The recent series analyzed Factor Dual Momentum. US Value and Momentum factor portfolios were tested back to 1950, courtesy of Ken French’s data library. Portfolios are ranked on 12 month return. Using VBR and PDP for value and momentum, the current … Continue reading

In the February 2015 edition of The Journal of Finance, a well known academic paper, “The Pre-FOMC Announcement Drift”, was finally published, almost 4 years after the working paper was released in the public domain in 2011. Authored by researchers, Lucca and Moench, at the US Federal Reserve,

How worried should you be when you hear someone say that the market is overvalued? Wesley Gray at Alpha Architect takes a deep dive into the topic of timing the market using CAPE, Shiller’s Cyclically Adjusted PE ratio in a recent post. His results should give pause to even he most strident market

Ever heard that joke about how if you are young and you aren't a democrat, you have no heart, but if you are old and you aren't a republican, you have no brain? Well, there seems to be something similar happening with the portfolios of young and old investors. Stocks with the youngest

I have shown the study below a several times in the past, but not since January, and the employment night hot streak remains strong. The overnight futures market has been loving the Employment Report since the summer of 2012. The Employment Report is released at 8:30 AM Eastern (normally the 1st

Contrary to basic finance principles, high-beta and high-volatility stocks have long underperformed low-beta and low-volatility stocks. This anomaly may be partly explained by the fact that the typical institutional investor’s mandate to beat a fixed benchmark discourages arbitrage activity in

A kind reader directed me in a comment on Experiments in Time Series Clustering to this paper. Clustering of Time Series Subsequences is Meaningless: Implications for Previous and Future Research Eamonn Keogh and Jessica Lin Computer Science & Engineering Department University of California –

Utilities Divergence Spells Trouble for Stocks $SPY $XLU

SPX rallies 200% in 6 Years $SPY

After a strong string of positive performances, the State of TF index pulled back last month to post a negative return, still leaving 2015 in positive territory. Please check below for more details. Detailed Results The figures for the month are: February return: -2.05% YTD return: 4.24% Below is

MOVING FROM RESEARCH TO TRADING I have written recently about the comparative advantages of different programming languages in the context of research and trading (see here). My sense of it is that there is no single “ideal” programming language – the best strategy is to pick an appropriate

The recent post took a look at the Equity Put/Call Ratio (the ratio of put volume to call volume for all listed options of individual stocks across all exchanges) and what it tells us about the market. Above we see a five-day moving average of the Index Put/Call Ratio (the ratio of put volume to

Last week I announced the Robust Asset Allocation, or RAA, portfolio tracker which is inspired by Alpha Architect, The original article cited by Alpha Architect used 7-10 Treasury Bonds for the bond holding. I chose a broad-based bond bond (BND) in lieu of a 7-10 year treasury ETF like the iShares

Over the last eight posts we reviewed the backtest results for Iron Condors initiated at 38 days to expiration (DTE) on the Russell 2000 index (RUT). To be consistent with all of the earlier bactests posted on this blog, we looked at 38 DTE Iron Condors initiated with short strikes at four different

The market is off to a rough start again today. ES has the potential to leave an unfilled gap down for the 2nd day in a row. This is a fairly rare thing to see happen, but is has often been followed by a gap up the next morning. This can be seen in the study below. 2015-03-04 image2 The stats here

We were recently passed along an article suggesting that valuation spreads, or the spread in a valuation metric across the most expensive and least expensive stocks, matters for timing investments. We take this concept one step further and investigate if valuation spreads can help us time value and

One of the most useful ways to visualize the stock market is with Minimum Spanning Trees (MST). These are network graphs in which each vertex represents a stock symbol and where strongly related stocks are connected by edges. One popular way to do this is by using correlation matrices. In the past,

The market is off to a rough start again today. ES has the potential to leave an unfilled gap down for the 2nd day in a row. This is a fairly rare thing to see happen, but is has often been followed by a gap up the next morning. This can be seen in the study below. 2015-03-04 image2 The stats here

How should one develop a strategy for leveraged ETFs? Do you develop the strategy on the unleveraged ETF and then apply the rules to the leveraged ETF? Or do you develop the strategy on the leveraged ETF directly? Or do you develop the strategy on the unleveraged ETF then use signals on that to

Trend following’s performance accelerated over the last few months, with some markets showing some possible over-extension in their trends. It’s not such a surprise to see some pull-backs finally taking place. This has naturally taken the index down, mostly giving back some of the large open

Tuesday saw the 1st somewhat sizable drop for the market in a while. And the action triggered the study below, which looks at relatively large drops from intermediate-term highs. I have updated all the stats.

A recent paper (“Evaluating Trading Strategies”) on the hazards of backtesting in The Journal of Portfolio Management has been receiving a fair amount of attention lately, inspiring some folks to go off the deep end and argue that econometric analysis of investment strategies is always a bad

I'm currently working on creating better indicators of stock market sentiment. Above is a five-day moving average of the equity put/call ratio: the ratio of put volume traded for all listed individual stocks divided by their call volume (no index volume included; raw data from e-Signal). You

Do you only invest in the in the country where you live? If you do it’s a big mistake as it severely limits your investment opportunities and returns. You are fishing in a pond that is just too small. ​ Don’t take my word for it But don’t take my word for it as I found an interesting

The R Project has once again been selected as a mentoring organization for this year's Google Summer of Code (GSoC). If you're not familiar with GSoC, it's a global program that offers students a stipend to write code for open source projects, under the direction of a mentor. Mentors

