Complex Intraday Time Series Momentum Strategy Applied to SPY

Is intraday time series momentum of a very liquid exchange-traded fund (ETF) such as SPDR S&P 500 ETF Trust (SPY) exploitable? In their May 2024 paper entitled "Beat the Market: An Effective Intraday Momentum Strategy for S&P500 ETF (SPY)", Carlo Zarattini, Andrew Aziz and Andrea Barbon iteratively construct and test a SPY intraday time series momentum strategy, with alternatives specified as follows:

• Each minute of each day, compute noise boundaries as daily opening SPY price times one plus and one minus the average daily return up to that minute over the last 14 trading days, adjusting the upper bound up by any gap-down the prior overnight and the lower bound down by any gap-up the prior overnight. When SPY price is between these boundaries, demand and supply are in balance (no trend).
• If at any clock hour or half-hour (HH:00 or HH:30), SPY price has moved above (below) the upper (lower) boundary, open a long (short) position in SPY. Consider either:
  1. 100% allocation of funds to each trade; or.
  2. An allocation to each trade sized to a volatility target of 2% daily volatility based on actual SPY volatility over the past 14 trading days (allowing up to 4X leverage when actual SPY volatility is below 2%).
• Consider as dynamic trailing stop-losses, executed at the next clock hour or half-hour, either:
  1. The lower boundary for long positions and the upper boundary for short positions, opening the opposite trade upon triggering a stop-loss; or,
  2. The higher of the upper boundary or the intraday SPY Volume-Weighted Average Price (VWAP) for long positions and the lower of the lower boundary or the intraday VWAP for short positions.
• Terminate any open positions at each market close to avoid exposure to overnight moves.

They assume trading frictions of $0.0035 per share in commissions plus $0.001 per share in slippage. They explore sensitivity of strategy performance to market volatility (VIX), day of the week, level of trading frictions and recent market direction. They further compare strategy returns to those of well-known technical patterns. Using 1-minute open, high, low and close data for SPY and VIX and 1-minute volume data for SPY during May 2007 through April 2024, they find that: