Uptrending Ratio Indicates Relative Strength ETF Backtests QUANTIFY It

Apr 23, 2019 in Backtest | Ratio

 

An uptrend is a series of higher highs and higher lows.   Using a ratio between 2 securities shows which is relatively stronger.   A Relative Strength analysis can quantify which security within a list of MORE THAN 2 securities is strongest.  

So let's look at one current situation.    Emerging markets have shown good relative strength on shorter-term basis.  If this continues then a higher low and higher highs situation could develop (vs SP 500).   That said, SPY has continued to be strong -- both Emerging markets AND US Stocks have been strong this year.   It actually hasn't mattered which you've owned --- so even if you were wrong on thinking a ratio would go up/down, you still made good money either way.    This won't always be the case though.   

 

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Jan 31, 2019 ETFreplay Market-Generated Information (MGI) Report ETF Backtest

Jan 31, 2019 in Ratio | Regime Change

 Jan 31, 2019  ETFreplay Market-Generated Information (MGI) Report

Focus on using TIPS index as a backtest parameter for Energy Stocks (XLE)

(Click on Image For Link to PDF)

 

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Jan 23, 2019 ETFreplay Market-Generated Information (MGI) Report

Jan 23, 2019 in Ratio | Stocks

 Jan 23, 2019  ETFreplay Market-Generated Information (MGI) Report

Focus on FedEX (FDX) as a backtest parameter.

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Jan 17, 2019 ETFreplay Market-Generated Information (MGI) Report

Jan 17, 2019 in Stocks | Ratio

Jan 17, 2019  ETFreplay Market-Generated Information Report:  A look at where we stand with some key Financials including a backtest: 

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Internet ETF. Now vs 10 Years Ago

Aug 23, 2017 in Ratio

 Dow Jones Internet Index ETF relative to S&P 500 for past 10 years.

 

  Look at the holdings of the DJ Internet Index.  Now vs 10 Years Ago:

 

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Classic Example of ETF Market Generated Information - Junk Bond Investors

Oct 17, 2016 in Bonds | Ratio

Every recession has something in common:  investors flee junk bonds.   You do NOT have to predict this, you only need to monitor it.

Junk bond investors got worried in late 2014 and much of 2015 -- and the stock market went effectively nowhere during that time (while High-Quality and Low Volatility segments outperformed strongly).

Most of 2016 has seen a decent bull market in junk bonds.   Since fixed-income investors are very sensitive to their income actually being fixed --- and not variable,  this group of investors is a very useful group to track.

 

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Ratio Moving Average Backtest Example

Sep 02, 2016 in Backtest | Ratio

There are lots of ways to skin a cat of course.   Here is a look at results of using a simple total return ratio between Emerging Markets (VWO) and an iShares Treasury ETF (IEF):

 

 

 

 

 

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Allocation ETF Overweight Example

Dec 01, 2012 in Ratio | Strategy

Quick mini-analysis of an ETF we are long in our Allocations Board models (EPP).

 

 

Here is a summary of the rationale:

We went long EPP on an Allocations Board portfolio during a small pullback in late August.  (members can see allocation board for details).  Why EPP and why then?

First, EPP is a regional ETF covering developed markets in the Pacific ex-Japan region.   This means companies based in Australia, Hong Kong & to a lesser extent Singapore and New Zealand.   Note that none of these are considered emerging markets --- though all are clearly closely tied to the growth of Eastern Asia, which in turn are all emerging Markets  (ex-Japan).

EPP began by performing well on a relative strength basis during the summer of 2012 vs various lists we keep on constant monitor.

EPP is very volatile -- so we wanted to expose the model to strong relative strength -- but also be sure to plan ahead in case things went adversely against us.    This can be a tricky situation because you absolutely must give yourself a chance to participate in the uptrend by giving it some room in the short-run ---- but we wanted also to have a plan in place to avoid large portfolio drawdowns.    Below is a snapshot using the Ratio MA module to manage the individual position.   Also included are some pullbacks which are normal for a volatile security like this.    These would be buying opportunities within a perceived uptrend.   This is not meant to be how anyone else should choose to manage a position.   This is just a snapshot of how we were thinking about it.    

 

 

 

The exact parameter settings should not be the focus here.  Investing is not a pure science, in our view.   It is much more like a game of poker,  partly mathematical and partly behavioral/psychological.   Good poker players don't take wild risks with no plan in place if things go adversely.   They start out with a plan for each part of the hand and then make adjustments and often have to make some tough decisions as more information is revealed that is adverse to their position.   Sometimes they make a mistake and fold the best hand (like a trading whipsaw) --- but over time, good long-term decision-making is what makes a good investor (and a good poker player).  PLAN YOUR HAND.

Note that the ETF in discussion here (EPP) was not chosen in the first place because of this ratio MA analysis -- that is just a second more detailed view of how we planned to manage the position.   EPP was instead originally chosen because we like what the ETF represents on a fundamental basis (companies based in Australia, Hong Kong & Singapore) AND it also was showing strong signs of a new uptrend beginning (this is what good relative strength analysis does -- it locates particular strength in the market that over time suggests continuation rather than reversal).
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Junk Bonds vs Treasury Bonds Backtest

Aug 31, 2012 in Bonds | Ratio

Credit markets don't appear to be too concerned about recession in United States.   Junk Bonds have been outperforming Treasury Bonds lately.

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