate Bond (LQD)
  • Vanguard REIT (VNQ)
  • SPDR Gold Shares (GLD)
  • PowerShares DB Commodity Index Tracking (DBC)

Using monthly dividend-adjusted returns for these ETFs over a common sample period during March 2006 (limited by DBC) through August 2021, we find that: Keep Reading

Testing a QQQ Swing Trade Strategy

A subscriber requested review of a swing trade strategy that buys and sells Invesco QQQ Trust (QQQ) according to the following rules:

  • Buy at the close when it is either Monday or Tuesday and QQQ (Close-Low)/(High-Low) is 0.15 or less.
  • Subsequently sell at the close when it is higher than the prior-day high.

To investigate, to simplify portfolio cash management, we assume that there are no overlapping trades (if a position opens on Monday, another position does not open on Tuesday). We further assume that cash earns the 3-month U.S. Treasury bills (T-bill) yield when not in QQQ and that frictions for switching between T-bills and QQQ are 0.10% of trade value. Using daily high, low, close and dividend-adjusted close (to calculate returns) for QQQ and daily T-bill close during March 10, 1999 (QQQ inception) through August 5, 2021, we find that:

U.S. Stock Market Returns Around Scheduled FOMC Meetings

A subscriber requested testing of a strategy that buys SPDR S&P 500 (SPY) at the open on the day before each scheduled Federal Open Market Committee (FOMC) meeting and sells at the close. Using daily dividend-adjusted SPY open and close prices and dates of FOMC meetings during January 2016 through June 2021 (43 meetings), we find that: Keep Reading

Stock Market Behavior Around Mid-year and 4th of July

The middle of the year might be a time for funds to dress their windows and investors to review and revise portfolios. The 4th of July celebration might engender optimism among U.S. investors. Are there any reliable patterns in daily U.S. stock market returns around mid-year and the 4th of July? To check, we analyze historical behavior of the S&P 500 Index from five trading days before through trading days after both the end of June and the 4th of July. Using daily closing levels of the index for 1950-2020 (71 years), we find that: Keep Reading

Stock Market and the National Election Cycle

Some stock market experts cite the year (1, 2, 3 or 4) of the U.S. presidential term cycle as a useful indicator of U.S. stock market returns. Game theory suggests that presidents deliver bad news immediately after being elected and do everything in their power to create good news just before ensuing biennial elections. Are some presidential term cycle years reliably good or bad? If so, do abnormal returns concentrate in certain quarters? Finally, what does the stock market do in the period immediately before and after a national election? Using daily and monthly S&P 500 Index levels from January 1928 through May 2021 (about 94 years and 23 presidential terms) and focusing on “political quarters” (Feb-Apr, May-Jul, Aug-Oct and Nov-Jan), we find that: Keep Reading

SACEMS with Overnight Return Capture

In view of research indicating that overnight (close-to-open) returns are on average significantly higher than open-to-close returns, a subscriber proposed an enhancement to the Simple Asset Class ETF Momentum Strategy (SACEMS), as follows:

  • Instead of ranking SACEMS assets at the market close on the last trading day of each month, rank them at the open.
  • Sell any assets leaving SACEMS portfolios at the open.
  • Buy any assets entering SACEMS portfolios at the close.

Due to complexity of precisely programming a backtest of this setup, we instead run the following tests:

  1. Compare average daily open-to-close and close-to-open returns for each SACEMS non-cash asset over available sample periods since July 2002.
  2. Compare SACEMS portfolio performances during July 2006 through May 2021 for: (a) ranking assets at the open on the last trading day of each month and executing all trades at the open; and, (b) ranking assets at the close on the last trading day of each month and executing all trades at the close (baseline SACEMS).
  3. Calculate SACEMS portfolio performances during July 2006 through May 2021 for a variation that ranks assets at the open on the last trading day of each month, liquidates SACEMS portfolios at the open and reforms them at the close. This variation is more aggressive in exploiting an overnight return effect than the proposed approach, but is easier to program.

We consider Top 1, equal-weighted (EW) Top 2 and EW Top 3 SACEMS portfolios. We focus on full-sample gross compound annual growth rate, gross annual Sharpe ratio and maximum drawdown based on monthly data for portfolio comparisons. Using dividend-adjusted opening and closing prices for all SACEMS assets during July 2002 through May 2021, we find that: Keep Reading

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