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J.J. McGrath
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In cyberspace, I am best known as MackTheKnife, the winner of the Zacks $100,000 Challenge 2007. In meatspace, I am best known as J.J. McGrath, an editor and writer based in New York. You can follow me @JJMcGrath3000 on Twitter, as JJMcGrath on StockTwits and as J.J. McGrath on Google+.
My blog:
J.J.'s Risky Business
  • ABC Indicator Of Movements In The S&P 500: A Test 0 comments
    Jan 3, 2014 5:40 AM | about stocks: SDS, SPY, SSO

    In attempting to cut my risk in the financial markets during the past decade or so, I have built and maintained dozens of indicators, focused on comparatively broad equity-market indexes in some cases and on comparatively narrow stock-market sectors in other cases. The ABC Indicator of movements in the S&P 500 (INDEXSP:.INX) has been the most successful of these indicators, and I recently began the first public test of it at my J.J.'s Risky Business blog.

    In forecasting the short-term direction of the U.S. large-capitalization index on a closing basis since July 6, 2009, the ABC Indicator's signals have been correct on 92 occasions, or 69.17 percent of the time, and incorrect on 41 occasions, or 30.83 percent of the time (as indicated by Figure 1). As mentioned in a J.J.'s Risky Business blog post today, it is flashing a Sell signal this Friday morning.

    Figure 1: Percentages of Successful and Unsuccessful ABC Indicator Signals Before Jan. 3, 2014

    (click to enlarge)

    Source: This chart is based on J.J.'s Risky Business data.

    There have been important differences between the behaviors of the ABC Indicator's Buy and Sell signals during the above-referenced period, when the S&P 500 more than doubled on a closing basis to 1,848.36 on Dec. 31, 2013, from 896.42 on July 2, 2009, the last trading day before the inception of this incarnation of the indicator. Taking these differences into account has helped in my trading of derivatives of the index, including options on the SPDR S&P 500 ETF Trust (SPY), ProShares Ultra S&P500 ETF (SSO), and ProShares UltraShort S&P500 ETF (SDS).

    Most significant, the ABC Indicator's Buy signals have been right on 53 occasions, or 79.10 percent of the time, and wrong on 14 occasions, or 20.90 percent of the time (as indicated by Figure 2), while its Sell signals have been right on 39 occasions, or 59.09 percent of the time, and wrong on 27 occasions, or 40.91 percent of the time (as indicated by Figure 3).

    Figure 2: Percentages of Successful and Unsuccessful ABC Indicator 'Buy' Signals Before Jan. 3, 2014

    (click to enlarge)

    Source: This chart is based on J.J.'s Risky Business data.

    Figure 3: Percentages of Successful and Unsuccessful ABC Indicator 'Sell' Signals Before Jan. 3, 2014

    (click to enlarge)r=

    Source: This chart is based on J.J.'s Risky Business data.

    Meanwhile, I am happy to note the first public test of the ABC Indicator has had a nice beginning at J.J.'s Risky Business: The Buy signal flashing the morning of Dec. 20 was successful as the S&P 500 on a closing basis rose to as high as 1,848.36 on Dec. 31 from 1,809.60 on Dec. 19. The test will encompass 10 signals, and history suggests the indicator will be right between six and eight times and wrong between two and four times.

    Correction Notice

    Both the graphics and the text in the above piece have been changed to reflect the corrections made in the ABC Indicator's data series as described in "ABC Indicator Flashes S&P 500 'Buy' Signal: Feb. 11" at J.J.'s Risky Business.

    Disclaimer: The opinions expressed herein by the author do not constitute an investment recommendation, and they are unsuitable for employment in the making of investment decisions. The opinions expressed herein address only certain aspects of potential investment in any securities and cannot substitute for comprehensive investment analysis. The opinions expressed herein are based on an incomplete set of information, illustrative in nature, and limited in scope. In addition, the opinions expressed herein reflect the author's best judgment as of the date of publication, and they are subject to change without notice.

    Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in SPY over the next 72 hours.

    Themes: Market Outlook Stocks: SDS, SPY, SSO
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