This post is a continuation of the prior post. In this post we will look at the backtest results for dynamic exits of 38 days-to-expiration (DTE) Iron Condors (IC), with 20 delta short strikes, with different profit and loss exits as a percentage of the initial credit. Recall that these RUT ICs were

This excerpt is from the book Global Asset Allocation now available on Amazon as an eBook. If you promise to write a review, go here and I’ll send you a free copy. It is also available as a printable PDF on Gumroad. To celebrate the launch of the new book, my last two ebooks (Global Value and

We wanted a quick (and free) way to lookup the SIC code for a stock symbol in python. You can do this manually with the SEC’s EDGAR website, but if your list is 100’s of stock symbols this can get old pretty quickly. The following code makes use of Python’s BeautifulSoup package to extract the

I’ll be in NYC twice in March to speak at QuantCon on March 14th and the MTA Conference on March 27th. If you want to schedule a meeting let me know!

For the second year in a row, the S&P 500 has started the year with a down January followed by an up February. In the following table, the past 13 times appear in chronological order. 2015 is the first pre-election year that opened with this combo. Bold-italic years are years that started with a

Last night I spotted this tweet about the R package TSclust. I should start by saying that I really don’t know what I’m doing, so be warned. I thought it would interesting to apply TSclust to the S&P 500 price time series. I took the 1-day simple rate of change, grouped by year with dplyr,

Following on from my last post, here is an Octave .oct file implementation of the one dimensional Particle swarm optimisation routine, with one slight twist: instead of using a for loop I've implemented it within a while loop with a stopping condition that the algorithm should cease once there

In this post we will look at the backtest results for dynamic exits of 38 days-to-expiration (DTE) Iron Condors (IC), with 20 delta short strikes, with different profit and loss exits. This is a non-directional options trading strategy that seeks to profit from a market that stays within in a range

I tend not to get involved in Q&A with readers of my blog, or with investors. I am at a point in my life where I spend my time mostly doing what I want to do, rather than what other people would like me to do. And since I enjoy doing research and trading, I try to maximize the amount of time I

Scott’s Investments provides a daily Ivy Portfolio spreadsheet to track the 10 month moving average signals for two portfolios listed in Mebane Faber’s book The Ivy Portfolio: How to Invest Like the Top Endowments and Avoid Bear Markets. Faber discusses 5, 10, and 20 security portfolios that

In our drive to extract alphas from a variety of non-price data, we came across this old-fashioned source: Commitments of Traders (COT) on futures. This indicator is well-known to futures traders since 1923 (see www.cmegroup.com/education/files/COT_FBD_Update_2012-4-26.pdf), but there are often

Web Search Queries Can Predict Stock Market Volumes …A recent important discovery is that search engine traffic (i.e., the number of requests submitted by users to search engines on the [Internet]) can be used to track and, in some cases, to anticipate the dynamics of social phenomena. Successful

What is Social Data? (MKTSTK) A Model of Cognitive Dissonance and Information (Matthew Kovach) Insider Trading in Commodities Markets (Andrew Verstein) New Asset Pricing Factors and Expected Bond Returns (Franke, Muller and Muller)

This book is intended for traders and investors that want to gain an edge on the competition by incorporating social media and search analytics into their study of the market. The book assumes you are new to data manipulation in Python, one of the most popular languages for data manipulation. Intro

Investors have been worrying, at least for the last several years, that the market is overvalued. By some measures this is undoubtedly true. Just yesterday we highlighted that the Shiller CAPE is in the 94th percentile as of 1/31/2015. And as valuations have gone higher, the alarm bells in the press

This post will demonstrate a downside to rankings-based strategies, particularly when using data of a questionable quality (which, unless one pays multiple thousands of dollars per month for data, most likely is of questionable quality). Essentially, by making one small change to the way the

When CPI falls below zero $SPY

January Barometer revisited -- down Jans and up Febs

Some people tell me that I have “too much time on my hands” because I spend so much time “crunching numbers.” I tell them “That’s ridiculous, I don’t have any time on my hands because I am so busy crunching numbers” (That usually shuts them up. At least for a little while). In any

This post is a continuation of the prior post. In this post we will look at the backtest results for dynamic exits of 38 days-to-expiration (DTE) Iron Condors (IC), with 16 delta short strikes, with different profit and loss exits as a percentage of the initial credit. Recall that these RUT ICs were

To install Systematic Investor Toolbox (SIT) please visit About page. I previously presented a case study of Excel to SIT mapping in the Thinking in SIT post. I want to continue with another example based on following excellent tutorials: Backtesting A Basic ETF Rotation System in Excel Free

With all of our focus on assets - and how much and when to allocate them - are we missing the bigger picture? Our book begins by reviewing the historical performance record of popular assets like stocks, bonds, and cash. We look at the impact inflation has on our money. We then start to examine how

Suppose we have an unstructured block of text. We want to reduce the information contained within the raw words and phrases into a single score of whether it is positive or negative. For example, suppose we have a tweet and we want to determine whether it is bullish, bearish, or neutral. Semantic

In this article I want to discuss one of the most important and tricky issues in machine learning, that of model selection and the bias-variance tradeoff. The latter is one of the most crucial issues in helping us achieve profitable trading strategies based on machine learning techniques. Model

One of the primary goals of Scott’s Investments is to educate individual investors by creating and tracking relevant investment strategies. Some of the strategies are my own, while others like the Ivy Portfolio are inspired by others. This week I added a new portfolio spreadsheet to my site, the