ShamWow ?

What to do about about long term investment? The first plot above marks 10% percent moves up or down in SPY since the prior marked point. Have all of the dire economic problems disappeared in the last few months or are we merely in a lull before the next round of panic? The second plot above marks 20% moves up or down in VIX since the prior marked point. The volatility and level of the VIX have continued to drop since the crash last fall. Can the market continue to hold 20 times its own weight in uncertainty and bad debt?

Update: Market Neutral

QQQQ continues to outperform SPY. Market neutral positions can have advantages during volatile uncertain market periods. The QQQQ/SPY spread has improved since the last update.


SLV has pulled back to the -2 standard deviations point. Can it recover and again outperform GLD?

Update: 3x2 System and Crash System

The '3x2 System' has been making a nice recovery in the last two months. The equity curve is within striking distance of the mid-2008 highs.


The 'Crash System' moved down a bit in the last two months after a spectacular recovery since late 2008.

The two systems have complemented each other relatively well over the past few months. A diversified portfolio of active trading methods may be the best approach for the uncertain future.

SPY/VIX Correlation

The rolling correlation of SPY and the VIX has been become much less negative over the past two months. The plots above show the 15 day rolling correlation of SPY and the VIX index. The spikes to less negative levels tend to occur prior to the market going sideways to down. The longer term average rolling correlation is -80%. The present correlation of -70% is at an extreme considering the last two years, but is less so when looking at the last eight years.

Update: Shannon Method / Rebalancing

The Shannon Method of rapid rebalancing has some potential to capture some of the random fluctuations in stock prices. I have pursued combining a small number of relatively uncorrelated stocks in a portfolio and rebalancing them as they move 3% from the prior rebalance point. See my August 2008 post for a more detailed explanation of the Shannon method.

The plots above show the results for a portfolio starting with four stocks (GG, MSFT, O, VLO) weighted 20% each and a 20% cash position. (See prior post.) The rebalancing has outperformed since December 2008. The rebalancing also exhibited some advantage during the 2008 crash.

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T2108 Over 80%

The plot above shows when the TeleChart T2108 indicator has been above 80% (red line). Such high levels have tended to mark times when the market was going to move sideways to down. There have been exceptions, such as 2006 where the market was in a runaway move up. During the last couple of years, very high values of the indicator have marked the beginning of a down moves.

Poisson d'Avril